As filed with the Securities and Exchange Commission on July 31, 201728, 2023
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Washington, D.C. 20549
FORM 20-F
(Mark One)
☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended March 31, 2023.
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto.
OR
☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
For the transition period from ___________________________ to ___________________________
Commission file number: 001-15002
ICICI BANK LIMITED
(Exact name of Registrant as specified in its charter)
Vadodara, Gujarat, India
(Jurisdiction of incorporation or organization)
ICICI Bank Towers
Bandra-Kurla Complex
Mumbai 400051, India
(Address of principal executive offices)
Name: Anindya Banerjee / Abhinek Bhargava
Telephone: +91 22 2653 6173
Email: anindya.banerjee@icicibank.com / abhinek.bhargava@icicibank.com
Office address: ICICI Bank Towers, Bandra-Kurla Complex, Mumbai – 400051, India
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Equity Shares of ICICI Bank | IBN | The New York Stock Exchange |
American Depositary Shares, each representing two Equity Shares of | ||
ICICI Bank Limited, par value | ||
Rs. 2 per share |
1Not for trading, but only in connection with the registration of American Depositary Shares representing such Equity Shares pursuant to the requirements of the Securities and Exchange Commission.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
[None] None.
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None.
[None]
TheIndicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report : the number of outstanding Equity Shares of ICICI Bank Limited as of March 31, 20172023 was 5,824,476,135.6,982,815,731.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes☒ No☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes☐ No☒
Note– Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes☒ No☐
Indicate by check mark whether the registrant has submitted electronically, and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes☐ �� No☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.filer, or an emerging growth company See definition of “accelerated filer and large“large accelerated filer”, “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer ☒ Accelerated Filer ☐ Non-accelerated Filer ☐ Emerging Growth Company ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on the attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
☐ U.S. GAAP
☐ | U.S. GAAP |
☐ International Financial Reporting Standards as issued by the International Accounting Standards Board
☐ | International Financial Reporting Standards as issued by the International Accounting Standards Board |
☒ Other
☒ | Other |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
☐ Item 17 ☒ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes☐ No☒
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
tableIndicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of contentsthe Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes ☐ No ☐
Page
Form 20-F | Item Number and Caption | Location | |
Part – I | |||
1 | Identity of Directors, Senior Management and Advisers | Not applicable | |
2 | Offer Statistics and Expected Timetable | Not applicable | |
3 | Key Information | Selected Consolidated Financial and Operating Data | 117 |
Exchange Rates | 3 | ||
Risk Factors | 7 | ||
4 | Information on the Company | Business | 40 |
Operating and Financial Review and Prospects | 122 | ||
Overview of the Indian Financial Sector | 226 | ||
Supervision and Regulation | 238 | ||
Business—Subsidiaries, Associates and Joint Ventures | 103 | ||
Business—Properties | 111 | ||
Schedule 18B Note 5 in Notes to Consolidated Financial Statements | F-63 | ||
4A | Unresolved Staff Comments | None | |
5 | Operating and Financial Review and Prospects | Operating and Financial Review and Prospects | 122 |
Business—Risk Management | 61 | ||
Business—Funding | 58 | ||
6 | Directors, Senior Management and Employees | Management | 211 |
Business—Employees | 110 | ||
7 | Major Shareholders and Related Party Transactions | Business—Shareholding Structure and Relationship with the Government of India | 41 |
Operating and Financial Review and Prospects—Related Party Transactions | 196 | ||
Management—Compensation and Benefits to Directors and Officers—Loans | 224 | ||
Schedule 18. Note 3 in Notes to Consolidated Financial Statements | F-42 | ||
8 | Financial Information | Report of Independent Registered Public Accounting Firm | F-2 |
Form 20-F | Item Caption | Location | Page No. |
Part – I | |||
Item 1 | Identity of Directors, Senior Management and Advisers | Not Applicable | |
Item 2 | Offer Statistics and Expected Timetable | Not Applicable | |
Item 3 | Key Information | Risk Factors | 6 |
Item 4 | Information on the Company | Business | 65 |
Selected Statistical Information | 122 | ||
Operating and Financial Review and Prospects | 146 | ||
Supervision and Regulation | 231 | ||
Additional Information—Documents on Display | 293 | ||
Item 4A | Unresolved Staff Comments | Not Applicable | |
Item 5 | Operating and Financial Review and Prospects | Operating and Financial Review and Prospects | 146 |
Business—Risk Management | 81 | ||
Selected Statistical Information—Funding | 132 | ||
Item 6 | Directors, Senior Management and Employees | Management | 209 |
Business—Employees | 115 | ||
Item 7 | Major Shareholders and Related Party Transactions | Major Shareholders | 58 |
Related Party Transactions | 60 | ||
Management—Compensation and Benefits to Directors and Officers—Loans | 229 | ||
Schedule 18 Note 2 in Notes to Consolidated Financial Statements | F-44 | ||
Item 8 | Financial Information | Report of Independent Registered Public Accounting Firm | F-2 |
Consolidated Financial Statements and the Notes thereto | F-10 | ||
Operating and Financial Review and Prospects | 146 | ||
Business—Legal and Regulatory Proceedings | 116 | ||
Dividends | 280 | ||
Item 9 | The Offer and Listing | Market Price Information | 5 |
Item 10 | Additional Information | Additional Information | 291 |
Exchange Controls | 273 | ||
Taxation | 281 | ||
Restriction on Foreign Ownership of Indian Securities | 275 | ||
Dividends | 280 | ||
Business—Subsidiaries, Associates and Joint Ventures | 105 | ||
Item 11 | Quantitative and Qualitative Disclosures About Market Risk | Business—Risk Management—Market Risk | 88 |
Selected Statistical Information–Risk Management | 134 | ||
Item 12 | Description of Securities Other than Equity Securities | Business—American Depository Receipt Fees and Payments | 120 |
Part – II | |||
Item 13 | Defaults, Dividend Arrearages and Delinquencies | Not Applicable | |
Item 14 | Material Modifications to the Rights of Security Holders and Use of Proceeds | Not Applicable | |
Item 15 | Controls and Procedures | Management—Summary Comparison of Corporate Governance Practices—Controls and Procedures | 223 |
Item 16A | Audit Committee Financial Expert | Management—Corporate Governance—Audit Committee | 218 |
Item 16B | Code of Ethics | Management—Corporate Governance—Code of Ethics | 222 |
Item 16C | Principal Accountant Fees and Services | Management—Corporate Governance—Principal Accountant Fees and Services | 222 |
Item 16D | Exemptions from the Listing Standards for Audit Committees | Not Applicable | |
Item 16E | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | Not Applicable | |
Item 16F | Change in Registrant’s Certifying Accountant | Not Applicable | |
Item 16G | Corporate Governance | Management—Summary Comparison of Corporate Governance Practices | 222 |
Item 16H | Mine Safety Disclosure | Not Applicable | |
Item 16I | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | Not Applicable | |
Item 16J | Insider Trading Policies | Not Applicable | |
Part – III | |||
Item 17 | Financial Statements | See Item 18 | |
Item 18 | Financial Statements | Report of Independent Registered Public Accounting Firm | F-2 |
Consolidated Financial Statements and Notes thereto | F-10 | ||
Item 19 | Exhibits | Exhibit Index and Attached Exhibits | 294 |
i2
Form 20-F | Item Number and Caption | Location | |
Consolidated Financial Statements and the Notes thereto | F-5 | ||
Operating and Financial Review and Prospects—Executive Summary | 122 | ||
Business—Legal and Regulatory Proceedings | 111 | ||
Dividends | 284 | ||
9 | The Offer and Listing | Market Price Information | 5 |
10 | Additional Information | Additional Information | 292 |
Exchange Controls | 279 | ||
Taxation | 285 | ||
Restriction on Foreign Ownership of Indian Securities | 281 | ||
Dividends | 284 | ||
Business—Subsidiaries, Associates and Joint Ventures | 103 | ||
11 | Quantitative and Qualitative Disclosures About Market Risk | Business—Risk Management—Quantitative and Qualitative Disclosures About Market Risk | 68 |
12 | Description of Securities Other than Equity Securities | Business—American Depository Receipt Fees and Payments | 116 |
Part – II | |||
13 | Defaults, Dividend Arrearages and Delinquencies | Not applicable | |
14 | Material Modifications to the Rights of Security Holders and Use of Proceeds | Not applicable | |
15 | Controls and Procedures | Business—Risk Management—Controls and Procedures | 83 |
16 | [Reserved] | Not applicable | |
16A | Audit Committee Financial Expert | Management—Corporate Governance—Audit Committee | 217 |
16B | Code of Ethics | Management—Corporate Governance—Code of Ethics | 220 |
16C | Principal Accountant Fees and Services | Management—Corporate Governance—Principal Accountant Fees and Services | 220 |
Form 20-F | Item Number and Caption | Location | |
16D | Exemptions from the Listing Standards for Audit Committees | Not applicable | |
16E | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | Business—Shareholding Structure and Relationship with the Government of India | 41 |
16F | Change in Registrant’s Certifying Accountant | Not applicable | |
16G | Corporate Governance | Management—Summary Comparison of Corporate Governance Practices | 220 |
Part – III | |||
17 | Financial Statements | See Item 18 | |
18 | Financial Statements | Report of Independent Registered Public Accounting Firm | F-2 |
Consolidated Financial Statements and the Notes Thereto | F-5 | ||
19 | Exhibits | Exhibit Index and Attached Exhibits | 294 |
iii
In this annual report, all references to “we”, “our”, and “us” are to ICICI Bank Limited and its consolidated subsidiaries and other consolidated entities under generally accepted accounting principles in India (“Indian GAAP”). In the financial statements contained in this annual report and the notes thereto, all references to “the Company” are to ICICI Bank Limited and its consolidated subsidiaries and other consolidated entities under Indian GAAP.
References to specific data applicable to particular subsidiaries or other consolidated entities are made by reference to the name of that particular entity. References to the “amalgamation” are to the amalgamation of ICICI, ICICI Personal Financial Services and ICICI Capital Services with ICICI Bank. References to “Sangli Bank” are to The Sangli Bank Limited prior to its amalgamation with ICICI Bank, effective April 19, 2007. References to “Bank of Rajasthan” are to the Bank of Rajasthan Limited prior to its amalgamation with ICICI Bank, effective from the close of business at August 12, 2010.
References to “ICICI Bank” and “the Bank” are to ICICI Bank Limited on an unconsolidated basis. References to “ICICI” are to ICICI Limited and its consolidated subsidiaries and other consolidated entities under Indian GAAP prior to the amalgamation of ICICI Limited, ICICI Personal Financial Services Limited and ICICI Capital Services Limited with ICICI Bank Limited, which was effective March 30, 2002 under Indian GAAP. References to a particular “fiscal” year are to the year ended on March 31 of such a year. Unless otherwise indicated, all references to the “Board of Directors” and the “Board” are to the board of directors of ICICI Bank.
All references to the “Companies Act”, the “Banking Regulation Act” and the “Reserve Bank of India Act” are to the Companies Act, 2013, the Banking Regulation Act, 1949 and the Reserve Bank of India Act, 1934 as passed by the Indian Parliament and as amended from time to time. All references to “RBI” and the “Reserve Bank of India” are to the central banking and monetary authority of India.
Pursuant to the issuance and listing of our securities in the United States under registration statements filed with the United States Securities and Exchange Commission, we file annual reports on Form 20-F which must include financial statements prepared under generally accepted accounting principles in the United States (U.S. GAAP), or financial statements prepared according to a comprehensive body of accounting principles with a reconciliation of net income and stockholders’ equity to U.S. GAAP. When we first listed our securities in the United States, Indian GAAP was not considered a comprehensive body of accounting principles under the United States securities laws and regulations. Accordingly, our annual reports on Form 20-F for fiscal years 2000 through 2005 included U.S. GAAP financial statements. However, pursuant to a significant expansion of Indian accounting standards, Indian GAAP constitutes a comprehensive body of accounting principles. Accordingly, we have included in this annual report, as in the annual reports for fiscal years 20132021 through 2017,2023, consolidated financial statements prepared according to Indian GAAP, with a reconciliation of net income and stockholders’ equity to U.S. GAAP and a description of significant differences between Indian GAAP and U.S. GAAP.
Our annual report prepared and distributed to our shareholders under Indian law and regulations include unconsolidated Indian GAAP financial statements, management’s discussion and analysis of the Bank’s results of operations and financial condition based on the Bank’s unconsolidated Indian GAAP financial statements and our consolidated Indian GAAP financial statements.
The economic and industry data and information presented in this document are sourced from government statistical releases, press releases and notifications by the Government of India, the Reserve Bank of India and other regulators, data available on the websites of the Government of India, Reserve Bank of India, other regulators and industry bodies.
3
We have included statements in this annual report 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” and similar expressions or variations of such expressions that may constitute “forward-looking statements”. These forward-looking statements involve a number of risks, uncertainties and other factors that could cause actual results, opportunities and growth potential to differ materially from those suggested by the forward-looking statements. These risks and uncertainties include, but are not limited to, the actual growth in demand for banking and other financial products and services in the countries in which we operate or where a material number of our customers reside,reside; the level and direction of interest rates, the yield on our loans and investments and the cost of our funding; future levels of non-performing and restructured loans and any increased provisions and regulatory and legal changes relating to those loans; our ability to successfully implement our strategy,strategies, including our retail deposit growth strategy, our strategic use of technology and the internet and our strategy for resolution of non-performing assets; the continued service of our senior management; the outcome of any legal, tax or regulatory proceedings in India and in other technology,jurisdictions in which we are or become a party to; the outcome of any internal or independent enquiries or regulatory or governmental investigations; our rural expansion or increased presence in areas such as small business and unsecured retail lending; our exploration of merger and acquisition opportunities,opportunities; our ability to integrate recent or future mergers or acquisitions into our operations and manage the risks associated with such acquisitions to achieve our strategic and financial objectives,objectives; our ability to manage the increased complexity of the risks that we face followingin our international growth, future levels of non-performing, restructured loans and any increased provisions,operations; our growth and expansion in domestic and overseas markets,markets; our status as a systemically important bank in India,India; our ability to maintain enhanced capital and liquidity requirements,requirements; the adequacy of our allowance for credit and investment losses, technological changes, investment income,losses; our ability to market new products,products; investment income; cash flow projections, the outcome of any legal, tax or regulatory proceedings in India and in other jurisdictions in which we are or become a party to,projections; the impact of any changes in India’s credit rating,rating; the impact of any new accounting standards or new accounting framework,framework; our ability to implement our dividend payment practice,practice; the impact of changes in banking and insurance regulations and other regulatory changes in India and other jurisdictions on us, including changes in regulatory intensity, supervision and interpretations,interpretations; the state of the global financial system and systemic risks,risks; the bond and loan market conditions and availability of liquidity amongst the investor community in these markets,markets; the nature of credit spreads and interest spreads from time to time, including the possibility of increasing credit spreads or interest rates,rates; our ability to roll over our short-term funding sources and our exposure to credit, market, liquidity and liquidityreputational risks. We undertake no obligation to update forward-looking statements to reflect events or circumstances after the date thereof.
In addition, other factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this annual report include, but are not limited to, the monetary and interest rate policies of India and the other markets in which we operate, natural calamities and environmental issues, general economic and political conditions in India, southeast Asia, and the other countries which have an impact on our business activities or investments, political or financial instability in India or any other country caused by any factor including anyregional hostilities, terrorist attacks in India, the United States or elsewhere or any other acts of terrorism worldwide, any anti-terrorist or other attacks by the United States, a United States-led coalition or any other country, the monetary and interest rate policies of India, tensions between India and Pakistan related to the Kashmir region or military armament or social unrest, in any part of India,man-made or natural disasters and catastrophes, climate change events, inflation, deflation, unanticipated turbulence in interest rates, changes or volatility in the value of the rupee, foreign exchange rates, equity prices or other rates or prices, the performance of the financial markets in general, changes in domestic and foreign laws, regulations and taxes, changes in competition and the pricing environment in India and regional or general changes in asset valuations. For a further discussion of the factors that could cause actual results to differ, see the discussion under “Risk Factors” contained in this annual report.
Fluctuations in the exchange rate between the Indian rupee and the U.S. dollar will affect the U.S. dollar equivalent4
During fiscal 2013, the rupee depreciated against the U.S. dollar by 7.1%, moving from Rs. 50.89 at March 31, 2012 to Rs. 54.52 at March 31, 2013. During fiscal 2014, the rupee depreciated against the U.S. dollar by 10.1%, moving from Rs. 54.52 per US$1.00 at March 31, 2013 to Rs. 60.00 per US$1.00 at March 31, 2014 due to concern about India’s current account deficit and possible implications of the anticipated withdrawal of quantitative easing by the U.S. Federal Reserve. During fiscal 2015, the rupee depreciated against the U.S. dollar by 3.9%, moving from Rs. 60.00 per US$1.00 at March 31, 2014 to Rs. 62.31 per US$1.00 at March 31, 2015. During fiscal 2016, the rupee depreciated against the U.S. dollar by 6.3%, moving from Rs. 62.31 per US$1.00 at March 31, 2015 to Rs. 66.25 per US$1.00 at March 31, 2016. During fiscal 2017, the rupee appreciated against the U.S. dollar by 2.1% to Rs. 64.85 per US$1.00 at March 31, 2017 from Rs. 66.25 per US$ 1.00 at March 31, 2016. The rupee depreciated during the first nine months of fiscal 2017, but appreciated sharply during the three months ended March 31, 2017 supported by strong equity inflows from foreign portfolio investors. During fiscal 2018, through June 30, 2017, the rupee appreciated by 0.3% against the U.S. dollar to Rs. 64.62 per US$1.00. See also “Risk Factors—Risks Relating to India and Other Economic and Market Risks— Current account deficits, including trade deficits, and capital flow and exchange rate volatility could adversely affect our business and the price of our equity shares and ADSs”.
The following table sets forth, for the periods indicated, certain information concerning the exchange rates between Indian rupees and U.S. dollars. The exchange rates reflect the exchange rates as set forth in the H.10 statistical release of the Federal Reserve Board.
Fiscal Year | Period End(1) | Average(1),(2) |
2013 | 54.52 | 54.48 |
2014 | 60.00 | 60.76 |
2015 | 62.31 | 61.34 |
2016 | 66.25 | 65.58 |
2017 | 64.85 | 66.96 |
2018 (through June 30, 2017) | 64.62 | 64.46 |
Month | High | Low |
March 2016 | 67.75 | 66.25 |
April 2016 | 66.70 | 66.05 |
May 2016 | 67.59 | 66.36 |
June 2016 | 67.92 | 66.51 |
July 2016 | 67.49 | 66.77 |
August 2016 | 67.18 | 66.63 |
September 2016 | 67.10 | 66.28 |
October 2016 | 66.94 | 66.49 |
November 2016 | 68.86 | 66.39 |
December 2016 | 68.29 | 67.38 |
January 2017 | 68.39 | 67.48 |
February 2017 | 67.40 | 66.67 |
March 2017 | 66.83 | 64.85 |
April 2017 | 65.10 | 64.08 |
May 2017 | 64.87 | 64.03 |
June 2017 | 64.66 | 64.23 |
Although certain rupee amounts in this annual report have been translated into U.S. dollars for convenience, this does not mean that the rupee amounts referred to could have been, or could be, converted into U.S. dollars at any particular rate, the rates stated below, or at all. Except as otherwise stated in this annual report, all translations from rupees to U.S. dollars are based on the exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board at March 31, 2017. The Federal Reserve Bank of New York certifies this rate for customs purposes in a weekly version of the H.10 release. The exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board at March 31, 2017 was Rs. 64.85 per US$1.00 and at June 30, 2017 was Rs. 64.62 per US$1.00.
Equity Shares
Our outstanding equity shares are currently listed and traded on the BSE Limited, and the National Stock Exchange of India Limited.
At June 30, 2017,July 7, 2023, total 6,412,829,9846,997,009,030 equity shares were outstanding. The prices for equity shares as quoted in the official list of each of the Indian stock exchanges are in Indian rupees.
The following table shows:
Price per equity share(1),(2),(3) | ||||||||||||||||
High | Low | High | Low | |||||||||||||
Annual prices: | ||||||||||||||||
Fiscal 2013 | Rs. | 220.49 | Rs. | 142.13 | US$ | 4.04 | US$ | 2.61 | ||||||||
Fiscal 2014 | 228.95 | 142.46 | 3.82 | 2.37 | ||||||||||||
Fiscal 2015 | 349.14 | 219.85 | 5.60 | 3.53 | ||||||||||||
Fiscal 2016 | 301.05 | 166.36 | 4.55 | 2.51 | ||||||||||||
Fiscal 2017 | 266.00 | 194.95 | 4.10 | 3.01 | ||||||||||||
Quarterly prices: | ||||||||||||||||
Fiscal 2016: | ||||||||||||||||
First Quarter | Rs. | 301.05 | Rs. | 257.41 | US$ | 4.73 | US$ | 4.05 | ||||||||
Second Quarter | 288.59 | 226.45 | 4.41 | 3.46 | ||||||||||||
Third Quarter | 263.68 | 224.00 | 3.98 | 3.38 | ||||||||||||
Fourth Quarter | 239.09 | 166.36 | 3.61 | 2.51 | ||||||||||||
Fiscal 2017: | ||||||||||||||||
First Quarter | Rs. | 234.23 | Rs. | 194.95 | US$ | 3.47 | US$ | 2.89 | ||||||||
Second Quarter | 252.86 | 217.59 | 3.80 | 3.27 | ||||||||||||
Third Quarter | 266.00 | 219.23 | 3.92 | 3.23 | ||||||||||||
Fourth Quarter | 263.91 | 228.27 | 4.07 | 3.52 | ||||||||||||
Fiscal 2018: | ||||||||||||||||
First Quarter | Rs. | 296.77 | Rs. | 244.23 | US$ | 4.59 | US$ | 3.78 | ||||||||
Monthly prices: | ||||||||||||||||
March 2016 | Rs. | 215.91 | Rs. | 186.32 | US$ | 3.26 | US$ | 2.81 | ||||||||
April 2016 | 230.95 | 200.27 | 3.48 | 3.02 | ||||||||||||
May 2016 | 222.41 | 194.95 | 3.31 | 2.90 | ||||||||||||
June 2016 | 234.23 | 209.95 | 3.47 | 3.11 | ||||||||||||
July 2016 | 247.27 | 218.50 | 3.70 | 3.27 | ||||||||||||
August 2016 | 234.55 | 217.59 | 3.50 | 3.25 | ||||||||||||
September 2016 | 252.86 | 227.59 | 3.80 | 3.42 | ||||||||||||
October 2016 | 262.95 | 219.23 | 3.94 | 3.29 | ||||||||||||
November 2016 | 266.00 | 232.09 | 3.88 | 3.39 | ||||||||||||
December 2016 | 244.05 | 225.59 | 3.59 | 3.32 | ||||||||||||
January 2017 | 247.27 | 228.27 | 3.66 | 3.38 | ||||||||||||
February 2017 | 263.91 | 251.23 | 3.96 | 3.77 | ||||||||||||
March 2017 | 261.14 | 240.91 | 4.03 | 3.71 | ||||||||||||
April 2017 | 260.64 | 244.23 | 4.06 | 3.80 | ||||||||||||
May 2017 | 296.77 | 247.95 | 4.60 | 3.84 | ||||||||||||
June 2017 | 295.18 | 286.23 | 4.57 | 4.43 | ||||||||||||
At June 30, 2017, the closing price of equity shares on the National Stock Exchange of India Limited was Rs. 290.15 equivalent to US$ 4.49 per equity share (US$ 8.97 per ADS on an imputed basis) translated at the exchange rate of Rs. 64.62 per US$1.00 as set forth in the H.10 statistical release of the Federal Reserve Board on June 30, 2017.
At June 30, 2017,July 7, 2023, there were 931,1651,855,355 holders of record of our equity shares, of which 9901,952 had registered addresses in the United States and held an aggregate of 1,223,3111,681,160 equity shares.
ADSs
Our ADSs, each representing two equity shares, were originally issued in March 2000 in a public offering and are listed and traded on the New York Stock Exchange under the symbol IBN. The equity shares underlying the ADSs are listed on the BSE Limited and the National Stock Exchange of India Limited.
At June 30, 2017,July 7, 2023, we had approximately 805676 million ADSs, equivalent to about 1,6091,353 million equity shares, outstanding. At June 30, 2017,July 7, 2023, there were 66,257166,469 record holders of our ADSs, out of which 11980 have registered addresses in the United States. The following table sets forth, for the periods indicated, the reported high and low closing prices on the New York Stock Exchange for our outstanding ADSs traded under the symbol IBN.
Price per ADS(1),(2) | ||||||||
High | Low | |||||||
Annual prices: | ||||||||
Fiscal 2013 | US$ | 8.68 | US$ | 5.09 | ||||
Fiscal 2014 | 8.80 | 4.63 | ||||||
Fiscal 2015 | 11.80 | 7.75 | ||||||
Fiscal 2016 | 9.95 | 4.71 | ||||||
Fiscal 2017 | 7.98 | 5.80 | ||||||
Quarterly prices: | ||||||||
Fiscal 2016: | ||||||||
First Quarter | US$ | 9.95 | US$ | 8.51 | ||||
Second Quarter | 9.52 | 7.45 | ||||||
Third Quarter | 8.37 | 6.56 | ||||||
Fourth Quarter | 6.95 | 4.71 | ||||||
Fiscal 2017: | ||||||||
First Quarter | US$ | 7.14 | US$ | 5.80 | ||||
Second Quarter | 7.61 | 6.52 | ||||||
Third Quarter | 7.91 | 6.50 | ||||||
Fourth Quarter | 7.98 | 6.77 | ||||||
Fiscal 2018: | ||||||||
First Quarter | US$ | 9.17 | US$ | 7.50 | ||||
Monthly prices: | ||||||||
March 2016 | US$ | 6.51 | US$ | 5.56 | ||||
April 2016 | 7.14 | 5.99 | ||||||
May 2016 | 6.54 | 5.80 | ||||||
June 2016 | 7.09 | 6.05 | ||||||
July 2016 | 7.28 | 6.55 | ||||||
August 2016 | 6.97 | 6.52 | ||||||
September 2016 | 7.61 | 6.74 | ||||||
October 2016 | 7.91 | 6.50 | ||||||
November 2016 | 7.84 | 6.78 | ||||||
December 2016 | 7.25 | 6.73 | ||||||
January 2017 | 7.36 | 6.77 | ||||||
February 2017 | 7.85 | 7.45 | ||||||
March 2017 | 7.98 | 7.41 | ||||||
April 2017 | 8.00 | 7.50 | ||||||
May 2017 | 9.02 | 7.71 | ||||||
June 2017 | 9.17 | 8.78 | ||||||
See also “Risk“Risk Factors—Risks Relating to ADSs and Equity Shares—Conditions in the Indian securities market may adversely affect the price or liquidity of our equity shares and ADSs”.
5
You should carefully consider the following risk factors as well as other information contained in this annual report in evaluating us and our business.
Summary
Our business is subject to various risks and uncertainties. These risks include, but are not limited to, the following:
Risks Relating to India and Other Economic and Market Risks
· | A prolonged slowdown in economic growth in India could cause our business to suffer. |
· | Financial instability in other countries, particularly countries where we have established operations, could adversely affect our business. |
· | Any downgrade of India’s debt rating or the rating of our senior unsecured foreign currency debt by an international rating agency could adversely affect our business, liquidity and the prices of our equity shares and ADSs. |
· | Any adverse impact on India’s external position due to an increase in the price of crude oil or the current account deficit or outflow of foreign capital or exchange rate volatility could adversely affect the Indian economy, which could adversely affect our business. |
· | The banking and financial markets in India are still evolving, and the Indian financial system could experience difficulties which could adversely affect our business and the prices of our equity shares and ADSs. |
· | A significant change in the Indian government’s policies, including economic policies, fiscal policies and structural reforms, could adversely affect our business and the prices of our equity shares and ADSs. |
· | Natural calamities, climate change and health epidemics could adversely affect the Indian economy, or the economy of other countries where we operate, our business and the prices of our equity shares and ADSs. |
· | If regional hostilities, terrorist attacks, or social unrest in India or elsewhere increase, our business and the prices of our equity shares and ADSs could be adversely affected. |
Risks that arise as a result of our presence in a highly regulated sector
· | The enhanced supervisory and compliance environment in the financial sector increases the risk of regulatory action against us, whether formal or informal. |
· | We may be subject to fines, restrictions or other sanctions for regulatory compliance failures, which may adversely affect our financial position or our ability to expand our activities. |
6
· | We are at risk of inquiries or investigations by regulatory and enforcement authorities, which may adversely affect our reputation, lead to increased regulatory scrutiny, cause us to incur additional costs or adversely affect our ability to conduct business. |
· | We are subject to the directed lending requirements of the Reserve Bank of India, which may also involve buying related certificates at a premium to meet the annual targets, and any shortfall in meeting these requirements may be required to be invested in Government of India schemes that yield low returns, thereby impacting our profitability. We may also experience a higher level of non-performing assets in our directed lending portfolio, which could adversely impact the quality of our loan portfolio, our business and the prices of our equity shares and ADSs. |
· | We are subject to capital adequacy requirements stipulated by the Reserve Bank of India, including Basel III, as well as general market expectations regarding the level of capital adequacy large Indian private sector banks should maintain, and any inability to maintain adequate capital due to changes in regulations, a lack of access to capital markets, or otherwise may impact our ability to grow and support our businesses. |
· | We are subject to liquidity requirements of the Reserve Bank of India as well as those of banking regulators in our overseas locations, and any inability to maintain adequate liquidity due to changes in regulations, a lack of access to capital markets, or otherwise may impact our ability to grow and support our businesses. |
· | Changes in the regulation and structure of the financial markets in India may adversely impact our business. |
· | The opportunities for growth in our international operations and our ability to repatriate capital from these operations may be limited by the local regulatory environments. |
· | The board of directors of the Bank has, pursuant to an independent enquiry, taken action against the former Managing Director and CEO. In the event the Bank is found by any of the enquiries in the matter by government and regulatory agencies to have violated applicable laws or regulations, the Bank could become subject to legal and regulatory sanctions that may materially and adversely affect our results of operations, financial condition and reputation. |
· | Our asset management, private equity, insurance and securities broking subsidiaries and affiliates are subject to extensive regulation and supervision which can lead to increased costs or additional restrictions on their activities that could adversely impact the Bank. |
· | Adoption of a different basis of accounting or new accounting standards may result in changes in our reported financial position and results of operations for future and prior periods. |
· | The transition from LIBOR to other alternative reference rates may adversely affect our income and also bring about the vagaries that such alternative reference rates may have. |
7
Risks Relating to Our Business
· | If the level of our non-performing assets increases and the overall quality of our loan portfolio deteriorates, our business will suffer. |
· | We have a high concentration of loans to certain customers, borrower groups and sectors and if a substantial portion of these loans become non-performing, the overall quality of our loan portfolio, our business and the prices of our equity shares and ADSs could be adversely affected. |
· | 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. |
· | Our banking and trading activities are particularly vulnerable to interest rate risk and movements in interest rates could adversely affect our net interest margin, the value of our fixed income portfolio, our income from treasury operations, the quality of our loan portfolio and our financial performance. |
· | Our inability to effectively manage credit, market and liquidity risk and inaccuracy of our valuation models and accounting estimates may have an adverse effect on our earnings, capitalization, credit ratings and cost of funds. |
· | Our funding is primarily short-term and if depositors do not roll over deposited funds upon maturity, our business could be adversely affected. |
· | Negative publicity could damage our reputation and adversely impact our business and financial results and the prices of our equity shares and ADSs. |
· | The exposures of our international branches and banking subsidiaries could generally affect our business, financial condition and results of operations. |
· | Entry into new businesses or rapid growth in existing loan portfolios may expose us to increased risks that may adversely affect our business. |
· | Commission, exchange and brokerage income, profit on foreign exchange transactions and other sources of fee income are important elements of our profitability, and regulatory changes and market conditions could cause these income streams to decline and adversely impact our financial performance. |
· | Our industry is very competitive and our strategy depends on our ability to compete effectively. |
· | There is operational risk associated with the financial industry which, when realized, may have an adverse impact on our business. |
· | We and our customers are exposed to fluctuations in foreign exchange rates. |
8
· | We may seek opportunities for growth through acquisitions, divest our existing businesses, or be required to undertake mergers by the Reserve Bank of India and could face integration and other acquisitions risks. |
· | We depend on the accuracy and completeness of information about customers and counterparties. |
· | A determination against us in respect of disputed tax assessments may adversely impact our financial performance. |
· | We are involved in various litigations. Any final judgment awarding material damages against us could have a material adverse impact on our future financial performance and our stockholders’ equity. |
· | We continue to expand our branch network and any inability to use these branches productively may have an adverse impact on our growth and profitability. |
· | We depend on the knowledge and skills of our senior management. Any inability to attract and retain them and other talented professionals or any loss of senior management or other talented professionals may adversely impact our business. |
Risks relating to technology
· | The growing use of technology in banking and financial services creates additional risks of competition, reliability and security. |
· | We face security risks, including denial of service attacks, hacking, social engineering attacks targeting our colleagues and customers, malware intrusion or data corruption attempts, and identity theft that could result in the disclosure of confidential information, adversely affect our business or reputation, and create significant legal and financial exposure. |
· | System failures or system downtime could adversely impact our business. |
· | Our business may be adversely affected by computer, internet and telecommunications fraud. |
Risks relating to our insurance subsidiary and affiliate
· | Additional capital requirements of our insurance entities or our inability to monetize a part of our shareholding or make additional investments in these entities as required may adversely impact our business and the prices of our equity shares and ADSs. |
· | While our insurance businesses are an important part of our business, there can be no assurance of their future rates of growth or levels of profitability. |
· | Actuarial experience and other factors could differ from assumptions made in the calculation |
9
of life actuarial reserves and other actuarial information.
· | Loss reserves for our affiliate’s general insurance business are based on estimates as to future claims liabilities and adverse developments relating to claims could lead to further reserve additions and materially adversely affect the operation of our general insurance affiliate. |
· | The financial results of our insurance companies could be materially adversely affected by the occurrence of a catastrophe. |
Risks Relating to 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 subject to delays and legal restrictions. |
· | Your holdings may be diluted by additional issuances of equity and any dilution may adversely affect the market prices of our equity shares and ADSs. |
· | You may be unable to exercise pre-emptive rights available to other shareholders. |
· | 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. |
· | Restrictions on reissuance and deposit of equity shares in the depositary facility could adversely affect the price of our ADSs. |
· | Certain shareholders own a large percentage of our equity shares and their actions could adversely affect the prices 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. |
· | Settlement of trades of equity shares on Indian stock exchanges may be subject to delays. |
· | Because the equity shares underlying ADSs are quoted in rupees in India, you may be subject to potential losses arising out of exchange rate risk on the Indian rupee. |
· | You may be subject to Indian taxes arising out of capital gains. |
· | There may be less company information available in Indian securities markets than in securities markets in the United States. |
10
Risks Relating to India and Other Economic and Market Risks
A prolonged slowdown in economic growth or rise in interest rates in India could cause our business to suffer.
According to the new methodology introduced by the Indian government for estimating India’s gross domestic product, and gross value added by sector, India’s gross domestic product grew by 7.5% in fiscal 2015, 8.0% in fiscal 2016 and 7.1% in fiscal 2017. The agriculture sector accounted for 15.2% of gross value added, while industry and services accounted for 31.2% and 53.7%, respectively, in fiscal 2017. We are heavily dependent upon the state of the Indian economy, and a slowdown in growth in the Indian economy could adversely affect our business, our borrowers, our counterparties and our contractual counterparties,other constituents, especially if such a slowdown werewas to be continuedprolonged. India’s gross domestic product declined by 6.6% in fiscal 2021 as the outbreak of the COVID-19 pandemic and prolonged.consequent lockdowns and other containment measures negatively impacted economic activity during the year. India’s gross domestic product grew by 8.7% in fiscal 2022 and by 7.2% in fiscal 2023.
From fiscal 2010, the Indian corporate sector undertook significant investments, including in the infrastructure and commodity sectors. This led to high loan growth in the banking sector, including for us. Subsequently, the Indian economy experienced challenges in terms of high inflation and consequently higher interest rates, currency depreciationAn economic slowdown and a sharp slowdown in economic growth. The corporate sector experienced ageneral decline in salesbusiness activity in India could impose stress on our borrowers’ financial soundness and profit growth, an elongation of working capital cyclesprofitability and a high level of receivables, and significant challenges in project completion and cash flow generation, duethus expose us to policy changes, delays in approvals and judicial decisions. Indian corporations, especially in the infrastructure and industrial sectors, had limited ability to access capital in view of the economic scenario and volatility in global and domestic financial markets. Corporate investment activity declined. From fiscal 2014 onwards, these developments led to an increase in non-performing and restructured corporate loans in the Indian banking sector, including us, and a substantial moderation in overall loan growth, driven primarily by lower growth inincreased credit to the corporate sector. The corporate sector continues to be impacted due to lower than anticipated cash flow generation and high leverage. The significant decline in global commodity prices in fiscal 2015 and fiscal 2016, including metals, coal and crude oil, negatively impacted borrowers in commodity-linked sectors. Capital investments in the economy remained subdued impacting corporations in investment-linked sectors like construction. Due to the lower than projected cash flows, the progress in reducing leverage in the corporate sector has been slow. As a result, the level of additions to non-performing loans, including slippages from restructured loans into non-performing status, and provisions increased during fiscal 2016.risk.
During fiscal 2017, the additions to non-performing loans, including slippages from restructured loans, continued to remain elevated as the corporate sector challenges continued due to the slowdown in economic growth, low corporate profitability and subdued investment activity. The slowdown in economic growth was primarily in the industrial and services sectors, with growth in the industrial sector moderating to 5.6% during fiscal 2017 compared to 8.8% during fiscal 2016, and in the services sector to 7.7% in fiscal 2017 compared to 9.7% in fiscal 2016. Further, during the second half of fiscal 2017, there was a reduction in the availability of cash caused by the withdrawal of high denomination currency notes by the government of India, which also impacted businesses. While several companies are working with banks to restructure and reorganize their businesses and reduce their leverage through sales of businesses and assets, the process of resolving stressed assets remained slower than expected due to delays in decision making at the Joint Lenders’ Forum that was set up to explore options for early resolution of stress in loan accounts. Several measures were announced by the Reserve Bank of India during the year to enable early resolution of assets. However, the continued challenges in the operating and recovery environment adversely impacted the pace of resolution leading to a significant increase in non-performing loans, including slippages from restructured loans, during fiscal 2017.
The Indian economy in general, and the agricultural sector in particular, are impacted by the level and timing of monsoon rainfall. Investments by the corporate sector in India are impacted by government policies and decisions including policies and decisions regarding awards of licenses, access to land, access to natural resources and the protection of the environment. Economic growth in India is also influenced by inflation, interest rates, external trade and capital flows. The level of inflation or depreciation of the Indian rupee may limit monetary easing or cause monetary tightening by the Reserve Bank of India.policy tightening. Any increase in inflation, due to increases in domestic food prices or global prices of commodities, including crude oil, the impact of currency depreciation on the prices of imported commodities and additional pass through of higher fuel prices to consumers, or otherwise, may result in a tightening of monetary policy. For instance, during fiscal 2014, in response to a rise in inflation from 9.1% in April 2013 to 11.5% in November 2013,Between May 2022 and February 2023, the Reserve Bank of India
progressively raisedMonetary Policy Committee increased the repo rate by 75250 basis points from 7.25%4.00% to 8.0% during May 2013-January 2014. The repo rate was thereafter maintained at the 8.0% level and then gradually reduced starting January 2015, with the last reduction of 25 basis points to 6.25%6.50% in October 2016.
In fiscal 2015, the Reserve Bank of India entered into a monetary policy framework agreement with the government of India affirming an inflation target of 4.0% with a band of +/- 2% to be pursued by the Reserve Bank of India. In June 2016, the Indian government notified amendmentsresponse to the Reserve Bank of India Act, 1934, approved byrise in inflation. In its meetings in April and June 2023, the Indian parliament, for constituting a six-member Monetary Policy Committee comprising members fromkept the Reserve Bankrepo rate unchanged and decided to remain focused on withdrawal of India andaccommodation to ensure that inflation progressively aligns within the government, which would be responsible for inflation targets and monetary policy decisions. India has,target of 4%, while supporting growth.
Uncertainties remain in the past, experienced sustained periods of highglobal environment due to geo-political tensions, uncertainties around global growth recovery, volatility in commodity prices and an increase in inflation. A return to high rates of inflation with a resulting rise in interest rates, and any corresponding tightening of monetary policy may have an adverse effect on economic growth in India.
Adverse changes to global liquidity conditions, comparative interest rates and risk appetite could lead to significant capital outflows from India.India, which could adversely affect our business. For instance, duethe increased uncertainties and risk aversion caused by the COVID-19 pandemic led to concerns regarding withdrawalsignificant net outflows of quantitative easinginvestments by foreign portfolio investors from Indian equity and debt markets in an aggregate amount of approximately US$ 14.7 billion during the U.S. in June 2013, India saw anthree months ended March 31, 2020. There was a net outflow of investments by foreign institutional investments from the debt marketportfolio investors of aboutapproximately US$7.5 16.0 billion during June-July 2013. Similarly, ain fiscal 2022 and approximately US$ 5.5 billion in fiscal 2023. A slowdown in global growth may impact India’s exports and, in the event of over-supply or sharpexports. Sharp and sustained price reductions of globally traded commodities such as metals and minerals in the event of a global slowdown may negatively impact our borrowers in these sectors.
A slowdown in the rate of growth in Global trade disputes and protectionist measures and counter-measures could impact trade and capital flows and negatively affect the Indian economy, which could adversely affect our business. Developments in technology, such as artificial intelligence, may impact businesses, including ours and adverseour customers’, and influence global and Indian employment markets, with an impact on employment and incomes of our existing and potential customers.
11
Adverse economic conditions in India due to movements in global capital, commodity and other markets, changes in business due to technology or adverse impact of any natural disasters could result in lowerreduction of demand for credit and other financial products and services, increased competition, and higher defaults among corporate, small business, retail and rural borrowers, which could adversely impact our business, our financial performance, our stockholders’ equity, our ability to implement our strategy and the priceprices 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.business.
Although the proximate cause of the 2008-2009 financial crisis, which was deeper than other recent financial crises, was the U.S. residential mortgage market, investors should be aware that thereThere is a recent history of financial crises and boom-bust cycles in multiple markets in both the emerging and developed economies, which leads toincrease risks for all financial institutions, including us. Developmentsfor our business and results of operations.
Global economic changes, such as developments in the Eurozone, including concerns regarding sovereign debt default, negotiations between the United Kingdom andKingdom’s relationship with the European policymakersUnion following its vote to withdrawthe United Kingdom’s exit from the European Union and the exit of any other country from the European Union, recessionary economic conditions and adoption of negative interest rates in key developed economies as well as(“Brexit”); concerns related to the impact of tightening monetary policy including the failure of three regional banks in the U.S., and a European bank in fiscal 2023; the ongoing war between Russia and Ukraine and the sanctions imposed on Russia; elevated core inflation levels; supply and demand imbalances; high global energy prices; potential trade wars between large economies; the economic consequences of pandemics may lead to increased risk aversion and volatility in global capital markets.markets and foreign exchange rate movements, which could impact global liquidity and adversely affect our business.
Uncertainty around these and related issues could lead to adverse effects on the economy of the United Kingdom and the other economies in which we operate. Our subsidiary in the United Kingdom has made changes to its operations in the European Union due to Brexit, which could adversely affect our business in the United Kingdom and Europe if the changes do not operate effectively. In addition, China is one of India’s major trading partners and the border dispute between India and China could have an adverse impact on economic relations between the two countries. Further, India has trade ties with both Russia and Ukraine. These factors may also result in a slowdown in India’s trade growth. The effect of any legislative and regulatory efforts to address these risks is uncertain, and they may not have the intended positive effects. Such volatility and negative economic developments could, in turn, materially adversely affect our business, prospects, financial conditions or results of operations.
A loss of investor confidence in the financial systems of India or other markets and countries or any financial instability in India or any other market may cause increased volatility in the Indian financial markets and, directly or indirectly, adversely affect the Indian economy and financial sector, our business and our future financial performance. See also “—Risks Relating to Our Business—Our international operations increase the complexity of the risks that we face”. We remain subject to the risks posed by the indirect impact of adverse developments in the global economy and the global banking environment, some of which cannot be anticipated and the vast majority of which are not under our control. We also remain subject to counterparty risk to financial institutions that fail or are otherwise unable to meet their obligations to us.
12
Any downgrade of India’s debt rating or the rating of our senior unsecured foreign currency debt by an international rating agency could adversely affect our business, our liquidity and the priceprices of our equity shares and ADSs.
While Standard & Poor’s, Moody’s and Fitch currently have stable or positive outlooks on their sovereign rating for India, they may lower their sovereign ratings for India or the outlook on such ratings, which would also impact our ratings. Rating agencies may also change their methodology for rating banks which may impact us. For instance, in April 2015, Moody’s revised its bank rating methodology and the assessment of government support to banks, following which the rating of several banks globally were revised, including Indian banks. The Bank’s senior unsecured debt rating was downgraded by one level to Baa3 following the methodology change. Any adverse revisions to India’s credit ratings for domestic and international debt by international rating agencies may adversely impact our business and limit our access to capital markets and adversely impact our liquidity position.position and market perception of the Bank.
We are rated by Moody’s and Standard and Poor’s in international markets. In June 2020, Moody’s lowered the sovereign rating for India from Baa2 to Baa3, with a negative outlook due to the impact of the COVID-19 pandemic on the Government of India’s fiscal position and the stress in the financial sector. In 2021, both the rating agencies revised the outlook on our ratings from negative to stable, while maintaining the rating on our senior unsecured foreign currency debt at BBB- by Standard and Poor’s and Baa3 by Moody’s. The credit ratings have been maintained since 2021.
Rating agencies may also change their methodology for rating banks also take into consideration key financialor their assessment of specific parameters of a bank like its capital position, liquidity profile, level of non-performing loans and business position in the banking industry. During incidents of challenges in the economic and operating environment for the Indian banking sector, there could be rating actions like a rating downgrade or change in the outlook of a bank by the
rating agencies. Following the significant increase in non-performing loans in the banking sector, including for us, rating agencywhich may impact our ratings. In April 2020, Moody’s revised its assessment of government support for Indian private sector banks in view of the mechanism of resolution for a stressed private sector bank. Such revisions in assessment methodologies could adversely impact the rating of a fewprivate sector banks compared to public sector banks and the outlook for some public and private sector banks. While Moody’s reaffirmed the Bank’s senior unsecured debt rating at Baa3, the baseline credit assessment of the Bank was lowered from baa3 to ba1 and outlook on the Bank’s senior unsecured debt was changed from positive to stable in July 2017.
The rating of our foreign branches is impacted by the sovereign rating of the country in which the branch is located, particularly if the rating is below India’s rating. Any revision to the sovereign rating of the countries in which we operate to below India’s rating could impact the rating of our foreign branch in the jurisdiction and the bonds issued from these branches. In February 2016, Standard & Poor’s placed bonds issuedOur subsidiary in the United Kingdom is rated by Moody’s and any change in our rating or outlook or in the Bahrain branches of two Indian banks, including ICICI Bank, on credit watch with negative implications following its loweringfinancial position of the subsidiary could impact the rating or outlook of our subsidiary.
Given the significant uncertainties caused by global economic challenges, there can be no assurance that rating agencies will maintain their views on India’s sovereign rating or that we and our subsidiaries and affiliates will be able to meet the expectations of Bahrain. In June 2016, Standard & Poor’s removed the ratings on the Bank’s senior bonds fromrating agencies and maintain our credit watch and maintained the existing ratings based on the execution of an irrevocable standby letter of credit guaranteeing the bonds by our branch in the Dubai International Financial Centre.ratings. See also “—“—Risks Relating to Our Business—Our inability to effectively manage credit, market and liquidity risk and inaccuracy of our valuation models and accounting estimates may have an adverse effect on our earnings, capitalization, credit ratings and cost of funds”.
We have certain borrowings that would be affected by a one or two notch downgrade of the Bank’s current credit rating. These borrowings amountAny adverse impact on India’s external position due to approximately 3.0% of our total borrowings at year-end fiscal 2017. If an international credit rating agency downgrades the Bank’s credit rating by one or two notches, we would be required to pay an increased interest rate on certain borrowings, and for certain borrowings, we would be required to re-negotiate a new interest rate with our lenders. If we were not able to reach an agreement for an interest rate with a lender, the lender could require us to prepay the outstanding principal amount of the loan.
A significant increase in the price of crude oil or the current account deficit or outflow of foreign capital or exchange rate volatility could adversely affect the Indian economy, which could adversely affect our business.
India is vulnerable to developments in the trade account. India imports a majority of its requirements of petroleum oil and petroleum products, which comprised around 22% of total importsproducts. The decline in the oil import bill in fiscal 20162021 was largely due to a decline in global crude oil prices and fiscal 2017 comparedweak demand conditions in the Indian economy caused by the COVID-19 pandemic. However, global crude oil prices rose starting November 2020 and experienced a sharp increase following the hostilities between
13
Russia and Ukraine leading to 31% of total importsa high import bill in fiscal 2015.2023. However, the crude oil prices have moderated in fiscal 2024. The governmentrisk of India has deregulateda possible rise in global oil prices and has been reducingif there is further escalation in geo-political uncertainty cannot be ruled out. In the subsidy in respectevent of certainelevated oil products, resulting in international crude prices having a greater effect on domestic oil prices. Any increaseprice levels or volatility in oil prices, as well as the impact of currency depreciation, which makes imports more expensive in local currency, and the pass-through of such increases to Indian consumers or an increase in subsidies (which would increase the fiscal deficit) could have a material adverse impact on the Indian economy and the Indian banking and financial system, including through a rise in inflation and market interest rates, and higher trade and fiscal deficits. This could adversely affect our business including our liquidity, the quality of our assets, our financial performance, our stockholders’ equity, our ability to implement our strategy deficits and the price of our equity shares and ADSs.
Current account deficits, including trade deficits, and capital flow and exchange rate volatility could adversely affect our business and the price of our equity shares and ADSs.currency depreciation.
India’s trade relationships with other countries and its trade deficit, may adversely affect Indian economic conditions and the exchange rate for the rupee. The current account deficit asAs a proportion of India’s gross domestic product, has improved significantly fromthere was a highsurplus in the current account of 4.7%0.9% in fiscal 2013 to 1.3% in2021. In fiscal 2015, 1.1% in fiscal 2016 and 0.7% in fiscal 2017, which was driven primarily by2022, the sharp decline in crude oil and commodity prices and a slowdown in non-oil imports. Increased volatility in capital flows due to changes in monetary policy in the United States or other economies or a reduction in risk appetite or increase in risk aversion among global investors and consequent reduction in global liquidity may impact the Indian economy and financial markets. For instance, during the first half of fiscal 2014, emerging markets including India witnessed significant capital outflows on account of concerns regarding the withdrawal of quantitative easing in the U.S. and other domestic structural factors such as the high current account deficit and lower growth outlook.
Exchange rates are impacted by a numberwas 1.2% of factors including volatility of international capital markets, interest rates and monetary policy stance in developed economies like the United States, level of inflation and interest rates in India, the balance of payment position and trends in economic activity. From the beginning of fiscal 2013 through fiscal 2016, the rupee decreased 30.4% against the U.S. dollar.India’s gross domestic product. In fiscal 2017,2023, the rupee appreciated by about 2.1%.
current account deficit was 2.0% of India’s gross domestic product. If the current account and trade deficits continue to increase, or are no longer manageable because of factors impacting the trade deficit like a significant rise in global crude oil prices or otherwise, the Indian economy, and therefore our business, our financial performance and the priceprices ofour equity shares and ADSscould be adversely affected. Any reduction of or increase in the volatility of capital flows may impact the Indian economy and
financial markets and increase the complexity and uncertainty in monetary policy decisions in India, leading to volatility in inflation and interest rates in India, which could also adversely impact our business, our financial performance, our stockholders’ equity, and the priceprices ofour equity shares and ADSs.ADSs.
Further, any increased intervention in the foreign exchange market or other measures by the Reserve Bank of India to control the volatility of the exchange rate, may result in a decline in India’s foreign exchange reserves and reduced liquidity and higher interest rates in the Indian economy, which could adversely affect our business, our future financial performance and the price ofour equity shares and ADSs. A sharp depreciation in the exchange rate may also impact some corporate borrowers having foreign currency obligations that are not fully hedged. See also “—“—Risks Relating to Our Business—We and our customers are exposed to fluctuations in foreign exchange rates”.
Financial difficultyThe banking and other problemsfinancial markets in India are still evolving and the Indian financial system could experience difficulties which could adversely affect our business and the priceprices of our equity shares and ADSs.
As a large systemically importantan 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 which 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. For instance, in March 2020, the Reserve Bank of India imposed a moratorium restricting deposit withdrawals from a private sector bank, followed by implementation of a scheme of reconstruction involving change in management and equity capital infusion by several Indian banks, including us. Such developments may impact credit markets and there could be an adverse impact on the loan portfolios of banks, including us, if customers are no longer able to access financing or refinancing from these entities or replace such financing or refinancing from other sources, thereby impacting their ability to conduct operations or meet their financial obligations. Our transactions with these financial institutions expose us to credit risk in the event of default by the counterparty, which can be exacerbated during periods of market illiquidity. We were declared a systemically important bank in India by the Reserve Bank of India in August 2015, which continued to categorize us as a systemically important bank in India in subsequent years. See also “Overview—Risks
14
Relating to Our Business—There is operational risk associated with the Indian Financial Sectorfinancial industry which, when realized, may have an adverse impact on our business”.”.
As the Indian financial system operates in an emerging market, we face 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 rumors 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 rumors for a few days in April 2003. In 2008, following the bankruptcy of Lehman Brothers and the disclosure of our exposure to Lehman Brothers and other U.S. and European financial institutions, negative rumors circulated about our financial position which resulted in concerns being expressed by depositors and higher than normal transaction levels on a few days. We controlled the situation in these instances, 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, disrupt our business and, in times of market stress, undermine our financial strength.
As a result of the challenges faced by the corporate sector, the non-performing loans and provisions of a number of Indian banks, including us, increased significantly during fiscal 2016 and fiscal 2017. Our non-performing loans and provisioning costs are expected to remain elevated in the near term. See also “—Risks Relating to Our Business—If we are unable to adequately control the level of non-performing loans in our portfolio, our business will suffer” and “—Risks Relating to Our Business—If regulators continue to impose increasingly stringent requirements regarding non-performing loans and provisioning for such loans, or if the provisions for such loans otherwise increase, our business will suffer”.
Natural calamities, climate change and health epidemics could adversely affect the Indian economy, or the economy of other countries where we operate, our business and the price of our equity shares and ADSs.
India has experienced natural calamities such as earthquakes, floods and droughts in the past few years. The extent and severity of these natural disasters determine their impact on the Indian economy. In particular, climatic and weather conditions, such as the level and timing of monsoon rainfall, impact the agricultural sector, which constituted approximately 15.2% of India’s value added in fiscal 2017. Prolonged spells of below or above normal rainfall or other natural calamities, or global or regional climate change, could adversely affect the Indian economy and our business, especially our rural portfolio. Similarly, global or regional climate change in India and other countries where we operate could result in change in weather patterns and frequency of natural calamities like droughts, floods and cyclones, which could affect the economy of India, the countries where we operate and our operations in those countries.
Health epidemics could also disrupt our business. In fiscal 2010, there were outbreaks of swine flu, caused by the H1N1 virus, in certain regions of the world, including India and several countries in which we operate.
Any future outbreak of health epidemics may restrict the level of business activity in affected areas, which may in turn adversely affect our business and the price of our equity shares and ADSs could be adversely affected.
A significant change in the Indian government’s policies could adversely affect our business and the price of our equity shares and ADSs.
Our business and customers are predominantly located in India or are related to and influenced by the Indian economy. 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 ability to implement our strategy, the operations of our subsidiaries and our future financial performance. Since 1991, successive Indian governments have pursued policies of economic liberalization, including significantly relaxing restrictions on the private sector and encouraging the development of the Indian financial sector. While a single party achieved majority in the general elections in fiscal 2015, India has been governed by coalition governments in previous years. The leadership of India and the composition of the government are subject to change, and election results are sometimes not along expected lines. It is difficult to predict the economic policies that will be pursued by governments in the future. In addition, investments by the corporate sector in India may be impacted by government policies and decisions, including with respect to awards of licenses and resources, access to land and natural resources and policies with respect to protection of the environment. Such policies and decisions may result in delays in execution of projects, including those financed by us, and also limit new project investments, and thereby impact economic growth. The pace of economic liberalization could change, and specific laws and policies affecting banking and finance companies, foreign investment, currency exchange and other matters affecting investment in our securities could change as well. For instance, the government of India has introduced a uniform goods and services tax structure in India, which has an impact on the way in which we are taxed and may have an impact on the operations and cash flows of our borrowers. There could also be one-time decisions by the government that could impact our business and financial performance. For example, the government’s decision in the second half of fiscal 2017 to withdraw legal tender status of high denomination currency notes led to an increase in costs associated with the transition and the reduction in revenues due to accompanying measures such as the reduction or waiver of transaction charges for ATM and card transactions for the specified period, Any significant change in India’s economic policies or any market volatility as a result of uncertainty surrounding India’s macroeconomic policies or the future elections of its government could adversely affect business and economic conditions in India generally and our business in particular and the price ofour equity shares and ADSscould be adversely affected.
If regional hostilities, terrorist attacks or social unrest in India or elsewhere 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, and border disputes with neighbouring countries. India has also experienced terrorist attacks in some parts of the country, including in Mumbai, where our headquarters are located. In addition, geo-political events in the Middle East and Eastern Europe or terrorist or military action in other parts of the world may impact prices of key commodities, financial markets and trade and capital flows. These factors and any political or economic instability in India could adversely affect our business, our future financial performance and the price of our equity shares and ADSs.
Risks Relating to Our Business
If we are unable to adequately control the level of non-performing loans in our portfolio, our business will suffer.
If we are unable to adequately control or reduce the level of non-performing loans, the overall quality of our loan portfolio could deteriorate, our provisioning costs could increase, our net interest income and net interest margin could be negatively impacted due to non-accrual of income on non-performing loans, our credit ratings and liquidity may be adversely impacted, we may become subject to enhanced regulatory oversight and scrutiny, our reputation may be adversely impacted and our business, our future financial performance and the price of our equity shares and ADSs could be adversely impacted. See also“—If regulators continue to impose increasingly stringent requirements regarding non-performing loans and provisioning for such loans, or if the provisions for such loans otherwise increase, our business will suffer”.
Various factors, including a rise in unemployment, prolonged recessionary conditions, decline in household savings and income levels, our regulators’ assessment and review of our loan portfolio, a sharp and sustained
rise in interest rates, developments in the Indian economy, movements in global commodity markets andexchangerates and global competition, could cause an increase in the level of our non-performing assets and have a material adverse impact on the quality of our loan portfolio.
From fiscal 2010, the Indian corporate sector undertook significant investments, including in the infrastructure and commodity sectors. This led to high loan growth for Indian banks, including us. Subsequently, the Indian economy experienced challenges including high inflation and consequently higher interest rates, currency depreciation and a sharp slowdown in economic growth. During this period, the corporate sector experienced a decline in sales and profit growth, an elongation of working capital cycles and high level of receivables, including from the government, and significant challenges in project completion and cash flow generation, due to policy changes, delays in approvals like clearances on environment and land, and judicial decisions like the deallocation of coal mines. Indian corporations, especially in the infrastructure and industrial sectors, had limited ability to access capital in view of the economic environment and volatility in global and domestic financial markets. Corporate investment activity declined. From fiscal 2014 onwards, these developments led to an increase in non-performing and restructured corporate loans in the Indian banking sector, including us, and a substantial moderation in overall loan growth, driven primarily by lower growth in credit to the corporate sector. The corporate sector continued to be impacted due to lower than anticipated cash flow generation and high leverage. The significant decline in global commodity prices in fiscal 2015 and fiscal 2016, including metals, coal and crude oil, negatively impacted borrowers in commodity-linked sectors. Capital investments in the economy remained subdued impacting corporations in investment-linked sectors like construction. Due to the lower than projected cash flows, the progress in reducing leverage in the corporate sector was slow. Further, during the three months ended December 31, 2015, against the backdrop of continuing challenges in the corporate sector, the Reserve Bank of India articulated an objective of early and conservative recognition of stress and provisioning and held discussions with and asked a number of Indian banks, including us, to review certain loan accounts and their classification over the six months ended March 31, 2016. As a result of the challenges faced by the corporate sector and the discussions with and review by the Reserve Bank of India, Indian banks, including us, experienced a substantial increase in the level of additions to non-performing loans, including downgrades from restructured loans, into non-performing status during the second half of fiscal 2016.
During fiscal 2017, the additions to non-performing loans, including slippages from restructured loans, continued to remain elevated as the corporate sector challenges continued due to the slowdown in economic growth, low corporate profitability and subdued investment activity. The slowdown in economic growth was primarily in the industrial and services sectors, with growth in the industrial sector moderating to 5.6% during fiscal 2017 compared to 8.8% during fiscal 2016, and in the services sector to 7.7% in fiscal 2017 compared to 9.7% in fiscal 2016. Further, during the second half of fiscal 2017, there was a reduction in the availability of cash caused by the withdrawal of high denomination currency notes by the government of India, which also impacted businesses. While several companies are working with banks to restructure and reorganize their businesses and reduce their leverage through sales of businesses and assets, the process of resolution of stressed assets remained slower than expected due to delays in decision making at the Joint Lenders’ Forum that were set up to explore options for early resolution of stress in loan accounts. Several measures were announced by the Reserve Bank of India and the government, including the introduction of the Insolvency and Bankruptcy Code, during the year to enable early resolution of assets. However, the continued challenges in the operating and recovery environment adversely impacted the pace of resolution leading to a significant increase in non-performing loans during fiscal 2017. Our gross non-performing loans increased significantly from Rs. 293.2 billion at year-end fiscal 2016 to Rs. 458.9 billion at year-end fiscal 2017.
Our standard loan portfolio includes restructured standard loans, and the failure of these borrowers to perform as expected could result in such loans being classified as non-performing. Since fiscal 2015, we experienced a high level of downgrades of standard restructured loans to the non-performing category due to the failure of these borrowers to perform as expected as a result of challenging domestic and global economic conditions and the slow progress of efforts to reduce corporate leverage.
Our standard loan portfolio also includes loans to borrowers where we, alone or with other lenders, have invoked schemes permitted by the Reserve Bank of India, including strategic debt restructuring and change in management, which provide for a standstill period during which the loan continues to be classified as standard even if a default in the payment of interest or principal would otherwise have required the loan to be classified as non-performing. During the standstill period, interest on such loan is not accrued, and is recognized only if received in cash. This standstill period is intended to allow time for the change in management and resolution of the borrower. This non-accrual status for loans subject to a standstill period negatively impacts our net interest income and net interest margin. A failure to arrive at a resolution by the end of the standstill period would result in such loans being classified as non-performing. See “—Our standard loan portfolio includes loans subject to
standstill provisions in respect of asset classification”. At year-end fiscal 2017, we also initiated the process of change in ownership outside the strategic debt restructuring scheme of a borrower with gross debt outstanding of approximately Rs. 51.1 billion. A failure to arrive at a satisfactory resolution of this account would adversely impact our performance.
Further, the quality of our long-term project finance loan portfolio could be adversely impacted by several factors. Our loan portfolio includes project finance, corporate finance, and working capital loans to the infrastructure and related sectors, including power and construction, and commodity-based sectors such as coal and iron and steel, which are subject to global commodity price cycles. See also“—Our loan portfolio includes long-term project finance loans, which are particularly vulnerable to completion and other risks”. In certain cases, we have extended loan facilities to clients based on collateral consisting of equity shares and any volatility in the capital markets may impact the value of such collateral. Economic and project implementation challenges, in India and overseas, and declines or volatility in commodity prices, could result in some of our borrowers not being able to meet their debt obligations, including debt obligations that have already been restructured, resulting in an increase in non-performing loans. The inability of any of our borrowers to meet their debt obligations and the resultant increase in our non-performing loansmay materially and adversely impact our financial performance.
There are uncertainties in respect of certain sectors due to challenging global and domestic economic conditions and high corporate leverage. The key sectors that have been impacted include power, mining, iron and steel, cement and rigs. At year-end fiscal 2016, the Bank’s fund based exposure and outstanding non-fund based facilities to companies internally rated below investment grade (excluding borrowers classified as non-performing or restructured) was Rs. 119.6 billion (1.3% of the Bank’s total exposure) to power (excluding exposure to a central public sector owned undertaking), Rs. 90.1 billion (1.0%) to mining, Rs. 77.8 billion (0.8%) to iron & steel, Rs. 66.4 billion (0.7%) to cement and Rs. 25.1 billion (0.3%) to rigs. Further, the Bank’s fund based exposure and outstanding non-fund based facilities to promoter entities internally rated below investment grade where the underlying is partly linked to these sectors was Rs. 61.6 billion (0.7%). At year-end fiscal 2017, ICICI Bank’s fund based exposure and outstanding non-fund based facilities to companies internally rated below investment grade (excluding accounts classified as non-performing or restructured) was Rs. 62.3 billion (0.7% of the Bank’s total exposure) to power (excluding exposure to a central public sector owned undertaking), Rs. 52.3 billion (0.6%) to mining, Rs. 39.7 billion (0.4%) to iron & steel, Rs. 2.9 billion to cement and Rs. 0.4 billion to rigs. Further, the Bank’s fund based exposure and outstanding non-fund based facilities to promoter entities internally rated below investment grade where the underlying is partly linked to these sectors was Rs. 32.6 billion (0.3%). The decrease of Rs. 250.2 billion in the aggregate fund based exposure and non-fund based outstanding to companies internally rated below investment grade in the above sectors and promoter entities was due to classification of Rs. 200.5 billion as non-performing and reduction in exposure and net rating upgrades of Rs. 49.7 billion. The exposure to companies internally rated below investment grade in the above sectors and promoter entities includes the non-fund based facilities outstanding in respect of accounts included in this portfolio where the fund based facilities outstanding have been classified as non-performing. Apart from this, the non-fund based facilities outstanding to borrowers classified as non-performing was Rs. 19.3 billion. Any additional classification of such fund based exposures and outstanding non-fund based facilities as non-performing may materially and adversely impact our business.
During fiscal 2016 and fiscal 2017, the increase in additions to non-performing loans resulted in a significant increase in our provisions. It also impacted net interest margin, as we do not accrue interest on non-performing loans. In July 2017, while rating agency, Moody’s, reaffirmed the Bank’s senior unsecured debt rating at baa3, the baseline credit assessment of the Bank was lowered from baa3 to ba1 and the rating outlook on the Bank’s senior unsecured debt was changed from positive to stable. The high level of, and increase in, non-performing loans is expected to result in high provisions and to continue to adversely impact our net interest margin in fiscal 2018 as well.The non-accrual of income on loans subjected to restructuring or special structuring involving a standstill period under applicable regulatory guidelines also negatively impacts our net interest income and net interest margin.
Provisions are created by a charge to expense, reflecting our estimates of loan losses and the credit risks in our portfolio, which may not be adequate to cover further increases in the amount of non-performing loans or further deterioration in our non-performing loan portfolio. In addition, for the year ended March 31, 2016, the Reserve Bank of India’s annual supervisory process assessed higher provision than we had reported. While we have given effect to the impact of the changes in provisioning arising out of the Reserve Bank of India’s supervisory process in the financial statements for the year ended March 31, 2017, the Reserve Bank of India’s supervisory process for the year ended fiscal 2017 may result in further divergences between the Reserve Bank of India’s assessed provisions and our reported provisions. Such divergence would require us to further change our provisioning processes, potentially resulting in higher provisioning expenses. See also“—If regulators continue to impose increasingly stringent requirements regarding non-performing loans and provisioning for such loans, or if the provisions for such loans otherwise increase, our business will suffer.”
Our ability to adequately control our non-performing loans in our portfolio will depend on several factors, including a pick-up in economic growth, a favorable inflation and interest rate environment, increase in credit growth and resolution of stressed assets. In addition, the requirement to complete the resolution process within the stipulated timeline to avoid liquidation of the borrower may impact recoveries from these stressed accounts. In the event borrowers go into liquidation, the additional credit losses may be significant.
13
See also “—The enhanced supervisory and compliance environment in the financial sector increases the risk of regulatory action, whether formal or informal. Following the financial crisis, regulators are increasingly viewing us, as well as other financial institutions, as presenting a higher risk profile than in the past”, “Business—Classification of Loans”, “Operating and Financial Review and Prospects” and“Supervision and Regulation—Loan Loss Provisions and Non-performing Assets—Asset Classification”.
If regulators continue to impose increasingly stringent requirements regarding non-performing loans and provisioning for such loans, or if the provisions for such loans otherwise increase, our business will suffer.
If regulator including the Reserve Bank of India continues to impose increasingly stringent requirements regarding non-performing loans and provisioning for such loans, or if the provisions for such loans otherwise increase, the level of non-performing loans could increase, the overall quality of our loan portfolio could deteriorate, our credit ratings and liquidity may be adversely impacted, our reputation may be adversely impacted and our business, our future financial performance and the price of our equity shares and ADSs could be adversely impacted. See also“—If we are unable to adequately control the level of non-performing loans in our portfolio, our business will suffer”.
Banks in India are required to make provisions for all their loans in accordance with guidelines issued by the Reserve Bank of India, which prescribes the accounting for loss provisioning, unlike in the United States and European Union where a separate body sets accounting standards, including for provisioning. Under the Reserve Bank of India guidelines, Indian banks are required to make provisions on standard, sub-standard and doubtful assets at rates prescribed by the Reserve Bank of India. We make provisions on retail non-performing loans at the borrower level in accordance with the retail assets provisioning policy of the Bank, subject to the minimum provisioning levels prescribed by the Reserve Bank of India. We hold higher specific provisions on retail loans and advances than the minimum regulatory requirement and make provisions on restructured/rescheduled loans and advances in accordance with the applicable Reserve Bank of India guidelines on restructuring of loans and advances by banks. In addition to the specific provision on non-performing assets, we maintain a general provision on standard loans and advances and restructured loans and advances at rates prescribed by the Reserve Bank of India.
The Reserve Bank of India has substantially expanded its guidance relating to the identification and classification of non-performing assets over the last three years, which has resulted in an increase in our loans classified as non-performing and an increase in provisions.
Effective April 1, 2014, the Reserve Bank of India issued guidelines which included a framework for early identification and resolution of stressed assets. The guidelines introduced an asset classification category of “special mention accounts”, which comprises cases that are not yet restructured or classified as non-performing but which exhibit early signs of stress, as determined by various parameters. Banks are also required to share data with each other on a category of special mention accounts, form joint lenders’ forums and devise action plans for the joint resolution of these accounts. Any failure to do so within stipulated timeframes results in accelerated provisioning for such cases and may materially and adversely impact our business and future financial performance.
During the three months ended December 31, 2015,against the backdrop of continuing challenges in the corporate sector,the Reserve Bank of India articulated an objective of early and conservative recognition of stress and provisioning and held discussions with and asked a number of Indian banks, including us, to review certain loan accounts and their classification over the six months ended March 31, 2016. As a result of the challenges faced by the corporate sector and the discussions with and review by the Reserve Bank of India, non-performing loans increased significantly in the banking system during the second half of fiscal 2016.
During fiscal 2017, the additions to non-performing loans, including slippages from restructured loans, continued to remain elevated as the corporate sector challenges continued due to the slowdown in economic growth, low corporate profitability and subdued investment activity. The slowdown in economic growth was primarily in the industrial and services sectors, with growth in the industrial sector moderating to 5.6% during fiscal 2017 compared to 8.8% during fiscal 2016, and in the services sector to 7.7% in fiscal 2017 compared to 9.7% in fiscal 2016. Further, during the second half of fiscal 2017, there was a reduction in the availability of cash caused by the withdrawal of high denomination currency notes by the government of India, which also impacted businesses. While several companies are working with banks to restructure and reorganize their businesses and reduce their leverage through sales of businesses and assets, the process of resolving stressed
assets remained slower than expected due to delays in decision making at the Joint Lenders’ Forum that was set up to explore options for early resolution of stress in loan accounts. Several measures were announced by the Reserve Bank of India during the year to enable early resolution of assets. However, the continued challenges in the operating and recovery environment adversely impacted the pace of resolution leading to a significant increase in non-performing loans, including slippages from restructured loans, and provisions during fiscal 2017. Any further increases in non-performing loans and provisions may materially and adversely impact our business and future financial performance.
Our gross non-performing loans increased significantly from Rs. 173.9 billion at year-end fiscal 2015 to Rs. 293.2 billion at year-end fiscal 2016 and toRs. 458.9 billion at year-end fiscal 2017. Our provisions for non-performing assets including restructuring related provisions increased from Rs. 77.2 billion in fiscal 2016 to Rs. 157.5 billion in fiscal 2017, primarily due to an increase in additions to non-performing assets in the corporate and small and medium enterprises loan portfolio, including reclassifications of restructured loans as non-performing loans due to the failure of the borrowers to perform as per the debt restructuring terms and specific provisions on cases where strategic debt restructuring was initiated. Our provisions on standard assets decreased from Rs. 3.2 billion in fiscal 2016 to a write-back of Rs. 3.7 billion in fiscal 2017, primarily due to higher slippages to the non-performing category. Further, in view of the uncertainties relating to certain sectors and the time that it may take to resolve the Bank’s exposures to these sectors, the Bank made a collective contingency and related reserve of Rs. 36.0 billion at year-end fiscal 2016 towards the Bank’s exposure to these sectors. During fiscal 2017, ICICI Bank allocated the full amount of the collective contingency and related reserve towards the provisions for loans and fixed assets acquired in partial satisfaction of loans.
In April 2017, the Reserve Bank of India directed banks to put in place board-approved policies for making provisions for standard assets at rates higher than those prescribed by the Reserve Bank of India, based on industry sectors and an assessment of sectoral risks and trends. In particular, the Reserve Bank of India highlighted risks in the telecom sector and directed banks to complete the assessment with respect to this sector by June 30, 2017. Furthermore, in April 2017, the Reserve Bank of India required banks to disclose the divergence in asset classification and provisioning between what banks report and what the Reserve Bank of India assess through the Reserve Bank of India’s annual supervisory process. For the year ended March 31, 2016, as compared to our assessment, the Reserve Bank of India’s assessment of gross non-performing assets was Rs. 51.0 billion higher, net non-performing assets was Rs. 40.3 billion higher and provisions for non-performing assets was Rs. 10.7 billion higher. After adjusting for these divergences, our net profit after tax for the year ended March 31, 2016 would be Rs. 90.3 billion rather than Rs. 97.3 billion. For further information, see also Note 15 to Schedule 18“Notes Forming part of the Accounts” to the consolidated financial statements. While the impact of changes in classification and provisioning arising out of the Reserve Bank of India’s supervisory process for the year ended March 31, 2016 has been fully given effect to in the audited financial statements for the year ended March 31, 2017, additional divergences may arise from the Reserve Bank of India’s supervisory process for the year ended March 31, 2017. Such divergences would require us to further change our classification and provisioning processes and would also result in gross non-performing assets, net non-performing assets, provisions for non-performing assets and net profit after tax being different from what we report herein should divergences be adjusted for. There can be no assurance that such disclosures will not impact us, our reputation, our business and future financial performance. Further, apart from the Reserve Bank of India that regulates us, there could be a possibility of other regulatory bodies also taking enforcement action based on such disclosures. Our subsidiaries are also regulated by their respective regulatory bodies. Similar to us, there may arise a requirement for additional disclosures from our subsidiaries in future, which may have an adverse impact on us.
In June 2017, the Reserve Bank of India directed banks to commence proceedings under the Insolvency and Bankruptcy Code, enacted in 2016, in respect of certain corporate borrowers. Under this Code, a resolution plan for these borrowers would be required to be finalized within specified timeframes, failing which the borrowers would go into liquidation. The Reserve Bank of India has also specified higher provisions in respect of loans to these borrowers. Further, with respect to other identified stressed accounts, the banks are required to finalize a resolution plan within six months, failing which banks shall be required to file for insolvency proceedings under the Code. Given the limited experience of this framework, there can be no assurance that successful resolution of these borrowers’ liabilities would be achieved, and should one or more of these borrowers go into liquidation, the provisioning requirement and credit loss on these loans could result in significantly higher provisions and recovery from these borrowers could be significantly lower. The Reserve Bank of India may identify other corporate borrowers for action under the Insolvency and Bankruptcy Code and may require banks to commence similar proceedings, which may further impact our provisioning and credit loss. In addition, the requirement to complete the resolution process within the stipulated timeline to avoid liquidation of the borrower may impact recoveries from these stressed accounts. In the event borrowers go into liquidation, the additional credit losses may be significant.
From fiscal 2019, banks in India will migrate to the new accounting standards, Ind AS, which largely converges the Indian accounting standards with International Financial Reporting Standards. Further, banks migrating to the advanced measurement approach for operational risk and internal ratings-based approaches for credit risk under Basel II are required to follow the prescribed minimum loss given default levels for capital adequacy computation and treat restructured assets as non-performing assets for capital adequacy purposes. Compliance with these new standards may result in an increase in loans classified as non-performing and provisioning costs for banks, including us.
Our strategy going forward with respect to our loan portfolio comprises proactive monitoring of loan portfolios across businesses; improvement in the portfolio mix by focusing on retail lending and lending to higher-rated companies; reduction of concentration risk; and resolution of exposures through asset sales by borrowers, changes in management and working with stakeholders to ensure that companies are able to operate at an optimal level and generate cash flows. Our strategy will also depend on the resolution of stressed assets within the specified timeframe. There can be no assurance that we will be able to successfully implement our strategy and control or reduce the level of non-performing assets, or that our future recoveries on non-performing assets will be similar to our past experience of recoveries on non-performing assets. If we cannot successfully control our non-performing assets, our business, future financial performance and the price of our equity shares and ADSs could be materially and adversely impacted.
Our standard loan portfolio includes loans subject to standstill provisions in respect of asset classification.
Our standard loan portfolio includes loans to borrowers where we, alone or with other lenders, have invoked schemes permitted by the Reserve Bank of India, including strategic debt restructuring and change in management, which provide for a standstill period during which the loan continues to be classified as standard even if the default in payment of interest or principal would otherwise have required the loan to be classified as non-performing. Interest on the loan do not accrue during such standstill period, and is recognized by us only if received in cash. This standstill period is intended to allow time for the change in management and resolution of the borrowers’ liabilities. A failure to arrive at a resolution by the end of the standstill period would result in such loans being classified as non-performing.
At year-end fiscal 2017, our standard loan portfolio included loans aggregating Rs. 64.5 billion to borrowers within the standstill period, of which Rs. 26.4 billion was part of our exposure internally rated below investment grade to the power, mining, iron & steel, cement and rigs sectors and promoter entities.If there is a substantial increase in such loans, or if such loans are classified as non-performing, it could have a material adverse effect on our business, our future financial performance and the price of our equity shares and ADSs. In addition, during the standstill period, we are not allowed foreclose on such loans or otherwise liquidate any collateral that we may have. Our inability to do so may result in a failure to recover the expected value from such loan or collateral, and could have a material adverse effect on our business and future financial performance.
If our restructured borrowers fail to perform as expected and the loans to them are recategorized to the non-performing category, our business will suffer.
Our standard assets also include restructured standard loans. See also “Business—Classification of Loans—Restructured Loans”. At year-end fiscal 2017, our restructured standard loans were Rs. 47.8 billion.In recent years, we have experienced a significant increase in the amount of standard restructured loans that were re-categorized to the non-performing category. The principal amount of such re-categorized loans increased from Rs. 7.3 billion in fiscal 2014 to Rs. 45.3 billion in fiscal 2015 and further to Rs. 53.0 billion in fiscal 2016. The restructured loans re-categorized to the non-performing category declined to Rs. 48.4 billion in fiscal 2017. The failure of some of our restructured borrowers to perform as expected and the Reserve Bank of India’s review of the loan portfolios of Indian banks results in an increase in non-performing loans. The performance of our restructured borrowers is dependent on various factors, including economic conditions, in India and globally, movements in global commodity markets and exchange rates, rise in interest rates, inflation and distress in certain sectors, in addition to regulatory change.
See also and“—If regulators continue to impose increasingly stringent requirements regarding non-performing loans and provisioning for such loans, or if the provisions for such loans otherwise increase, our business will suffer” and“Supervision and Regulation—Loan Loss Provisions and Non-Performing Assets—Restructured loans”.
The exposures of our international branches and subsidiaries or our exposure to the securities of reconstruction companies could generally affect our business, financial condition and results of operations.
The loan portfolio of our international branches and subsidiaries includes foreign currency loans to Indian companies for their Indian operations (where permitted by regulation) as well as for their overseas ventures, including cross-border acquisitions. This exposes us to specific additional risks including the failure of the acquired entities to perform as expected, and our inexperience in various aspects of the economic and legal framework in overseas markets. See also“—Our international operations increase the complexity of the risks that we face”.
Further, the classification of the loan portfolio of our overseas branches and subsidiaries is also subject to the regulations of respective local regulators. Such loans that are identified as impaired as per host country regulations for reasons other than record of recovery, but which are standard as per the extant Reserve Bank of India guidelines, are classified as non-performing to the extent of the amount of outstanding loan in the host country. Such classification of loans as non-performing based on host country regulations may lead to an adverse impact on our business, our future financial performance and the price ofour equity shares and ADSs.
We also have investments in security receipts arising from the sale of non-performing assets by us to reconstruction companies registered with the Reserve Bank of India. See also“Business—Classification of Loans”. There can be no assurance that reconstruction companies will be able to recover these assets and redeem our investments in security receipts and that there will be no reduction in the value of these investments. Any such inability to recover assets or redeem our investments without a diminution in value could generally affect our business, financial condition and results of operations. In September 2016, the Reserve Bank of India issued a framework for sale of stressed assets. As per this framework, with effect from April 1, 2017, provisions held for investment in security receipts will be subject to a floor of provisioning rate applicable to the underlying loans (the provisions the bank would have had to make if the loans had continued to be held in its books), if more than 50% of the security receipts are held by the bank that sold the loans. The threshold of 50% will be reduced to 10% from April 1, 2018 as per the framework. Further, the framework requires banks to maintain an internal list of stressed assets identified for sale and review assets classified as ‘doubtful’ above a threshold amount on a periodic basis with a view to consider a sale or other disposition.
Our loan portfolio includes long-term project finance loans, which are particularly vulnerable to completion and other risks.
We expect long-term project finance to be an area of growth in our business over the medium to long-term, and the quality of this portfolio could be adversely impacted by several factors. The viability of these projects depends upon a number of factors, including market demand, government policies, the processes for awarding government licenses and access to natural resources and their subsequent judicial or other review, the financial condition of the government or other entities that are the primary customers for the output of such projects and the overall economic environment in India and the international markets. These projects are particularly vulnerable to a variety of risks, including risks of delays in regulatory approvals, environmental and social issues, completion risk and counterparty risk, which could adversely impact their ability to generate revenues. In the past, we have experienced a high level of default and restructuring in our industrial and manufacturing project finance loan portfolio as a result of the downturn in certain global commodity markets and increased competition in India. Our loans to the power sector were 5.8% of our total loans at year-end fiscal 2015, 5.6% at year-end fiscal 2016 and 5.8% at year-end fiscal 2017. Our non-performing loans in the power sector increased from Rs. 0.7 billion in fiscal 2015 to Rs. 17.5 billion in fiscal 2016 and to Rs. 64.0 billion in fiscal 2017. Power projects face a variety of risks, including access to fuel such as coal and gas, and off-take of the power produced. For example, we are lenders to a large gas-based power plant in the state of Maharashtra which has been impacted by the non-availability of gas. Coal based power projects in India have experienced delays primarily due to environmental concerns around coal mining and the de-allocation of coal blocks allocated to companies. While the Indian government has commenced the auction of these de-allocated coal blocks, the commencement of operations and financial performance of projects linked to these coal blocks continues to be uncertain. In addition, power projects inherently have high leverage levels and volatility in capital markets and concerns about the implementation of these projects and their future cash flows may constrain the availability of equity funding for such projects. Any reduction in the output of operational power plants or the projected output of newly-commissioned or under-implementation power projects due to lower availability of fuel, higher fuel costs that cannot be passed through to purchasers and inability of state-owned power distribution utilities to purchase or pay for power due to their financial condition, or a decline in the price of power, may have an adverse impact on the financial condition of power producers and their ability to service their debt obligations, including to us. We cannot be sure that these projects will begin operations as scheduled or perform as anticipated. A change in the ownership and management of these projects could further delay the commencement of operations. We may see an increase in our non-performing assets or restructured assets in case of delays from the scheduled commercial date of operations of such projects, which are longer than that permitted by the Reserve Bank of India guidelines.
Our loan portfolio also includes project finance, corporate finance, and working capital loans to commodity-based sectors such as iron and steel and mining, which are subject to similar and additional risks, as well as global commodity price cycles. During fiscal 2016, due to a slowdown in global demand for steel, there was a sharp decline in global steel prices, which in turn impacted Indian steel companies. Capacity utilization of steel companies declined and profitability came under pressure. The Indian government announced certain policy measures, including a minimum price for procuring steel from overseas markets, which have benefited the Indian steel sector. However, we cannot be certain that these measures will continue to remain in place in the future or that there will be a significant improvement in the profitability of steel companies if global steel prices continue to remain weak. We may see an increase in non-performing assets in the event the profitability of steel companies continues to remain under pressure. A slowdown in the Indian and global economy may exacerbate the risks for the projects that we have financed. Future project finance losses or high levels of loan restructuring
could have a materially adverse effect on our profitability and the quality of our loan portfolio and the price ofour equity shares and ADSs.
We have a high concentration of loans to certain customers, borrower groups and sectors and if a substantial portion of these loans become non-performing, the overall quality of our loan portfolio, our business and the price of our equity shares and ADSs could be adversely affected.
Our loan portfolio and non-performing asset portfolio have a high concentration in certain types of customers. ICICI Bank’s policy is to limit its exposure to any particular industry (other than retail loans) to 15.0% of its total exposure. Our loans and advances to the retail finance segment constituted 50.2% of our gross loans and advances at year-end fiscal 2017. Our loans and advances to the power sector was 5.8%, to the iron and steel sector was 4.7%, to the infrastructure sector (excluding power) was 4.5% and to the non-finance services sector was 4.4% of our gross loans and advances at year-end fiscal 2017.
There are uncertainties in respect of certain sectors due to global and domestic economic conditions and high corporate leverage. The key sectors that have been impacted include power, mining, iron and steel, cement and rigs. At year-end fiscal 2016, the Bank’s fund based exposure and outstanding non-fund based facilities to companies internally rated below investment grade (excluding borrowers classified as non-performing or restructured) was Rs. 119.6 billion (1.3% of the Bank’s total exposure) to power (excluding central public sector owned undertaking), Rs. 90.1 billion (1.0%) to mining, Rs. 77.8 billion (0.8%) to iron & steel, Rs. 66.4 billion (0.7%) to cement and Rs. 25.1 billion (0.3%) to rigs. Further, the Bank’s fund based exposure and outstanding non-fund based facilities to promoter entities internally rated below investment grade where the underlying is partly linked to these sectors was Rs. 61.6 billion (0.7%). At year-end fiscal 2017, ICICI Bank’s fund based exposure and outstanding non-fund based facilities to companies internally rated below investment grade (excluding accounts classified as non-performing or restructured) was Rs. 62.3 billion (0.7% of the Bank’s total exposure) to power (excluding central public sector owned undertaking), Rs. 52.3 billion (0.6%) to mining, Rs. 39.7 billion (0.4%) to iron & steel, Rs. 2.9 billion to cement and Rs. 0.4 billion to rigs. Further, the Bank’s fund based exposure and outstanding non-fund based facilities to promoter entities internally rated below investment grade where the underlying is partly linked to these sectors was Rs. 32.6 billion (0.3%). The decrease of Rs. 250.2 billion in the aggregate fund based exposure and non-fund based outstanding to companies internally rated below investment grade in the above sectors and promoter entities was due to classification of Rs. 200.5 billion as non-performing and reduction in exposure and net rating upgrades of Rs. 49.7 billion. The exposure to companies internally rated below investment grade in the above sectors and promoter entities includes the non-fund based facilities outstanding in respect of accounts included in this portfolio where the fund based facilities outstanding have been classified as non-performing.In view of the uncertainties relating to the above sectors and the time that it may take to resolve the Bank’s exposures to these sectors, the Bank made a collective contingency and related reserve of Rs. 36.0 billion atyear-end fiscal2016 towards the Bank’s exposure to these sectors. This reserve was over and above the provisions required for non-performing and restructured loans as per Reserve Bank of India guidelines but, as a prudent matter, was permitted under Reserve Bank of India guidelines and Indian GAAP.During fiscal 2017, ICICI Bank re-allocated the full amount of the collective contingency and related reserve towards the provisions for loans and fixed assets acquired in partial satisfaction of loans. See also “Business—Classification of Loans”.
Pursuant to the guidelines of the Reserve Bank of India, the Bank’s credit exposure to an individual borrower must not exceed 15.0% of its capital funds, unless the exposure is with regards to an infrastructure project. Capital funds refer to Tier 1 and Tier 2 capital after regulatory adjustments as per the Reserve Bank of India guideline ‘Master Circular - Basel III Capital Regulations’. ICICI Bank’s exposure to a group of companies under the same management control generally must not exceed 40.0% of its capital funds unless the exposure is towards an infrastructure project, as per the Reserve Bank of India guidelines. Banks may, in exceptional circumstances, with the approval of their boards, enhance the exposure by 5.0% of capital funds (i.e., aggregate exposure can be 20.0% of capital funds for an individual borrower and aggregate exposure can be 45.0% of capital funds for a group of companies under the same management). At year-end fiscal 2017, our largest non-bank borrower accounted for approximately 12.1% of our capital funds. The largest group of companies under the same management control accounted for approximately 23.4% of our capital funds. The Bank’s exposure to its 20 largest borrowers (including banks) was approximately 12.9% of our total exposure, and our credit exposure to our 20 largest borrowers (including banks) was approximately 13.2% of the Bank’s total credit exposure at year-end fiscal 2017.
In December 2016, the Reserve Bank of India released a framework for large exposures with limits on exposure of banks to single counterparty and a group of connected counterparties. As per this framework, the sum of all the exposure values of a bank to a single counterparty must not be higher than 20% of the bank’s
available eligible capital base at all times and the sum of all the exposure values of a bank to a group of connected counterparties must not be higher than 25% of the bank’s available eligible capital base at all times. This framework is expected to be implemented in full by April 1, 2019 and the extant exposure norms applicable for credit exposure to individual borrower or to group of companies /group of companies under same management control will no longer be applicable from that date. Banks are required to gradually adjust their exposures so as to comply with the limits given in the framework for large exposures. In August 2016, the Reserve Bank of India issued guidelines proposing limits on the aggregate exposure of the banking system to large borrowers, with lending beyond the specified limits attracting higher risk weights and provisioning. These guidelines, and our focus on controlling and reducing concentration risk, may restrict our ability to grow our business with some customers, and require us to reduce our exposure to some groups.
Our strategy with respect to our loan portfolio comprises proactive monitoring of loan portfolios across businesses; improvement in the portfolio mix by focusing on retail lending and lending to higher-rated companies; reduction of concentration risk; and resolution of exposures through asset sales by borrowers, changes in management and working with stakeholders to ensure that companies are able to operate at an optimal level and generate cash flows. We have created a framework for managing concentration risk which specifies various single borrower and group exposure thresholds and the authorization matrix that must be followed in case exposures exceed the stipulated thresholds. There can be no assurance that we will be able to successfully implement our strategy and control or reduce the level of concentration. See also“Business—Loan Portfolio—Loan Concentration”.
Our banking and trading activities are 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, the quality of our loan portfolio and our financial performance.
Interest rates in India are impacted by a range of factors including inflation, fiscal deficit and government borrowing, monetary policy and market liquidity. For instance, in July 2013, with a view to manage the volatility in the exchange rate, the Reserve Bank of India introduced measures to reduce liquidity in the Indian banking system and increase the cost of borrowing from the Reserve Bank of India.
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 also “Supervision and Regulation—Legal Reserve Requirements”. 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. Realized and marked-to-market gains or losses on investments in fixed income securities, including government of India securities, are an important element of our profitability and are impacted by movements in market yields. A rise in yields on government securities reduces our profits from this activity and the value of our fixed income portfolio. 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. We are also exposed to interest rate risk through our treasury operations as well as the operations of certain of our subsidiaries, including ICICI Lombard General Insurance Company, which has a portfolio of fixed income securities, and ICICI Securities Primary Dealership, which is a primary dealer in government of India securities. In our asset management business, we manage money market mutual funds whose performance is impacted by a rise in interest rates, which adversely impacts our revenues and profits from this business. See also “—Risks Relating to India and Other Economic and Market Risks—A prolonged slowdown in economic growth or rise in interest rates in India could cause our business to suffer” and “—Risks Relating to India and Other Economic and Market Risks—Current account deficits, including trade deficits, and capital flow and exchange rate volatility could adversely affect our business and the price of our equity shares and ADSs”.
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, or if our cost of funds does not decline at the same time or to the same extent as the decrease in yield on our interest-earning assets, our net interest income and net interest margin would be adversely impacted. Any systemic decline in low cost funding available to banks in the form of current and savings account deposits would adversely impact our net interest margin. The Reserve Bank of India has deregulated the interest rate on savings deposits, following which some of the smaller banks in India are offering higher interest rates on their savings deposit accounts. If other banks with whom we compete similarly raise their savings account deposit rates, we may also have to do so to remain competitive and this would adversely impact our cost of funds. In December 2015, the Reserve Bank of India released guidelines on computation of lending rates based on the marginal cost of funds methodology which is applicable on incremental lending from April 1, 2016. This change in the methodology for calculating cost of funds led to lower lending rates, and may lead to more frequent revisions in lending rates due to the prescribed monthly review of cost of funds. See also
“Business—Loan Portfolio—Loan Pricing” and “Supervision and Regulation—Regulations Relating to Advancing Loans”. This may impact the yield on our interest-earning assets, our net interest income and net interest margin. During November 2016-March 2017, there was a significant increase in savings and current account deposits in the banking system following the government of India’s decision to withdraw high denomination currency notes. The surge in low cost funds resulted in an increase in liquidity in the banking system and a reduction in the cost of funds for banks, including for us. The subsequent reduction in lending rates were however higher compared to the decline in cost of funds, as banks were seeking to deploy the excess liquidity. Further, customers with floating rate loans also repriced their existing loans at the lower rate. Earlier, banks were not permitted to extend fixed rate loans at a rate of interest lower than the base rate. This restriction no longer applies to fixed rate loans of tenor above three years under the new guideline, and competition among lenders may lead to lower lending rates and result in reduced net interest income. If there are increases in our cost of funds and if we are unable to pass on the increases fully into our lending rates, our net interest margins and profitability would be adversely impacted. In January 2017, we reduced our marginal cost of funds based lending rate, which is the benchmark rate for floating rate loans offered by us, by 70 basis points across tenures. Some of the other large banks in India also announced a downward revision in their marginal cost of funds based lending rates. Such revisions in benchmark lending rates may impact the yield on our interest-earning assets, our net interest income and net interest margin.
Further, any tightening of liquidity and volatility in international markets may limit our access to international bond markets and result in an increase in our cost of funding for our international business. Continued volatility in international markets could constrain and increase the cost of our international market borrowings and our ability to replace maturing borrowings and fund new assets. Our overseas banking subsidiaries are also exposed to similar risks.
High and increasing interest rates or greater interest rate volatility would adversely affect our ability to grow, our net interest margins, our net interest income, our income from treasury operations and the value of our fixed income securities portfolio.
We are subject to the directed lending requirements of the Reserve Bank of India, and any shortfall in meeting these requirements may be required to be invested in Government schemes that yield low returns, thereby impacting our profitability. We may also experience a higher level of non-performing assets in our directed lending portfolio, which could adversely impact the quality of our loan portfolio, our business and the price of our equity shares and ADSs.
Under the directed lending norms of the Reserve Bank of India, banks in India are required to lend 40.0% of their adjusted net bank credit to certain eligible sectors, categorized as priority sectors. Of this, banks have sub-targets for lending to key sectors. A proportion of 18.0% of adjusted net bank credit is required to be lent to the agricultural sector. The norms applicable up to and including fiscal 2015 required 18.0% of adjusted net bank credit lent to the agriculture sector to include direct agricultural advances of at least 13.5% and indirect agricultural advances of not more than 4.5%. Direct agricultural advances include loans made directly to individual farmers or groups of individual farmers for agriculture and related activities. Indirect agricultural advances include loans for purposes linked to agriculture, such as loans to food and agri-processing units, finance for hire-purchase schemes for distribution of agricultural machinery and implements, financing farmers indirectly through the co-operative system and loans for the construction and operation of storage facilities. Loans to identified weaker sections of society must comprise 10.0% of adjusted net bank credit. These requirements were to be met as of the last reporting Friday of the fiscal year with reference to the adjusted net bank credit of the previous fiscal year till fiscal 2016. From fiscal 2017, the requirement is assessed on a quarterly basis. These requirements apply to ICICI Bank on a standalone basis.
The Reserve Bank of India issued revised directed lending norms applicable from fiscal 2016 onwards. The sub-targets for direct and indirect lending to agriculture have been combined. Two new sub-targets, a target of 8.0% of adjusted net bank credit to small and marginal farmers and a 7.5% lending target to micro-enterprises, have been introduced and apply in a phased manner over fiscal 2016 and fiscal 2017. The balance of the priority sector lending requirement can be met by lending to a range of sectors, including small businesses, medium enterprises, renewable energy, social infrastructure and residential mortgages satisfying certain criteria. The target for lending to weaker sections continues to be at 10% of adjusted net bank credit. At year-end fiscal 2017, ICICI Bank’s priority sector lending was Rs. 1,490.8 billion. As prescribed in the Reserve Bank of India guidelines, the Bank’s priority sector lending compliance was computed on quarterly average basis for fiscal 2017. Total average priority sector lending was Rs. 1,399.4 billion constituting 39.9% of adjusted net bank credit against the requirement of 40.0% of adjusted net bank credit. The average lending to the agriculture sector was Rs. 547.4 billion constituting 15.6% of adjusted net bank credit against the requirement of 18.0% of adjusted net bank credit. The average advances to weaker sections were Rs. 220.9 billion constituting 6.3% of
adjusted net bank credit against the requirement of 10.0% of adjusted net bank credit. Average lending to small and marginal farmers was Rs. 142.2 billion constituting 4.1% of adjusted net bank credit against the requirement of 8.0% of adjusted net bank credit. The average lending to micro enterprises was Rs. 241.2 billion constituting 6.9% of adjusted net bank credit against the requirement of 7.5% of adjusted net bank credit. The average lending to non-corporate farmers was Rs. 300.9 billion constituting 8.6% of adjusted net bank credit against the requirement of 11.7% of adjusted net bank credit.
The Reserve Bank of India has from time to time issued guidelines on priority sector lending requirements that restrict the ability of banks to meet the directed lending obligations through lending to specialized financial intermediaries, specified criteria to be fulfilled for investments by banks in securitized assets and outright purchases of loans and assignments to be eligible for classification as priority sector lending and regulate the interest rates charged to ultimate borrowers by the originating entities in such transactions. In September 2013, the Reserve Bank of India set up a committee on comprehensive financial services for small businesses and low income households which, among other recommendations, proposed a new methodology for computation of priority sector targets based on district-level credit penetration and other criteria. This recommendation has not been implemented thus far.
Any shortfall in meeting the priority sector lending requirements may be required to be invested at any time, at the Reserve Bank of India’s request, in Government schemes that yield low returns, determined depending on the prevailing bank rate and on the level of shortfall, thereby impacting our profitability. The aggregate amount of funding required by such schemes is drawn from banks that have shortfalls in achievement of their priority sector lending targets, with the amounts drawn from each bank determined by the Reserve Bank of India. At year-end fiscal 2017 our total investments in such schemes on account of past shortfalls in achieving the required level of priority sector lending were Rs. 241.1 billion. In May 2014, the Reserve Bank of India issued guidelines allowing banks to include the outstanding mandated investments in Government schemes at March 31 of the fiscal year to be treated as part of indirect agriculture and count towards overall priority sector target achievement. Investments at March 31 of the preceding year would be included in the adjusted net bank credit which forms the base for computation of the priority sector and sub-segment lending requirements. These changes were made effective fiscal 2014. The Reserve Bank of India has proposed a scheme to sell and purchase priority sector lending certificates among banks in the event of excess/shortfall in meeting priority sector targets, which may help in reducing the shortfall in priority sector lending. However, this would depend on the availability of such certificates for trading. Our investments in Government schemes are expected to increase in view of the continuing shortfall in agriculture lending sub-targets and weaker section loans. See also “Supervision and Regulation—Directed lending”.
As a result of priority sector lending requirements, we may experience a higher level of non-performing assets in our directed lending portfolio, particularly due to loans to the agricultural sector and small enterprises, where we are less able to control the portfolio quality and where economic difficulties are likely to affect our borrowers more severely. The Bank’s gross non-performing assets in the priority sector loan portfolio were 2.3% in fiscal 2014, 2.1% in fiscal 2015 and 2.2% in fiscal 2016 and fiscal 2017. Recently, some states in India have announced schemes for waiver of loans taken by farmers. While the cost of such schemes is borne by the state governments, such schemes or borrower expectations of such schemes may result in higher delinquencies in our agricultural lending portfolio. Any future changes by the Reserve Bank of India to the directed lending norms may result in our continued inability to meet the priority sector lending requirements as well as require us to increase our lending to relatively more risky segments and may result in an increase in non-performing loans.
In addition to the directed lending requirements, the Reserve Bank of India has mandated banks in India to have a financial inclusion plan for expanding banking services to rural and unbanked centers and to customers who currently do not have access to banking services. Further, since August 2014, the Indian government has launched a financial inclusion mission which involves opening a bank account for every household along with credit and insurance facilities. The expansion into these markets involves significant investments and recurring costs. The profitability of these operations depends on our ability to generate business volumes in these centers and from these customers, and the level of non-performing loans in the portfolio of loans to such customers.
We have seen a significant increase in our branch network over the last few years and any inability to use these branches productively or substantial delays in achieving desired levels of productivity may have an adverse impact on our growth and profitability.
The branch network of ICICI Bank in India has increased from 3,100 branches at year-end fiscal 2013 to 4,850 branches at year-end fiscal 2017. See also “—We may seek opportunities for growth through acquisitions, divest our existing businesses, or be required to undertake mergers by the Reserve Bank of India and could face integration and other acquisitions risks”. We have also substantially scaled up our branch network in rural and
semi-urban areas and have also established low-cost branches in centers in the country having no bank presence. Our new branches typically operate at lower productivity levels, as compared to our existing branches. Our operating performance depends also on the productivity of our employees. Any inability to achieve or substantial delays in achieving desired levels of productivity would have an adverse impact on our growth and profitability and the price ofour equity shares and ADSs.
We are subject to capital adequacy and liquidity requirements stipulated by the Reserve Bank of India, including Basel III, and any inability to maintain adequate capital or liquidity due to changes in regulations, a lack of access to capital markets, or otherwise may impact our ability to grow and support our businesses.
With effect from April 1, 2013, banks in India commenced implementation of the Basel III capital adequacy framework as stipulated by the Reserve Bank of India. The Basel III guidelines, among other things, establish common equity Tier 1 as a new tier of capital; impose a minimum common equity Tier 1 risk-based capital ratio of 5.5% and a minimum Tier 1 risk-based capital ratio of 7.0% while retaining the minimum total risk-based capital ratio of 9.0%; require banks to maintain a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets above the minimum requirements to avoid restrictions on capital distributions and discretionary bonus payments; establish new eligibility criteria for capital instruments in each tier of regulatory capital; require more stringent adjustments to and deductions from regulatory capital; provide for more limited recognition of minority interests in the regulatory capital of a consolidated banking group; impose a 4.5% Basel III leverage ratio of Tier 1 capital to exposure during a parallel run period from 2013 to 2017; and modify the Reserve Bank of India’s Basel II guidelines with respect to credit risk, including counterparty credit risk and credit risk mitigation, and market risk. The guidelines are to be fully implemented by year-end fiscal 2019. Applying the Basel III guidelines, our capital ratios on a consolidated basis at year-end fiscal 2017 were: common equity Tier 1 risk-based capital ratio of 13.8%; Tier 1 risk-based capital ratio of 14.4%; and total risk-based capital ratio of 17.3%.
The capital regulations continue to evolve, both globally and in India. The Reserve Bank of India requires additional capital to be held by banks as a systemic buffer. For instance, in July 2014, the Reserve Bank of India issued guidelines requiring additional common equity Tier 1 capital requirements ranging from 0.2% to 0.8% of risk-weighted assets for domestic banks that are identified as systemically important. The systemic importance of a bank would be determined based on the size, inter-connectedness, substitutability and complexity of the bank, with a larger weightage given to size. We were declared a systemically important bank in India by the Reserve Bank of India in August 2015 and placed in the first bucket which requires us to maintain additional common equity Tier 1 capital of 0.2% in a phased manner from April 1, 2016. Further, the Reserve Bank of India also released guidelines on implementation of counter-cyclical capital buffers which propose higher capital requirements for banks, ranging from 0% to 2.5% of risk-weighted assets, during periods of high economic growth. The capital requirement would be determined based on certain triggers such as deviation of long-term average credit-to-GDP ratio and other indicators. While these guidelines are already effective, the Reserve Bank of India has stated that current economic conditions do not warrant activation of the counter-cyclical capital buffer. In addition, with the approval of the Reserve Bank of India, banks in India may migrate to advanced approaches for calculating risk-based capital requirements in the medium term. The Reserve Bank of India has increased the risk weight on unrated exposures to corporates and infrastructure financing non-banking finance companies from 100.0% to 150.0% if the aggregate exposure of the banking system exceeds Rs. 2.0 billion. This is effective from June 30, 2017. Such regulatory changes and evolving regulations may impact the amount of capital that we are required to hold. Our ability to grow our business and execute our strategy is dependent on our level of capitalization and we typically raise resources from the capital markets to meet our capital requirements.
In December 2013, the Reserve Bank of India issued guidelines on stress testing according to which banks have to carry out stress tests for credit risk and market risk to assess their ability to withstand shocks. Banks are classified into three categories based on size of risk-weighted assets and banks with risk-weighted assets of more than Rs. 2,000.0 billion are required to carry out complex and severe stress testing.
In June 2014, the Reserve Bank of India released guidelines on liquidity coverage ratio requirements under the Basel III liquidity framework. These guidelines require banks to maintain and report the Basel III liquidity coverage ratio, which is a ratio of the stock of high quality liquid assets and total net cash outflows over the next 30 calendar days. The Reserve Bank of India has also defined categories of assets qualifying as high quality liquid assets and mandated a minimum liquidity coverage ratio of 60.0% from January 1, 2015, which would be increased in a phased manner to a minimum of 100.0% from January 1, 2019. The Reserve Bank of India has also issued a leverage ratio framework which is effective from April 1, 2015 and is measured as the ratio of a bank’s Tier 1 capital and total exposure. Further, the Reserve Bank of India has issued draft guidelines on the net stable funding ratio for banks which is expected to be applicable from January 1, 2018 and would require
banks to maintain sufficient funds that are considered as reliable to cover the liquidity requirements and asset maturities coming up over the next one year on an ongoing basis. These requirements together with the existing liquidity and cash reserve requirements may result in Indian banks, including us, holding higher amounts of liquidity, thereby impacting profitability.
Any reduction in our regulatory capital ratios, increase in liquidity requirements applicable to us on account of regulatory changes or otherwise, changes in the composition of liquidity and any inability to access capital markets may limit our ability to grow our business, impact our profitability and our future performance and strategy.
Our risk profile is linked to the Indian economy and the banking and financial markets in India which are still evolving.
economies. Our credit risk may be higher than the credit risk of banks in some developed economies. Unlike several developed economies, a nation-wide credit bureau only became operational in India in 2000. This may limit theOur access to information available to us about the credit historyhistories of our borrowers, especially individuals and small businesses.businesses, may be limited relative to what is typically available for similar borrowers in developed economies. In addition, the credit risk of our borrowers is often higher than borrowers in more developed economies due to the evolving Indian regulatory, political, economic and industrial environment. The directed lending norms of the Reserve Bank of India require us to lend a certain proportion of our loans to “priority sectors”, including agriculture and small enterprises, where we are less able to control the portfolio quality and where economic difficulties are likely to affect our borrowers more severely. We also purchase priority sector lending certificates to meet directed lending requirements, and the cost of purchasing such certificates may increase substantially depending on the demand and supply scenario of the certificates. Any shortfall in meeting the priority sector lending targets and sub-targets may be required to be allocated to investments yielding sub-market returns. See also “—“—Risks that arise as a result of our presence in a highly regulated sector—We are subject to the directed lending requirements of the Reserve Bank of India, which may also involve buying related certificates at a premium to meet the annual targets, and any shortfall in meeting these requirements may be required to be invested in Government of India schemes that yield low returns, thereby impacting our profitability. We may also experience a higher level of non-performing assets in our directed lending portfolio, which could adversely impact the quality of our loan portfolio, our business and the priceprices of our equity shares and ADSs” and “Business—Loan Portfolio—Supervision and Regulation—Regulations Relating to Advancing Loans—Directed Lending”. Several
We may face the risk of our corporate borrowers have suffered from low profitability becausedeposit runs notwithstanding the existence of increased competition from economic liberalization, a sharp declinenational deposit insurance scheme. Any failure in commodity prices, high debt burden and high interest ratescontrolling such situations in the Indian economy, and other factors. An economic slowdown and a general declinefuture could result in business activity in India could impose further stress on these borrowers’ financial soundness and profitability and thus expose us to increased credit risk. For instance, developments in the Indian economy have led to a rise in non-performing and restructured assetshigh volumes of Indian banks, including us, since fiscal 2014. Such conditions may lead to an increase in the level ofdeposit withdrawals, which would adversely impact our non-performing assets and there could be an adverse impact onliquidity position, disrupt our business and, in times of market stress, undermine our future financial performance, our stockholders’ equity and the price of our equity shares and ADSs.strength.
In addition to credit risks, we also face additional risks as compared with banks in developed economies. We pursue our banking, insurance and other activities in India in a developing economy with all of the risks that come with such anoperating in a developing economy. Our activities in India are widespread and diverse and involve employees, contractors, counterparties and customers with widely varying levels of education, financial sophistication and wealth. Although we seek to implement policies and procedures to reduce and manage marketplace risks as well as risks within our own organization, some risks remain inherent in doing business in a large, developing country. We cannot eliminate these marketplace and operational risks, which may lead to or exacerbate legal, regulatory or regulatoryjudicial actions, negative publicity or other developments that could reduce our profitability. InSee also “—Risks that arise as a result of our presence in a highly regulated sector—The enhanced supervisory and compliance environment in the aftermathfinancial sector increases the risk of regulatory action against us, whether formal or informal”,
15
“—Risks that arise as a result of our presence in a highly regulated sector—We are at risk for inquiries or investigations by regulatory and enforcement authorities, which may adversely affect our reputation, lead to increased regulatory scrutiny, cause us to incur additional costs or adversely affect our ability to conduct business” and “—Risks Relating to Our Business—Entry into new businesses or rapid growth in existing loan portfolios may expose us to increased risks that may adversely affect our business”.
A significant change in the Indian government’s policies, including economic policies, fiscal policies and structural reforms, could adversely affect our business and the prices of our equity shares and ADSs.
Our business and customers are predominantly located in India or are related to and influenced by the Indian economy. The Indian government has traditionally exercised, and continues to exercise, a dominant influence over many aspects of the financial crisis, regulatory scrutiny of these risks is increasing. See also “—economy. The valueIndian government’s policies could adversely affect business and economic conditions in India, our ability to implement our strategy, the operations of our collateralsubsidiaries and affiliates and our future financial performance. Successive Indian governments have pursued policies of economic liberalization, including significantly relaxing restrictions on the private sector and encouraging the development of the Indian financial sector. While a single party achieved majority in the general elections in fiscal 2015 and fiscal 2020, India has been governed by coalition governments in the past. The leadership of India and the composition of the government are subject to change, and election results are not predictable. It is difficult to predict the economic policies that will be pursued by governments in the future. In addition, investments by the corporate sector in India may decrease or we may experience delays in enforcing our collateral when borrowers default on their obligationsbe impacted by government policies and decisions including judicial decisions, such as with respect to us whichawards of licenses and resources, access to land and natural resources and policies with respect to protection of the environment. Such policies and decisions may result in failuredelays in execution of projects, including those financed by us, and also limit new project investments, and thereby impact economic growth.
The pace of economic liberalization could change, and specific laws and policies affecting banking and finance companies, foreign investment, currency exchange and other matters affecting investment in our securities could change as well. Decisions by the Government of India could impact our business and financial performance. The Indian government announced the introduction of central bank digital currency by the Reserve Bank of India in the Union Budget for fiscal 2023, and the impact of the introduction of digital currency on the banking system, including us, is uncertain. Any changes in regulations or significant change in India’s economic policies or any market volatility as a result of uncertainty surrounding India’s macroeconomic policies or the future elections of its government could adversely affect business and economic conditions in India generally and our business in particular and the prices of our equity shares and ADSs could be adversely affected.
Natural calamities, climate change and health epidemics could adversely affect the Indian economy, or the economy of other countries where we operate, our business and the prices of our equity shares and ADSs.
India has experienced natural calamities such as earthquakes, floods and droughts in the past few years. The extent and severity of these natural disasters determine their impact on the Indian economy. In particular, climatic and weather conditions, such as the level and timing of monsoon
16
rainfall, impact the agricultural sector, which constituted approximately 18% of India’s gross value added in fiscal 2023. Prolonged spells of below or above normal rainfall or other natural calamities, or global or regional climate change, could adversely affect the Indian economy and our business, especially our rural portfolio. Similarly, global or regional climate change in India and other countries where we operate could result in change in weather patterns and frequency of natural calamities like droughts, El Nino, floods and cyclones, which could affect the economy of India, the countries where we operate and our operations in those countries.
Health epidemics could also disrupt our business, our borrowers, our counterparties and other constituents. The emergence of disease pandemics like COVID-19, and other earlier outbreaks like the nipah virus in 2018 in certain regions of southeast Asia, including India, have caused, and could in the future cause, economic and financial disruptions. Such disruptions in India and other areas of the world in which we operate could lead to recoveroperational difficulties, including travel restrictions, that could impact our business and our ability to manage or conduct our business. Any future outbreak of health epidemics may impact the expected valuequality of collateral security exposing usour portfolio and result in an increase in our non-performing loans, and restrict the level of business activity in affected areas, which may in turn adversely affect our business and the prices of our equity shares and ADSs.
If regional hostilities, terrorist attacks, or social unrest in India or elsewhere increase, our business and the prices 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, and border disputes with neighboring countries, including China. In June 2020, Indian and Chinese troops engaged in physical conflict in the Galwan River valley. Both Indian and Chinese governments have undertaken protective measures, such as, in relation to the presence of Chinese businesses in India. We cannot predict how such geopolitical events will develop in the future and how it may impact our business, operations, reputation and financial condition.
India has also experienced terrorist attacks in some parts of the country, including in Mumbai, where our headquarters are located. India could also be impacted by intensifying border disputes with its neighbors, trade wars between large economies like the U.S. increasing trade tariffs on goods imported from China, or possible import restrictions on Indian goods by trading partners that could have an adverse impact on India’s trade and capital flows, exchange rate and macroeconomic stability. In addition, geopolitical events in the Middle East, Asia and Europe or terrorist or military action in other parts of the world, including the ongoing military conflict between Russia and Ukraine, may impact prices of key commodities, financial markets and trade and capital flows, including by leading to restrictions on countries which are among India’s significant trading partners. These factors and any political or economic instability in India could adversely affect our business, our future financial performance and the prices of our equity shares and ADSs.
Risks that arise as a potential loss”.result of our presence in a highly regulated sector
The enhanced supervisory and compliance environment in the financial sector increases the risk of regulatory action against us, whether formal or informal. Following the financial crisis, regulators are increasingly viewing us, as well as other financial institutions, as presenting a higher risk profile than in the past.
17
We are subject to a wide variety of banking, insurance and financial services laws, regulations and regulatory policies and a large number of regulatory and enforcement authorities in each of the jurisdictions in which we operate. Since the global financial crisis, regulatorsRegulators in India and in the other jurisdictions in which we operate have intensified theirsubject financial sector institutions, including us, to intense review, supervision and scrutinyscrutiny. This heightened level of many financial institutions, including us. In the aftermath of the financial crisis, regulators are increasingly viewing us, as well as other financial institutions, as presenting a higher risk profile than in the past, in a range of areas. This increased review and scrutiny or any changes in the existing regulatory supervision framework, increases the possibility that we will face adverse legal or regulatory actions. In the face of difficulties in the Indian banking sector, the Reserve Bank of India has been increasing the intensity of its scrutiny of Indian banks and has been imposing fines and penalties that are larger than the historic norms on Indian banks. The Reserve Bank of India and other regulators regularly review our operations, and there can be no guarantee that all regulators will agree with our internal assessments of asset quality, provisions,
risk management, capital adequacy and management functioning, other measures of the safety and soundness of our operations or compliance with applicable laws, regulations, accounting and taxation norms, listing norms or regulatory policies. See also “—If regulators continue to impose increasingly stringent requirements regarding non-performing loans
Regulators, including among others the Reserve Bank of India and provisioning for such loans, or if the provisions for such loans otherwise increase, our business will suffer”. RegulatorsSecurities and Exchange Board of India, as well as governmental authorities and courts, may find that we are not in compliance with applicable laws, regulations, accounting and taxation norms, listing norms or regulatory policies, or with the regulators’ revised interpretations of such laws, regulations or regulatory policies, and may take formal or informal actions against us. Such formal or informal actions might force us to make additional provisions for our non-performing assets or otherwise, divest our assets, adopt new compliance programs or policies, remove personnel including senior executives, reduce dividend or executive compensation, provide remediation or refunds to customers or undertake other changes to our business operations. Any of these changes, if required, couldoperations, and may reduce our revenues, require us to incur additional expenses, impact our profitability by restricting our operations, imposing new costs or harmingand damage our reputation. In April 2017,fiscal 2021, pursuant to judicial orders, the Reserve Bank of India directedprovided copies of its supervisory inspection reports for certain banks, including us, for earlier years to make disclosuresan external party. The consequences of these reports, or any future reports, being available in the notes to accounts to the financial statements where divergences in asset classification and provisioning consequent to Reserve Bank of India’s annual supervisory assessment process have exceeded a specified threshold. See also “—The regulatory environment for financial institutions is facing unprecedented change in the post-financial crisis environment” and “Supervision and Regulation”.
Our banking subsidiaries in the United Kingdom and Canada have in the past focused primarily on leveraging their deposit franchises in these markets to extend financing to Indian companies for their operations in India and globally, including the financing of overseas acquisitions by Indian companies through structured transactions. In view of regulatory limitations on cross-border financing of this nature, these subsidiaries have experienced a reduction in their business, impacting their profitability and resulting in a sharp reduction in the return on the capital invested in these businesses. While both these subsidiariespublic domain are focused on growing their business within the current regulatory framework, the opportunities to do so may be limited. Further, while both these subsidiaries are focused on optimizing their capital base and have repatriated capital and made dividend payments to ICICI Bank in the recent past, such initiatives are subject to regulatory approvals. There can be no assurance regarding the timing or grant of such approvals in the future. Our overseas branches are also subject to respective local regulatory requirements, including any requirements related to liquidity, capital and asset classification and provisioning.
In addition to oversight by the Reserve Bank of India, our insurance subsidiaries are also subject to extensive regulation and supervision by India’s insurance regulators. The Insurance Regulatory and Development Authority of India has the authority to modify and interpret regulations regarding the insurance industry, including regulations governing products, selling commissions, solvency margins and reserving, which can lead to additional costs or restrictions on our insurance subsidiaries’ activities. Similarly, our asset management subsidiary is subject to supervision and regulation by the Securities and Exchange Board of India. There can be no assurance that increase in regulatory scrutiny of our subsidiaries and stringent requirements, including additional disclosures, will not have a material adverse impact on the Bank.
Failure to comply with applicable regulations in various jurisdictions, including unauthorized actions by employees, representatives, agents and third parties, suspected or perceived failures and media reports, and ensuing inquiries or investigations by regulatory and enforcement authorities, has resulted,uncertain and may result in the future, in regulatory actions, including financial penaltiesnegative publicity about us. See also “Supervision and restrictions on or suspension of the related business operations. Following the release on the Internet in March 2013 of videos forming part of a sting operation on banks and insurance companies in India that purported to show the Bank’s frontline branch employees engaging in conversations that would violate our Group’s Code of Business Conduct and Ethics and could have, if any transactions had been consummated, led to violations of anti-money laundering and ‘know-your-customer’ norms, the Reserve Bank of India undertook investigations at ICICI Bank and over 30 other banks in India. While the Reserve Bank of India’s investigations did not reveal any prima facie evidence of money laundering, the Reserve Bank of India imposed an aggregate penalty of Rs. 665 million on 31 Indian banks, including Rs. 10 million on ICICI Bank, for instances of violation of applicable regulations, which we have paid. A penalty of Rs. 1.4 million was also imposed on the Bank in February 2015 by the Financial Intelligence Unit, India, for failure in reporting the attempted suspicious transactions to which the above sting operations pertained. The Bank had filed an appeal against the penalty with the Appellate Tribunal. In June 2017, the Appellate Tribunal ruled that the penalty was not sustainable. The Tribunal asked the appellant banks to be careful and report such matters in future.Regulation”.
In addition, a failure to comply with the applicable regulations in various jurisdictions by our employees, representatives, agents and third-party service providers either in or outside the course of their services, or suspected or perceived failures by them, may result in inquiries or investigations by regulatory and enforcement authorities and in regulatory or enforcement action against either us, or such employees, representatives, agents and third-party service providers. Such actions may impact our reputation, result in adverse media reports, lead to increased or enhanced regulatory or supervisory concerns, cause us to incur additional costs, penalties, claims and expenses or impact adversely our ability to conduct business.
If we fail to manage our legal and regulatory risk in the many jurisdictions in which we operate, our business could suffer, our reputation could be harmed and we would be subject to additional legal and regulatory risks. This could, in turn, increase the size and number of claims and damages asserted against us and/or subject us to regulatory investigations, enforcement actions or other proceedings, or lead to increased supervisory concerns. We may also be required to spend additional time and resources on remedial measures and conducting enquiries, beyond those already initiated and ongoing, which could have an adverse effect on our business.
New regulations and compliance and disclosure requirements relating to environment, social and governance matters, especially climate change, have been recommended or are under consideration by regulators in the jurisdictions where we have our operations. In July 2022, the Reserve Bank of India released a discussion paper on a disclosure framework on climate-related financial risks and guidance on climate scenario analysis and stress testing. This paper has been made public for feedback and comments. Subsequently, the Reserve Bank of India released a framework for the acceptance of green deposits. Other jurisdictions in which we operate are also proposing or considering climate-risk related initiatives, policies and standards. For example, the U.S. Securities and Exchange Commission has proposed, but not finalized, climate-related
18
disclosures of publicly traded entities, which would include new requirements to disclose information about climate-related risks. We may be subject to risk arising from the inconsistencies and conflicts in the manner in which climate policy and financial regulation is implemented in the regions where the Bank operates, including initiatives to apply and enforce policy and regulation with extraterritorial effect.
Despite our best efforts to comply with all applicable regulations, there are a number of risks that cannot be completely controlled. Our international expansionpresence has led to increased legal and regulatory risks. Regulators in every jurisdiction in which we operate or have listed our securities have the power to restrict our operations, stipulate higher capital and liquidity requirements or bring administrative or judicial proceedings against us (or our employees, representatives, agents and third-party service providers), which could result, among other things, in suspension or revocation of one or more of our licenses, cease and desist orders, fines, civil penalties, criminal penalties or other disciplinary action which could materially harm our reputation, results of operations and financial condition.
We may be subject to fines, restrictions or other sanctions for regulatory compliance failures, which may adversely affect our financial position or our ability to expand our activities.
Failure to comply with applicable regulations in various jurisdictions, including unauthorized actions by employees, representatives, agents and third parties, suspected or perceived failures and media reports, and ensuing inquiries or investigations or proceedings by regulatory and enforcement authorities, has resulted, and may result in the future, in regulatory actions, including financial penalties and restrictions on or suspension of the related business operations. Whenever we consider it appropriate and the regulatory guidelines so permit, we may seek to settle or compound regulatory inquiries or investigations or proceedings through consensual process with the concerned regulator, which may entail monetary payment by us or agreeing to non-monetary terms. The non-monetary terms may include suspension or cessation of business activities for a specified period; change in key management personnel or restrictions being placed on key management personnel; disgorgement; implementation of enhanced policies and procedures to prevent future violations; appointing or engaging an independent consultant to review internal policies, processes and procedures; providing enhanced training and education; and/or submitting to enhanced internal audit, concurrent audit or reporting requirements.
We are at risk for inquiries or investigations by regulatory and enforcement authorities, which may adversely affect our reputation, lead to increased regulatory scrutiny, cause us to incur additional costs or adversely affect our ability to conduct business.
A failure to comply with the applicable regulations in various jurisdictions by our employees, representatives, agents and third-party service providers either in or outside the course of their services, or suspected or perceived failures by them, may result in further inquiries or investigations by regulatory and enforcement authorities and in additional regulatory or enforcement action against either us, or such employees, representatives, agents and third-party service providers. Such additional actions may further impact our reputation, result in adverse media reports, lead to increased or enhanced regulatory or supervisory concerns, cause us to incur additional costs, penalties, claims and expenses or impact adversely our ability to conduct business. See also “—Risks that arise as a result of our presence in a highly regulated sector—
19
The board of directors of the Bank has, pursuant to an independent enquiry, taken action against the former Managing Director and CEO. In the event the Bank is found by any of the enquiries in the matter by government and regulatory agencies to have violated applicable laws or regulations, the Bank could become subject to legal and regulatory sanctions that may materially and adversely affect our results of operations or financial condition and reputation.”
We have also experienced international expansion into banking in multiple jurisdictions which exposes us to a variety of regulatory and business challenges and risks, including cross-cultural risk, and further increases the risk of inquiries or investigations by regulatory and enforcement authorities. In October 2022, ICICI Bank’s New York Federal Branch (“New York Branch”) entered into a consent order with its federal banking supervisor, the Office of the Comptroller of the Currency, which required the New York Branch to enhance certain processes in its Bank Secrecy Act/Anti-Money Laundering program, and establish and maintain an effective sanctions compliance program. The Consent Order did not involve any monetary penalty. The New York Branch is committed to taking all necessary and appropriate steps to address the aspects identified and implement the necessary corrective actions as approved by the Office of the Comptroller of the Currency. The New York Branch provides a quarterly update to the Office of the Comptroller of the Currency on the progress of the corrective actions being undertaken. Expansion into additional jurisdictions also increases the complexity of our risks in a number of areas including currency risks, interest rate risks, compliance risk, regulatory risk, reputational risk and operational risk. We, or our employees, may from time to time, and as is common in the financial services industry, be the subject of inquiries, examinations or investigations that could lead to proceedings against us or our employees.
We cannot predict the timing or form of any current or future regulatory or law enforcement initiatives, which are increasingly common for international banks and financial institutions, butinstitutions.
We are subject to the directed lending requirements of the Reserve Bank of India, which may also involve buying related certificates at a premium to meet the annual targets, and any shortfall in meeting these requirements may be required to be invested in Government of India schemes that yield low returns, thereby impacting our profitability. We may also experience a higher level of non-performing assets in our directed lending portfolio, which could adversely impact the quality of our loan portfolio, our business and the prices of our equity shares and ADSs.
Under the directed lending norms of the Reserve Bank of India, banks in India are required to lend 40.0% of their adjusted net bank credit to certain eligible sectors, categorized as priority sectors. Under such lending norms, banks also have sub-targets for lending to key segments or sectors. A proportion of 9.5% and 11.5% of adjusted net bank credit were required to be lent to small and marginal farmers and identified weaker sections of society, respectively, in fiscal 2023, the proportion of which will increase to 10.0% and 12.0% respectively in fiscal 2024. The Reserve Bank of India has directed banks to maintain direct lending to non-corporate farmers at the banking system’s average level for the last three years and set a target of 13.78% of adjusted net bank credit for this purpose for fiscal 2023. In addition, 7.5% of adjusted net bank credit is required to be lent to micro-enterprises. The balance of the priority sector lending requirement can be met by lending to a range of sectors, including small businesses, medium-sized enterprises, renewable energy, social infrastructure and residential mortgages satisfying certain criteria. These requirements and achievements are assessed considering the average of the
20
outstanding balances at the quarter end. From fiscal 2022, the priority sector achievements are computed based on the weight assigned to the incremental priority sector credit in identified districts. The necessary adjustments for weight of districts and calculation of achievement are done by the Reserve Bank of India on the basis of data submitted by banks on a quarterly basis.
These requirements apply to ICICI Bank on a standalone basis. The Reserve Bank of India allows banks to sell and purchase priority sector lending certificates in the event of excess/shortfall in meeting priority sector targets, which help in reducing the shortfall in priority sector lending. These instruments are issued by banks that have a surplus in priority sector lending or any of its individual sub-segments and are purchased by banks having a shortfall, through a trading portal, without the transfer of risks or loan assets. The Bank also purchases priority sector lending certificates to meet directed lending requirements, the cost of which may vary based on the demand for and supply of such certificates. During fiscal 2023, the Bank met most of the targets, except the average lending to the agriculture sector and other sub-category targets such as non-corporate farmers and weaker section. The quarterly achievement as a percentage of the adjusted net bank credit for agricultural sector was 17.7% against the requirement of 18.0%, sub-category within agricultural sector for non-corporate farmers was 13.3% against the requirement of 13.8% and for lending to weaker sections was 11.3% against the requirement of 11.5%.
Any shortfall in meeting the priority sector lending requirements, after taking into account the priority sector lending certificates purchased, may be required to be invested at any time, at the Reserve Bank of India’s directive, in Government of India schemes that yield low returns, determined depending on the prevailing bank rate and on the level of shortfall, thereby impacting our profitability. At March 31, 2023, our total investments in such schemes on account of past shortfalls in achieving the required level of priority sector lending were Rs. 216.2 billion. Our investments in Government of India schemes are expected to increase in view of the continuing shortfall in agriculture lending sub-targets. These investments count towards overall priority sector target achievement. Investments at March 31 of the preceding year are included in the adjusted net bank credit which forms the base for computation of the priority sector and sub-segment lending requirements.
As a result of priority sector lending requirements, we may experience a higher level of non-performing assets in our directed lending portfolio, particularly due to loans to the agricultural sector and small enterprises, where we are less able to control the portfolio quality and where economic difficulties are likely to affect our borrowers more severely. The Bank’s gross non-performing assets in the priority sector loan portfolio were 2.3% in fiscal 2020, 3.4% in fiscal 2021, 2.7% in fiscal 2022 and 1.9% in fiscal 2023. In fiscal 2018 and fiscal 2019, some states in India announced schemes for waiver of loans taken by farmers. While the cost of such schemes is borne by the state governments, such schemes or borrower expectations of such schemes result in higher delinquencies including in the farmer loan portfolio for banks, including us. Under the Reserve Bank of India’s guidelines, these and other specified categories of agricultural loans are classified as non-performing when they are overdue for more than 360 days, as compared to 90 days for loans in general. Thus, the classification of overdue loans as non-performing occurs at a later stage in respect of such loans than the loan portfolio in general.
Going forward, the increase in sub-segment targets and growth in our domestic loan portfolio could lead to a significant increase in our priority sector lending target amounts. In view of the continuing shortfall in agriculture lending sub-targets and weaker section loans, the Bank may
21
have to significantly increase the purchase of priority sector lending certificates. The Reserve Bank of India has from time to time issued guidelines on priority sector lending requirements that restrict the ability of banks to meet the directed lending obligations through lending to specialized financial intermediaries, specify criteria to be fulfilled for investments by banks in securitized assets and outright purchases of loans and assignments to be eligible for classification as priority sector lending and regulate the interest rates charged to ultimate borrowers by the originating entities in such transactions. See also “Supervision and Regulation—Regulations Relating to Advancing Loans—Directed Lending”. Any future changes by the Reserve Bank of India to the directed lending norms may result in an inability to meet the priority sector lending requirements as well as require us to increase our lending to relatively riskier segments and may result in an increase in non-performing loans.
We are subject to capital adequacy requirements stipulated by the Reserve Bank of India, including Basel III, as well as general market expectations regarding the level of capital adequacy large Indian private sector banks should maintain, and any inability to maintain adequate capital due to changes in regulations, a lack of access to capital markets, or otherwise may impact our ability to grow and support our businesses.
Banks in India are subject to the Basel III capital adequacy framework as stipulated by the Reserve Bank of India. The Basel III guidelines in India, among other things, require a minimum common equity Tier 1 risk-based capital ratio of 5.5% and a minimum Tier 1 risk-based capital ratio of 7.0%, a minimum total risk-based capital ratio of 9.0%, and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets above the minimum requirements to avoid restrictions on capital distributions and discretionary bonus payments. The Bank is also required to maintain a capital surcharge of 0.20% on account of being designated a domestic systemically important bank. The guidelines also establish eligibility criteria for capital instruments in each tier of regulatory capital, require adjustments to and deductions from regulatory capital, and provide for limited recognition of minority interests in the regulatory capital of a consolidated banking group. Applying the Basel III guidelines, our capital ratios on a consolidated basis at March 31, 2023 were: common equity Tier 1 risk-based capital ratio of 16.9%; Tier 1 risk-based capital ratio of 17.3%; and total risk-based capital ratio of 18.1%.
The Reserve Bank of India has released guidelines on implementation of counter cyclical capital buffers, which propose higher capital requirements for banks, ranging from 0% to 2.5% of risk-weighted assets, during periods of high economic growth. This capital requirement would be determined based on certain triggers such as deviation of long-term average credit-to-GDP ratio and other indicators. While these guidelines are already effective, the Reserve Bank of India has stated that current economic conditions do not warrant activation of the counter cyclical capital buffer. The Reserve Bank of India has also issued a leverage ratio framework which is measured as the ratio of a bank’s Tier 1 capital and total exposure. Since October 2019, the Reserve Bank of India has required maintenance of a minimum leverage ratio of 4.0% for domestic systemically important banks, including us, and 3.5% for other banks. In 2018, the Reserve Bank of India advised banks to create an Investment Fluctuation Reserve from fiscal 2019 with the aim of building adequate reserves to protect against any sudden increase in Government of India bond yields. A minimum amount equal to the lesser of either the net profit on sale of investments during the year or net profit for the year excluding mandatory appropriations would have to be transferred to the Investment Fluctuation Reserve and would
22
cover at least 2.0% of the held-for-trading and available-for-sale portfolio of a bank, on a continuing basis. This reserve is eligible for inclusion in tier 2 capital.
Regulatory changes may impact the amount of capital that we are required to hold. Our ability to grow our business and execute our strategy is dependent on our level of capitalization and we may be required to raise resources from the capital markets or to divest stake in one or more of our subsidiaries to meet our capital requirements. Any reduction in our regulatory capital ratios, changes to the capital requirements applicable to us on account of regulatory changes or otherwise, our inability to access capital markets or otherwise increase our capital base and our inability to meet stakeholder expectations of the appropriate level of capital for us, while also meeting expectations of return on capital, may limit our ability to maintain our market standing and grow our business, and adversely impact our future performance and strategy. Debt and equity investors, rating agencies, equity and fixed income analysts, regulators and others would likely expect us to cooperatemaintain capital adequacy ratios well above the regulatory requirements, reflecting our position as a large private sector bank. In 2020, we raised Rs. 150.0 billion of equity capital through a Qualified Institutions Placement. We may seek to access the equity capital markets in the future, or make additional divestments of our investments in our subsidiaries and affiliates. Increases in our equity shares would dilute the shareholding of existing shareholders. There can be no assurance that we will be successful in raising the capital when required or that the timing for accessing the market or the terms of the capital raised would be attractive, and these may be subject to various uncertainties including liquidity conditions, market stability, or political or economic conditions. If we are unable to raise enough capital to satisfy our regulatory capital requirements, we will be subject to restrictions on capital distributions and discretionary bonus payments, as well as other potential regulatory actions.
In fiscal 2021, the Reserve Bank of India prohibited banks from making any dividend payouts from the profit pertaining to fiscal 2020 in order to conserve capital and to maintain their capacity to support the economy and absorb losses in an environment of heightened uncertainty caused by the COVID-19 pandemic. Accordingly, we did not declare any dividend for fiscal 2020. We cannot guarantee that we will not be subject to similar restrictions in the future. The Reserve Bank of India’s Prompt Corrective Action framework for banks defines risk thresholds for indicators like capital adequacy, asset quality and leverage, and stipulates actions like restriction on dividend distribution/remittance of profits, restriction on branch expansion, domestic and/or overseas expansion, and restrictions on capital expenditure other than for technological upgradation. At year-end fiscal 2023, the Bank’s financial indicators did not breach the risk thresholds prescribed by the Reserve Bank of India. There can be no assurance that we will always remain within the thresholds prescribed by the Reserve Bank of India in the future.
Our insurance, banking and home finance subsidiaries and affiliate are also subject to solvency and capital requirements imposed by their respective regulators. While we currently do not expect these entities to require significant additional equity capital, any requirement for ICICI Bank to make additional equity investments in these entities in the event of an increase in their capital requirements due to regulation or material stress would impact our capital adequacy.
We are subject to liquidity requirements of the Reserve Bank of India as well as those of banking regulators in our overseas locations, and any inability to maintain adequate liquidity due to changes in regulations, a lack of access to capital markets, or otherwise may impact our ability to grow and support our businesses.
23
The Reserve Bank of India has released guidelines on liquidity coverage ratio requirements under the Basel III liquidity framework that require banks to maintain and report the Basel III liquidity coverage ratio, which is a ratio of the stock of high quality liquid assets and total net cash outflows over the next 30 calendar days. The Reserve Bank of India has also defined categories of assets qualifying as high quality liquid assets and mandated a minimum liquidity coverage ratio of 100.0%. Further, the Reserve Bank of India has issued final guidelines on the net stable funding ratio for banks and would require banks to maintain sufficient funds that are considered as reliable to cover the liquidity requirements and asset maturities coming up over the next one year on an ongoing basis. There are similar requirements stipulated by regulators in most of our overseas locations due to which we are required to maintain appropriate levels of liquidity in those geographies as well. These liquidity requirements, together with the existing liquidity and cash reserve requirements, result in Indian banks, including us, holding high amounts of liquidity, thereby impacting profitability.
Any reduction in our liquidity coverage or net stable funding ratios, increase in liquidity requirements applicable to us on account of regulatory changes or otherwise, changes in the composition of liquidity or inability to access capital markets may limit our ability to grow our business or adversely impact our profitability and our future performance and strategy.
As we and other banks manage these various liquidity requirements, there could be a sudden increase in demand for liquidity in the banking system, which could have an adverse impact in the financial markets, and result in an increase in our short term borrowing costs and a sudden increase in the bank’s cost of funds. Further, any tightening of liquidity and volatility in international markets may limit our access to international funding markets and result in an increase in our cost of funding for our international branches and overseas banking subsidiaries, and impact our ability to replace maturing borrowings and fund new assets.
Changes in the regulation and structure of the financial markets in India may adversely impact our business.
The Indian financial markets have in recent years experienced, and continue to experience, changes and developments aimed at reducing the cost and improving the quality of service delivery to users of financial services. We may experience an adverse impact on the cash float and fees from our cash management business resulting from the development and increased usage of payment systems, as well as other similar structural changes. The Reserve Bank of India, from time to time, imposes limits on transaction charges levied by banks on customers, including those on cash and card transactions. The Reserve Bank of India has announced the introduction of an electronic trading platform for buying and selling foreign currencies by retail customers of banks, aimed at enhancing transparency and competition and lowering costs for retail customers. In August 2020, the Reserve Bank of India issued rules for opening current account of customers having credit facilities from the banking system. Such developments may adversely impact the profitability of banks, including us, by reducing float balances and fee incomes, and increasing costs. See also “—Risks that arise as a result of our presence in a highly regulated sector—The enhanced supervisory and compliance environment in the financial sector increases the risk of regulatory action against us, whether formal or informal”.
Our subsidiaries and affiliates are also subject to similar risks. For instance, the Indian government’s tax policies generally influence the purchase of insurance and investment in mutual funds by customers. See also “—Risks relating to our insurance subsidiary and affiliate—
24
While our insurance businesses are an important part of our business, there can be no assurance of their future rates of growth or levels of profitability”.
The Reserve Bank of India has been permitting the entry of new players in the financial sector, including through issuance of licenses for universal banks and small finance banks in the private sector under the continuous licensing policy and allowing fintechs and technology companies to offer payment and other financial services. The entry of new players has intensified competition which could impact our ability to capture business opportunities if we are not able to adapt our business strategy to new developments. See also “—Risks Relating to Our Business—Our industry is very competitive and our strategy depends on our ability to compete effectively.”
The Reserve Bank of India had set up an internal working group to consider, among other things, holding of financial subsidiaries through a financial holding company that itself is a non operating company. The Reserve Bank of India released the report of the internal working group in November 2020, and in November 2021, accepted certain recommendations made by the internal working group including such a non-operative financial holding company structure for all new licenses issued for universal banks. The nature of any future regulatory changes and their impact on our group structure and business cannot be predicted currently.
In addition, changes in laws, regulations or regulatory policies, including changes in the interpretation or application of such laws, regulations and regulatory policies, may adversely affect the products and services we offer, the value of our assets or the collateral or contractual comforts available for our loans or our business in general. For example, in August 2020, the Reserve Bank of India issued rules linking opening and maintaining current accounts with banks by companies having credit facilities from the banking system. As per the guidelines, banks are allowed to open a current account for customers who have not availed any credit from the banking system. Current accounts cannot be opened for customers who have availed only cash credit or overdraft facility, through which all their transactions must be routed; only a lending bank meeting specified credit exposure thresholds is eligible to open a current account of the borrower. Banks are required to monitor all current accounts on a periodic basis to comply with the rules. Changes in regulations, such as those relating to ownership, governance and corporate structure of private sector banks, management compensation, board governance, consumer protection, sustainable finance and risk management, may have an impact on our business and our future strategy. These changes could require us to reduce or increase our business in specific segments, increase competition, and impact our overall growth and return on capital. We cannot predict future legal or regulatory changes. Any such regulatory investigation or proceeding.structural changes may result in increased expenses, including enhanced compliance costs, operational restrictions, increased competition or revisions to our business operations, which may reduce our profitability or force us to forego potentially profitable business opportunities.
The opportunities for growth in our international operations and our ability to repatriate capital from these operations may be limited by the local regulatory environments.
Our international franchise focuses on non-resident Indians for deposits, wealth and remittances businesses and on deepening relationships with well-rated Indian corporates in international markets and multinational companies to maximize the India-linked trade, transaction banking and lending opportunities within our risk management framework. Our overseas banking subsidiaries continue to serve local markets selectively with a focus on risk
25
management and granularity of business. There can be no assurance of the successful execution of this strategy and the future growth and profitability of our international operations.
Further, while both our overseas banking subsidiaries are focused on optimizing their capital base and have repatriated capital and made dividend payments to ICICI Bank in the past, such actions are subject to regulatory approvals. There can be no assurance regarding the timing or grant of such approvals in the future. Our international branches are also subject to respective local regulatory requirements, including any requirements related to liquidity, capital and asset classification and provisioning.
The board of directors of the Bank has, pursuant to an independent enquiry, taken action against the former Managing Director and CEO. In the event the Bank is found by any of the enquiries in the matter by government and regulatory agencies to have violated applicable laws or regulations, the Bank could become subject to legal and regulatory sanctions that may materially and adversely affect our results of operations or financial condition and reputation.
In fiscal 2019, the Audit Committee under direction given by the Board of Directors of the Bank had instituted an independent enquiry to consider various allegations relating to the former Managing Director and Chief Executive Officer, Ms. Chanda Kochhar. The enquiry was supported by an external counsel and a forensic firm. The allegations levelled against Ms. Kochhar included nepotism, quid pro quo and claims that Ms. Kochhar, by not disclosing conflicts of interest caused by certain transactions between certain borrowers of the Bank and entities controlled by Ms. Kochhar’s spouse, committed infractions under applicable regulations and the Bank’s Code of Conduct. While the enquiry was underway, the Board accepted Ms. Kochhar’s request for early retirement, while noting that the enquiry would remain unaffected by this and certain benefits would be subject to the outcome of the enquiry. Subsequently, on consideration of the enquiry report and its conclusions, the Board of Directors decided to treat the separation of Ms. Chanda Kochhar from the Bank as a ‘Termination for Cause’ under the Bank’s internal policies, schemes and the Code of Conduct, with all attendant consequences.
In January 2020, the Bank instituted a recovery suit against Ms. Kochhar for, among other things, the clawback of bonus paid from April 2009 to March 2018. Ms. Kochhar also filed a suit before Bombay High Court in January 2022 contending that her employment termination is invalid and she is entitled to all the Employee Stock Options, which were originally allocated to her. An alternative prayer for claiming, damages of Rs. 17.3 billion is sought by her. Both these suits are under trial and being heard by the single bench of Bombay High Court.
Enquiries by government authorities and regulatory agencies in the matter are continuing and the Bank is cooperating with such enquiries and requests. The Securities and Exchange Board of India issued a show-cause notice to Ms. Kochhar and to the Bank in 2018 in relation to the allegations. In November 2020, the Securities and Exchange Board of India issued a modified show cause notice to the Bank and responses were submitted by the Bank. In fiscal 2023, pursuant to the Securities Appellate Tribunal order the Securities and Exchange Board of India sought documents and materials in relation to the adjudication proceedings from the Bank, which were then submitted by the Bank.
26
Authorities such as the Enforcement Directorate and Income-tax authorities are also probing the matter. In the event that the Bank is found by Securities and Exchange Board of India or the Central Bureau of Investigation or by any other authority or agency to have violated applicable laws or regulations, the Bank could become subject to legal and regulatory sanctions that may materially and adversely affect our reputation and may impact results of operations or financial condition.
Our asset management, private equity, insurance and securities broking subsidiaries and affiliates are subject to extensive regulation and supervision which can lead to increased costs or additional restrictions on their activities that could adversely impact the Bank.
Our asset management subsidiary, ICICI Prudential Asset Management Company Limited, is subject to supervision and regulation by the Securities and Exchange Board of India.
The Securities and Exchange Board of India, based on any observations reported in inspection reports or reports submitted by our asset management subsidiary, may take actions like issuing administrative warnings, show cause notices, penalties or initiating enforcement actions. Further, there could be claims from investors of the funds or the portfolios managed by our subsidiary, which would be determined in the court of law or by regulators and may impact the reputation and business of our subsidiary and us.
Our insurance businesses are also subject to extensive regulation and supervision by India’s insurance regulator. They also have a large number of retail and corporate clients, from whom claims may arise which could be determined in courts or also by regulators and result in determination against our insurance businesses or us or our insurance businesses’ management and employees. The Insurance Regulatory and Development Authority of India has the authority to specify, modify and interpret regulations regarding the insurance industry, including regulations governing products, selling commissions, solvency margins and reserving, issuance of new licenses, which can lead to additional costs or restrictions on our insurance subsidiaries’ activities.
Further, our insurance and securities broking subsidiaries and insurance affiliate are now publicly listed companies on the Indian stock exchanges, which has resulted in enhanced compliance requirements and regulatory oversight. There can be no assurance that increased regulatory scrutiny of our insurance and securities broking subsidiaries and affiliate along with stringent requirements, including additional disclosures, will not have a material adverse impact on the Bank. There could be instances where the regulator or governmental agency may find that we are not in compliance with applicable laws and regulations pertaining to listed companies or their relationship with the parent or other group companies, or with their interpretations of laws and regulations, and may take formal or informal actions against us and our subsidiaries or affiliates.
Adoption of a different basis of accounting or new accounting standards may result in changes in our reported financial position and results of operations for future and prior periods.
The financial statements and other financial information included or incorporated by reference in this annual report are based on our unconsolidated and consolidated financial
27
statements under Indian GAAP. Indian corporations have transitioned to Ind AS, a revised set of accounting standards, which largely converges the Indian accounting standards with International Financial Reporting Standards, as per the roadmap provided to the Ministry of Corporate Affairs, which is the law making authority for adoption of accounting standards in India. Some of our group non-banking finance companies have transitioned to Ind AS. For banking and insurance companies, the implementation of Ind AS has been deferred until further notice. During fiscal 2022, the Reserve Bank of India had issued a discussion paper on Review of prudential norms on classification, valuation and operations of investment portfolio of commercial banks, which was broadly based on the principles of the International Financial Reporting Standard 9. Further, during fiscal 2023, the Reserve Bank of India, through its discussion paper on Introduction of Expected Credit Loss framework for provisioning by banks has proposed to adopt expected credit loss framework based on approach used in International Financial Reporting Standard 9, supplemented by regulatory backstops wherever necessary. –Adoption of Ind AS 109 - Financial Instruments (Standard equivalent to International Financial Reporting Standard 9) or final guidelines issued by the Reserve Bank of India based on above discussion papers would have a significant impact on the way financial assets and liabilities are classified and measured, resulting in volatility in profit or loss and equity. See also “Operating and Financial Review and Prospects—Convergence of Indian accounting standards with International Financial Reporting Standards”.
The transition from LIBOR to other alternative reference rates may adversely affect our income and also bring about the vagaries that such alternative reference rates may have.
The Chief Executive of the United Kingdom Financial Conduct Authority, which regulates the London Interbank Offered Rate or LIBOR, has stopped persuading or compelling banks to submit rates for the calculation of LIBOR to the administrator of LIBOR tenors, except for certain tenors of US$ LIBOR as the LIBOR has ceased to exist from June 30, 2023.
The Bank has a program for its LIBOR transition, which includes a governance framework, exposure assessment, tracking of fallback provisions and contract remediation programs and tracking of global developments. In addition, the Bank has been using alternate reference rates in new contracts after December 31, 2021 and had incorporated suitable benchmark replacement provisions in contracts linked to LIBOR originated prior to December 31, 2021. For further details, see “Business—Risk Management—Market Risk—Interest Rate Risk”. The Bank has implemented and continues to implement changes to the technology systems and infrastructure as part of the transition to the new benchmark regime. The Bank has conducted information sharing sessions with clients on the LIBOR transition. Any efforts taken by the Bank in order to transition away from LIBOR to alternative reference rates could have operational risks associated with it. The transition to alternative reference rates is complex, could bring about unanticipated challenges and vagaries which could adversely impact our business, our future financial performance and the prices of our equity shares and ADSs.
Risks Relating to Our Business
If the level of our non-performing assets increases and the overall quality of our loan portfolio deteriorates, our business will suffer.
28
In recent years, banks in India, including us, have focused on growing their retail and small business lending portfolios. While we expect the retail and small business segment to remain a key driver of growth, a slowdown in economic growth, investment, consumption or employment or any increase in unemployment, could have an adverse impact on the quality of our retail loan portfolio. As a recent example, following the outbreak of the first wave of the COVID-19 pandemic, the Government of India and the Reserve Bank of India announced several measures during fiscal 2021, including a moratorium on loan repayments for certain borrowers and an asset classification standstill benefit for overdue accounts where a moratorium had been granted, restructuring of loans to small borrowers including individuals, small businesses and micro, small and medium enterprises, and funding under the Emergency Credit Line Guarantee Scheme for micro, small and medium enterprises and other stressed sectors. Our portfolio includes lending under the guarantee scheme and loans where a resolution plan had been implemented and loans to borrowers who had availed moratorium, that may carry higher risks compared to our overall portfolio.
Our loan portfolio includes long-term project finance loans, which are particularly vulnerable to completion and other risks. The viability of these projects depends upon a number of factors, including market demand, government policies, the processes for awarding government licenses and access to natural resources and their subsequent judicial or other review, the financial condition of the government or other entities that are the primary customers for the output of such projects and the overall economic environment in India and the international markets. In the past, we have experienced a high level of default and restructuring in our industrial and manufacturing project finance loan portfolio. Our loans to the power sector as a proportion of total loans declined from 3.1% at March 31, 2019 to 1.7% at March 31, 2023. Power projects face a variety of risks, including access to fuel such as coal and gas, volatility in pricing of power and off-take of the power produced. In addition, power projects inherently have high leverage levels.
Our loan portfolio also includes project finance, corporate finance, and working capital loans to commodity-based sectors such as iron and steel, other metals and mining, which are subject to similar and additional risks, as well as global commodity price cycles. Further, the growing focus on climate change and national commitments towards a low-carbon economy may impact the flow of capital to specific sectors and could lead to structural shifts in these sectors, and the overall economy. It is difficult to assess the impact of these changes, and can expose us to new risks and challenges in managing the loan portfolio.
Our portfolio also includes purchases of retail asset pools of home finance companies and non-banking finance companies, that may expose us to additional risks, including the failure of the underlying borrowers to perform as anticipated, risks arising out of weakness in the financial position or operations of the originators, who are generally responsible for collections and servicing, and additional mark-to-market provisions where the purchases are structured as securitized instruments classified as investments. In addition, challenges in certain sectors like real estate, such as the inability of real estate developers to complete and deliver residential properties for which we have provided loans to customers, may impact the repayment behavior of the customers and result in higher delinquencies and non-performing loans. See also “—Risks Relating to India and Other Economic and Market Risks—A prolonged slowdown in economic growth in India could cause our business to suffer” and “—Risks Relating to India and Other Economic and Market Risks—A significant change in the Indian government’s policies,
29
including economic policies, fiscal policies and structural reforms, could adversely affect our business and the prices of our equity shares and ADSs”.
The Reserve Bank of India has substantially expanded its guidance relating to the identification of non-performing assets over the last few years, which has resulted in an increase in our loans classified as non-performing and an increase in provisions. Nevertheless, these provisions may not be adequate to cover further increases in the amount of non-performing loans or further deterioration in our non-performing loan portfolio. In addition, the Reserve Bank of India’s annual supervisory process may assess higher provisions than we have made. In the event that additional provisioning is required by the Reserve Bank of India, our net income, balance sheet and capital adequacy could be affected, which could have a material adverse impact on our business, future financial performance, shareholders’ equity and the price of our equity shares and ADSs. The Reserve Bank of India also requires banks to disclose the divergence in asset classification and provisioning between what banks report and what the Reserve Bank of India assesses through the Reserve Bank of India’s annual supervisory process. There can be no assurance that such disclosures in the future will not impact us, our reputation, our business and future financial performance. Our subsidiaries and affiliates are also regulated by their respective regulatory bodies. Similar to us, there may arise a requirement for additional disclosures from our subsidiaries and affiliates in the future, which may have an adverse impact on us.
If the level of our non-performing assets increases and the overall quality of our loan portfolio deteriorates, our provisioning costs could increase, our net interest income and net interest margin could be negatively impacted due to non-accrual of income on non-performing loans, our credit ratings and liquidity may be adversely impacted, we may become subject to enhanced regulatory oversight and scrutiny, and our reputation, our business, our future financial performance and the prices of our equity shares and ADSs could be adversely impacted. The Bank held contingency provisions of Rs. 131.0 billion at March 31, 2023, including contingency provisions of Rs. 56.5 billion made on a prudent basis during fiscal 2023. There can be no assurance of the adequacy of these provisions, or the level of additional provisions that will be required.
Any adverse economic, regulatory, legal developments and natural disasters like the COVID-19 pandemic could cause further increases in the level of our non-performing assets and have a material adverse impact on the quality of our loan portfolio and business.
See also “—Risks Relating to Our Business—Our loan portfolio includes long-term project finance loans, which are particularly vulnerable to completion and other risks” and “—Risks Relating to Our Business—We have a high concentration of loans to certain customers, borrower groups and sectors and if a substantial portion of these loans become non-performing, the overall quality of our loan portfolio, our business and the prices of our equity shares and ADSs could be adversely affected”.
We have a high concentration of loans to certain customers, borrower groups and sectors and if a substantial portion of these loans become non-performing, the overall quality of our loan portfolio, our business and the prices of our equity shares and ADSs could be adversely affected.
30
Our loans and advances to the retail finance sector constituted 54.2% of our gross advances (gross loans) at March 31, 2023. Our loans and advances to the rural finance sector were 8.1%, services-finance sector were 7.2%, the infrastructure sector (excluding power) were 3.0%, the wholesale/retail trade sector were 4.0%, and the power sector were 1.7% of our gross loans and advances at March 31, 2023.
Banks are subject to the Reserve Bank of India’s framework for large exposures with limits on exposure of banks to a single counterparty and a group of connected counterparties. As per this framework, the sum of all the exposure values of a bank to a single counterparty must not be higher than 20% of the bank’s available eligible capital base (i.e., Tier 1 capital) at all times and the sum of all the exposure values of a bank to a group of connected counterparties must not be higher than 25% of the bank’s available eligible capital base at all times. At year-end fiscal 2023, our largest single counterparty accounted for 13.3% of our Tier I capital fund. The largest group of connected counterparties accounted for 17.4% of our Tier I capital fund.
Since April 2019, banks have also been subject to the Reserve Bank of India’s guidelines proposing that large borrowers should reduce reliance on banks for their additional funding and access market borrowings and other funding sources. Borrowers to be considered for this purpose were those having an aggregate fund-based credit limit of Rs. 250.0 billion at any time during fiscal 2018 and the limit was reduced to Rs. 100.0 billion from fiscal 2020 onwards. Loans from banks in excess of 50.0% of the incremental funds raised by these borrowers attracts higher risk weights and provisioning.
These guidelines, and our focus on controlling and reducing concentration risk, may restrict our ability to grow our business with some customers, thereby impacting our earnings. There can be no assurance that we will be successful in controlling the concentration risk and that we will be able to successfully grow our operating profits while controlling non-performing loans and provisions.
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 is secured by collateral. See also “Business—Classification of Loans—Non-Performing Asset StrategyLoan Portfolio—Collateral—Completion, Perfection and Enforcement”. Changes in asset prices may cause the value of our collateral to decline, and we may not be able to realize the full value of our collateral as a result of delays in bankruptcy and foreclosure proceedings, delays in the creation of security interests, defects or deficiencies in the perfection of collateral (including due to inability to obtain approvals that may be required from various persons, agencies or authorities), fraudulent transfers by borrowers and other factors, including depreciation in the value of the collateral and illiquid market for disposal of and volatility in the market prices for the collateral, current legislative provisions or changes thereto and past or future judicial pronouncements.
In India, foreclosure on collateral consisting of property can be undertaken directly by lenders by fulfilling certain procedures and requirements (unless challenged in courts of law) or
31
otherwise by a written petition to an Indian court or tribunal. An application, when made (or a legal challenge to the foreclosure undertaken directly), may be subject to delays or administrative requirements that may result in, or be accompanied by, a decrease in the value of collateral. These delays can last for several years and might lead to deterioration in the physical condition or market value of the collateral. In the event, a corporate borrower is in financial difficulty and unable to sustain itself, it may opt for the process of voluntary winding up. IfCorporate borrowers may voluntarily, or by creditor action be admitted to the insolvency resolution process under the Insolvency and Bankruptcy Code, 2016. During the period of resolution under the Insolvency and Bankruptcy Code, 2016, there is a company becomes a “sick unit” (as defined under Indian law, which provides for a unit to be so categorized basedstandstill applicable on the extent of its accumulated losses relative to its stockholders’ equity), foreclosure and enforceability of collateral is stayed.other recovery proceedings by the lenders. In some cases, we may repossessforeclose on collateral in lieu of principal and interest dues but may experience delays in liquidating the collateral. While the Indian parliament has approved legislation introducing a new
The Insolvency and Bankruptcy Code enacted in 2016 provides for a time-bound mechanism to resolve stressed assets. Further, the prudential framework for resolution of stressed assets, initially introduced in 2018 and subsequently amended in 2019 by the Reserve Bank of India, requires banks to implement a plan to resolve any overdue account within timelines as approved by the board and may include legal proceedings for insolvency or recovery. The process of resolution of accounts referred under the Insolvency and Bankruptcy Code is still evolving, with periodic amendments being incorporated in the framework through both legislation and judicial decisions. A few large accounts have been resolved under the Code since fiscal 2019. However, uncertainties continue and there are uncertaintiesdelays in respectthe resolution of its impact onaccounts referred under the Code. Should the resolution of accounts not be achieved and the borrowers go into liquidation, the market value of the collateral may come down thus impacting the recovery of dues by lenders. Any delays caused byThere can be no assurance of the lacklevel of infrastructure, including information utilities,recovery even in reachingcases where a resolution within the assigned timelines may increase the risk of failure and the company going into liquidation under the legislation.is achieved.
In addition, for collateral we hold in jurisdictions outside India, the applicable laws and regulations in such jurisdictions may impact our ability to foreclose on collateral and realize its value. Failure to recover the expected value of collateral could expose us to potential losses, which could adversely affect our future financial performance, our stockholders’ equity and the priceprices of our equity shares and ADSs.
We depend onOur banking and trading activities are particularly vulnerable to interest rate risk and movements in interest rates could adversely affect our net interest margin, the accuracy and completenessvalue 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 their independent auditors. For example, in deciding whether to extend credit, we may assume that a customer’s audited financial statements conform to generally accepted accounting principles and present fairly, in all material respects, the
financial condition, results ofour fixed income portfolio, our income from treasury 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. In addition, unlike several developed economies, a nationwide credit bureau has only recently built up its database in India. This may affect the quality of information available to us about the credit history of our borrowers, especially individualsloan portfolio and small businesses. As a result, our ability to effectively manage our credit risk may be adversely affected.
Commission, exchange and brokerage income and profit on foreign exchange transactions are important elements of our profitability, and regulatory changes and market conditions could cause these income streams to decline and adversely impact our financial performance.
We earn commission, exchange and brokerage income from a variety of activities, including loan processing, syndication and advisory services for corporate clients with respect to their acquisition and project financing, distribution of retail investment and insurance products, transaction banking and retail credit products. Our commission, exchange and brokerage income is thereforeInterest rates in India are impacted by a range of factors including inflation, fiscal deficit and government borrowing, monetary policy and market liquidity.
Due to the levelreserve requirements of corporate activity including new financing proposals, the demand for retail financial products and the overall level of economic and trade activity. Our commission, exchange and brokerage income is also impacted by applicable regulations governing various products and segments of financial services and changes in these regulations may adversely impact our ability to grow in this area. For example, in May 2014, the Reserve Bank of India, directed banks to remove foreclosure charges on floating rate term loans given to individual borrowers and were prohibited from levying a penalty for non-maintenance of minimum balance in inoperative accounts. The securities regulator has issued regulations restricting charges thatwe may be leviedmore structurally exposed to interest rate risk than banks in other countries. See also “Supervision and Regulation—Legal Reserve Requirements”. 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. A rise in yields on depositary accounts. The profit on foreign exchange transactions is dependent on foreign exchange market conditionsgovernment securities reduces our realized and marked-to-market gains and the risk management strategiesvalue of corporate clients. Volatile market conditionsour fixed income portfolio. The requirement to maintain a large portfolio of government securities and other liquid assets to comply with reserve requirements and the liquidity coverage ratio also has a negative impact on our net interest income and net interest margin because we earn interest
32
on a portion of our assets at rates that are generally less favorable than those typically received on our other interest-earning assets.
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, or if our cost of funds does not decline at the same time or to the same extent as the decrease in yield on our interest-earning assets, our net interest income and net interest margin would be adversely impacted. A slower growth in low cost deposits in the form of current and savings account deposits compared to total deposits would result in an increase in the cost of funds and could adversely impact our net interest margin if we are not able to pass on the increase to borrowers. Introduction of higher deposit interest rates, by banks with whom we compete may also have an adverse impact on mergers and acquisitions activity by Indian companies, affecting our fee and other incomes relatedlead to such activity. Since fiscal 2012, we have witnessed a moderation in growthrevisions in our commission, exchangedeposit rates to remain competitive and brokerage income, primarily due to the decline in corporate investment activity and new financing proposals. Further, in February 2017,this could adversely impact our cost of funds.
Effective October 2019, the Reserve Bank of India released a draft circularmandated the linking of interest rates on rationalization of Merchant Discount Rate for debit card transactions. The draft circular seeks a shift from the present slab-rate based Merchant Discount Rate on transaction value to merchant turnover based Merchant Discount Rate structure, for which merchants have been suitably categorized. Thesenew floating rate retail loans and various factors could adversely impact our fee income streams in the future and adversely affect our financial performance.
Our international operations increase the complexity of the risks that we face.
Our international profile in multiple jurisdictions exposes us to a variety of regulatory and business challenges and risks, including cross-cultural risk and has increased the complexity of our risks in a number of areas including price risks, currency risks, interestfloating rate risks, compliance risk, regulatory and reputational risk and operational risk. In the aftermath of the financial crisis and in light of enhanced regulations in many countries, we expect to face additional scrutiny in all of these areas and in the management of our international operations. There could be risks arising from political changes in the jurisdictions in which we operate, such as the election by a majority of voters in the United Kingdom to withdraw from the European Union in a national referendum in June 2016. We also face risks arising from our ability to manage inconsistent legal and regulatory requirements in the multiple jurisdictions in which we operate. Our businesses are subject to changes in legal and regulatory requirements and it may not be possible to predict the timing or nature of such changes. Business opportunities in these jurisdictions will also determine the growth in our operations.
The loan portfolio of our international branches and subsidiaries includes foreign currency loans to Indian companies for their Indian operations (as permitted by regulation) as well as for their overseas ventures, including cross-border acquisitions. This exposes usmicro and small enterprises to specific additional risks including the failure of the acquired entitiesan external benchmark. From April 2020, floating rate loans to perform as expected, andmedium enterprises were also required to be linked to an external benchmark. Since our inexperiencefunding is primarily fixed rate, volatility in various aspects of the economic and legal frameworkexternal benchmarks underlying loan pricing may cause volatility in overseas markets. Regulatory changes globally andor compress our net interest margin. If there are increases in specific markets, including increased regulatory oversight following the global financial crisis, may impact our ability to execute our strategy and deliver returns on capital invested in our international subsidiaries. Our banking subsidiaries in the United Kingdom and Canada have in the past focused primarily on leveraging their deposit franchises in these markets to extend financing to Indian companies for their operations in India and globally, including the financing of overseas acquisitions by Indian companies through structured transactions. In view of the position taken by these subsidiaries’ respective regulators in connection with cross-border risk and exposure concentration, these subsidiaries have reduced their business volumes, resulting in a high level of capital relative to assets in ICICI Bank Canada and impacting the return on the capital invested by ICICI Bank in these subsidiaries. While these subsidiaries are focused on growing their business within the current regulatory framework, the opportunities to do so may be limited. Further, while we are seeking to rationalize the capital invested in our overseas banking
subsidiaries and these subsidiaries have repatriated a part of their excess capital to ICICI Bank, there can be no assurance that we will be able to achieve further capital rationalization through repatriation or otherwise. Further, recent global developments including decline in crude oil prices and the United Kingdom’s decision to exit from the European Union are expected to slow down economic growth in Canada and the United Kingdom, which in turn could impact the business of our banking subsidiaries in these countries. See also “—The enhanced supervisory and compliance environment in the financial sector increases the risk of regulatory action, whether formal or informal. Following the financial crisis, regulators are increasingly viewing us, as well as other financial institutions, as presenting a higher risk profile than in the past” and “—The regulatory environment for financial institutions is facing unprecedented change in the post-financial crisis environment”. Our overseas branches and banking subsidiaries undertake select local banking businesses, including lending to multinational and local corporations, small businesses, property backed lending and insured mortgages, and in the event of these corporations being impacted by global and local economic conditions it could have an adverse impact on our business. They have also made investments in bonds, certificates of deposits, mortgage backed securities, treasury bills, credit derivatives and asset-backed commercial paper. The global financial and economic crisis resulted in mark-to-market and realized losses on our overseas and other subsidiaries’ investment and derivative portfolios, increased the regulatory scrutiny of our international operations, constrained our international debt capital market borrowings and increased our cost of funding. Iffunds and if we are unable to manage these risks,pass on the increases fully into our businesslending rates, our net interest margins and profitability would be adversely affected.
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 are met through short-term funding sources, primarilyimpacted. Such revisions in external benchmark lending rates may impact the form of deposits including deposits from corporate customers and interbank deposits. Our customer deposits generally have a maturity of less than one year. However, a large portion of our assets have medium-or long-term maturities, creating the potential for funding mismatches. For example, our project finance loans typically have longer-term maturities compared to our funding profile. Our ability to raise fresh deposits and grow our deposit base depends in partyield on our ability to expandinterest-earning assets, our network of branches, which in the past required the prior approval of the Reserve Bank of India. We have recently significantly expanded our branch network pursuant to the Reserve Bank of India’s authorizations for establishing new branches,net interest income and the Reserve Bank of India has also permitted banks to freely open new branches subject to certain conditions since September 2013. “Supervision and Regulation— Regulations Relating to the Opening of Branches”. Our new branches typically operate at lower efficiency levels, as compared to our existing branches, and although we intend to increase their efficiency over time, any inability to use these branches productively, or substantial delays in achieving desired levels of productivity, may have an impact on our ability to grow our deposit base to the desired extent.
Negative rumors have been previously circulated about our financial position which resulted in concerns being expressed by depositors and higher than normal withdrawal levels for a few days. Furthermore, a part of our loan and investment portfolio, consisting primarily of the loan and investment portfolios of our international branches and subsidiaries is denominated in foreign currencies, including the U.S. dollar. Our international branches are primarily funded by debt capital market issuances and syndicated/bilateral loans, while our international subsidiaries generally raise deposits in their local markets. We have certain borrowings that would be affected by a one or two notch downgradenet interest margin. At year-end fiscal 2023, approximately 50.0% of the Bank’s current credit rating. These borrowings amountdomestic loan portfolio was linked to approximately 3.0%external benchmarks.
We are also exposed to interest rate risk through our treasury operations as well as the operations of certain of our total borrowings at year-end fiscal 2017. If an international credit rating agency downgrades the Bank’s credit ratingsubsidiaries and affiliates, including ICICI Prudential Life Insurance Company and ICICI Lombard General Insurance Company, which have a portfolio of fixed income securities, and ICICI Securities Primary Dealership, which is a primary dealer in Government of India securities. In our asset management business, we manage money market, debt and hybrid mutual fund schemes whose performance is impacted by one or two notches, we would be required to pay an increaseda rise in interest rate on certain borrowings,rates, which adversely impacts our revenues and for certain borrowings, we would be required to re-negotiate a new interest rate with our lenders. If we are not able to reach an agreement for an interest rate with a lender, the lender could require us to prepay the outstanding principal amount of the loan. Volatility in the international debt markets may constrain our international capital market borrowings. There can be no assurance that our international branches and subsidiaries will be able to obtain fundingprofits from the international debt markets or other sources in a timely manner on terms acceptable to them or at all. This may adversely impact our ability to replace maturing borrowings and fund new assets. In addition, borrowers who have taken foreign currency loans from us may face challenges in meeting their repayment obligations on account of market conditions and currency movements.this business. See also “—“—Risks Relating to India and Other Economic and Market Risks—Financial instabilityA prolonged slowdown in other countries, particularly emerging market countrieseconomic growth in India could cause our business to suffer.”
High and countries where we have established operations, couldincreasing interest rates or greater interest rate volatility and differential movement between external benchmarks underlying loan pricing and our cost of funding may adversely affect our businessability to grow, our net interest margins, our net interest income, our income from treasury operations and the price of our equity shares and ADSs”, “—Risks Relating to India and Other Economic and Market Risks—Financial difficulty and other problems in the Indian financial system in India could adversely affect our business and the price of our equity shares and ADSs” and “—Our international operations increase the complexity of the risks that we face”.
The regulatory environment for financial institutions is facing unprecedented change in the post-financial crisis environment.
The global financial crisis has led to significant and unprecedented changes in the laws, regulations and regulatory policies of India and the other jurisdictions in which we operate. Changes in laws, regulations or regulatory policies, including changes in the interpretation or application of such laws, regulations and regulatory policies, may adversely affect the products and services we offer, the value of our assets or the collateral available for our loans or our business in general. Recent regulatory changesfixed income securities portfolio as well as changes currently under discussion, such as changes with respect to Basel III risk-based and leverage capital requirements, Basel III liquidity requirements; restrictions on cross-border capital flows; enhanced emphasis on local lending obligations in overseas jurisdictions; changes in directed lending regulations in India; using national benchmark indices for pricing bank products; concentrationthe operations of large exposures in banks and collateral management; continuous licensing of universal banks; and discussions on management compensation, board governance, consumer protection and risk management, among other areas, are expected to have an impact on our business and our future strategy. These changes could require us to reduce or increase our business in specific segments, impact our overall growth and impact our return on capital. For instance, our wholly owned banking subsidiaries in the United Kingdom and Canada reduced their business volumes after fiscal 2009 in response to the changes in the regulatory environment, which has impacted their growth and profitability. While both these subsidiaries are focused on growing their business within the current regulatory framework, the opportunities to do so may be limited. Further, while both these subsidiaries are focused on optimizing their capital base and have repatriated capital and made dividend payments to ICICI Bank in the recent past, such measures are subject to regulatory approvals. There can be no assurance regarding the timing or grant of such approvals in the future. The Reserve Bank of India has moved to a risk-based supervision approach for Indian banks, including us, and may require banks to hold additional capital over and above the minimum regulatory requirements based on its assessment of risks for individual banks.
Changes in laws, regulations and regulatory policies, or the interpretation or application thereof, have and we expect will continue to lead to enhanced regulatory oversight and scrutiny and increased compliance costs. In the aftermath of the financial crisis, regulators are increasingly viewing us, as well as other financial institutions, as presenting a higher risk profile than in the past. This increased scrutiny increases the possibility that we will face adverse legal or regulatory actions. The Reserve Bank of India and other regulators regularly review our operations, and there can be no guarantee that any regulator will agree with our internal assessments of asset quality, provisions, risk management, capital adequacy, management functioning or other measures of the safety and soundnesscertain of our operations. See also“If regulators continue to impose increasingly stringent requirements regarding non-performing loans and provisioning for such loans, or if the provisions for such loans otherwise increase, our business will suffer”.In addition, regulators may find that we are not in compliance with applicable laws, regulations or regulatory policies, or with the regulators’ revised interpretations of such laws, regulations or regulatory policies, and may take formal or informal actions against us. Our ability to predict future legal or regulatory changes is limited and we may face enhanced legal or regulatory burdens without advance notice. For example, the Reserve Bank of India, in its guidelines for new private sector banking licenses issued in February 2013, has mandated new banks pursuant to the issuance of such licenses, to be set up under a financial holding company structure. In future, such requirements may be extended to existing banks in India, including us. Also, the Reserve Bank of India has released a discussion paper on a new banking structure in India. See also “Overview of the Indian Financial Sector—Structural Reforms”. Any such regulatory or structural changes may result in increased expenses, operational restrictions, increased competition or revisions to our business operations, which may reduce our profitability or force us to forego potentially profitable business opportunities. The Reserve Bank of India’s scheme for Prompt Corrective Action on banks with high level of non-performing loans has been effective since December 2002. In April 2017, the Reserve Bank of India revised the framework and included indicators to be tracked like capital adequacy, asset quality, profitability and leverage with specified risk thresholds that would result in invocation of prompt corrective action. The revised framework stipulates actions like restriction on dividend distribution/remittance of profits, restriction on branch expansion; domestic and/or overseas, higher provisions as part of the coverage regime, and restriction on management compensation and directors’ fees. At year-end fiscal 2017, the Bank’s financial indicators did not breach the risk thresholds prescribed by the Reserve Bank of India. There can be no assurance that we will always remain within the thresholds prescribed by the Reserve Bank of India in the future. See also “—The enhanced supervisory and compliance environment in the financial sector increases the risk of regulatory action, whether formal or informal. Following the financial crisis, regulators are increasingly viewing us, as well as other financial institutions, as presenting a higher risk profile than in the past”.subsidiaries.
Our inability to effectively manage credit, market and liquidity risk and inaccuracy of our valuation models and accounting estimates may have an adverse effect on our earnings, capitalization, credit ratings and cost of funds.
Our risk management strategies may not be effective because in a difficult or less liquid market environment other market participants may be attempting to use the same or similar strategies to deal with difficult market conditions. In such circumstances, it may be difficult for us to reduce our risk positions due to the activity of such other market participants. Our
33
derivatives businesses may expose us to unexpected market, credit and operational risks that could cause us to suffer unexpected losses or enhanced regulatory scrutiny. Severe declines in asset values, unanticipated credit events, or unforeseen circumstances that may cause previously uncorrelated factors to become correlated may create losses resulting from risks not appropriately taken into account in the development, structuring or pricing of a derivative instrument. In addition, manysome derivative transactions are not cleared and settled through a central clearing house or exchange, and they may not always be confirmed or settled by counterparties on a timely basis. In these situations, we are subject to heightened credit and operational risk, and in the event of a default, we may find the contract more difficult to enforce. Further, as new and more complex derivative products are created, disputes regarding the terms or the settlement procedures of the contracts could arise, which could force us to incur unexpected costs, including transaction and legal costs, and impair our ability to manage effectively our risk exposure to these products. Many of our hedging strategies and other risk management techniques have a basis in historic market behavior, and all such strategies and techniques are based to some degree on management’s subjective judgment. 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 is dependent upon economic conditions, as well as upon our ability 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. The risk of future pandemics, climate change, the geological situation and related economic disruption have significantly complicated risk management for banks, including us, and we may not be able to effectively mitigate the changes in our risk exposures.
To the extent our assessments, assumptions or estimates prove inaccurate or not predictive of actual results, we could suffer higher than anticipated losses and enhanced regulatory scrutiny. 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 domestic and international rating agencies. Rating agencies may reduce or indicate their intention to reduce the ratings at any time. See also “—“—Risks Relating to India and Other Economic and Market Risks—Any downgrade of India’s debt rating or the rating of our senior unsecured foreign currency debt by an international rating agency could adversely affect our business, our liquidity and the priceprices 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. We are rated by certain Indian rating agencies, which include CRISIL, CARE and ICRA, with a long-term rating of AAA and a stable outlook. However, there is no assurance that we will always be able to maintain the highest rating and any significant decline in our business or capital position or increase in non-performing loans could impact our rating or outlook. Any reduction in our ratings (or withdrawal of 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. Conditions in the international and Indian debt markets may adversely impact our access to financing and liquidity. This, in turn, could reduce our liquidity and negatively impact
34
our operating results and financial condition. For more information, relating to our ratings, see also “Business—Risk Management—Quantitative and Qualitative Disclosures about Market Risk—Liquidity RiskRisk.”.
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 are met through short-term funding sources, primarily in the form of deposits including current and savings account deposits, term deposits from retail customers, term deposits from corporate customers and inter-bank deposits. Our customer deposits generally have a maturity of less than two years with an option of early withdrawal before contractual maturity. A large portion of our assets have medium or long-term maturities, creating the potential for funding mismatches. For instance, our mortgage loans and corporate term loans typically have longer-term maturities compared to our funding profile.
Our international branches are primarily funded by debt capital market issuances and syndicated/bilateral loans, while our international subsidiaries generally raise deposits in their local markets. Volatility in the international debt markets may constrain our international capital market borrowings. There can be no assurance that our international branches and subsidiaries will be able to obtain funding from the international debt markets or other sources in a timely manner on terms acceptable to them or at all. This may adversely impact our ability to replace maturing borrowings and fund new assets. In addition, borrowers who have taken foreign currency loans from us may face challenges in meeting their repayment obligations on account of market conditions and currency movements. See also “—Risks Relating to India and Other Economic and Market Risks—Financial instability in other countries, particularly countries where we have established operations, could adversely affect our business.”
Negative publicity could damage our reputation and adversely impact our business and financial results and the priceprices of our equity shares and ADSs.
Reputation risk, or the risk to our business, earnings and capital from negative publicity, is inherent in our business. The reputation of the financial services industry in general has been closely monitored as a result of the financial crisis and other matters affecting the financial services industry. Negative public opinion about the financial services industry generally or us specifically could adversely affect our ability to keep and attract customers, and expose us to litigation and regulatory action. Negative publicity can result from our actual or alleged conduct in any number of activities, including lending practices and specific credit exposures, the level of non-performing loans, corporate governance, regulatory compliance, mergers and acquisitions, and related disclosure, sharing or inadequate protection of customer information, and actions taken by government, regulators, investigative agencies, courts and community organizations in response to that conduct. Being a large financial services organization, we are exposed to media coverage and public scrutiny of our business practices, our board of directors, key management personnel, policies and actions. Although we take steps to minimize reputation risk in dealing with customers and other constituencies,such events, we, as a large financial services organization are inherently exposed to this risk.
We have experienced negative publicity with respect to the allegations levelled against Ms. Kochhar and her spouse and the whistleblower complaints regarding alleged incorrect asset classification and other allegations. See also “—Risks that arise as a result of our presence in a highly regulated sector—The board of directors of the Bank has, pursuant to an
35
independent enquiry, taken action against the former Managing Director and CEO. In the event the Bank is found by any of the enquiries in the matter by government and regulatory agencies to have violated applicable laws or regulations, the Bank could become subject to legal and regulatory sanctions that may materially and adversely affect our results of operations, financial condition and reputation.” Investigations are still going on and we cannot be certain how the investigations by the government and regulatory and other agencies will conclude with regard to the issue of the former CEO and it is possible that the conclusions of these investigations could lead to more negative publicity.
Any additional unfavorable publicity may adversely impact investor confidence and affect the prices of our equity shares and ADSs. Our subsidiaries’ businesses include mutual fund, portfolio and private equity fund management, which are exposed to various risks including diminution in value of investments and inadequate liquidity of the investments. We also distribute products of our insurance, asset management and private equity subsidiaries.subsidiaries and affiliate. Investors in these funds and schemes may allege mismanagement or weak fund management as well as mis-selling and conflicts of interest, which may impact our overall reputation as a financial services group and may require us to support these businesses with liquidity and may result in a
reduction in business volumes and revenues from these businesses. We are also exposed to the risk of litigation, claims or disputes by customers, counterparties or other constituents across our businesses.
The exposures of our international branches and banking subsidiaries could generally affect our business, financial condition and results of operations.
The loan portfolio of our international branches and banking subsidiaries includes foreign currency loans to Indian companies for their Indian operations (where permitted by regulation) as well as for their overseas ventures, including cross-border acquisitions. This exposes us to specific additional risks including the failure of the acquired entities to perform as expected, and our inexperience in various aspects of the economic and legal framework in overseas markets. We are, through our international branches and banking subsidiaries, also exposed to a variety of credit risks in local markets, where our expertise and experience may seekbe limited. Our international profile has also increased the complexity of our risks in a number of areas including price risks, currency risks, interest rate risks, compliance risk, regulatory and reputational risk and operational risk. We also face risks arising from our ability to manage inconsistent legal and regulatory requirements in the multiple jurisdictions in which we operate. Our businesses are subject to changes in legal and regulatory requirements and it may not be possible to predict the timing or nature of such changes. See also “—Risks that arise as a result of our presence in a highly regulated sector—The opportunities for growth through acquisitions, divestin our existing businesses, orinternational operations and our ability to repatriate capital from these operations may be required to undertake mergerslimited by the Reserve Banklocal regulatory environments.” Business opportunities in these jurisdictions will also determine the growth in our operations.
Global developments including geopolitical tensions could impact economic growth in Canada and the United Kingdom, which in turn could impact the business of Indiaour banking subsidiaries in these countries. Our international branches and could face integrationbanking subsidiaries undertake select local banking businesses, including lending to multinational and local corporations, small businesses, property backed lending and insured and other acquisitions risks.
We may seek opportunities for growth through acquisitions or be required to undertake mergers mandated by the Reserve Bank of India under its statutory powers. We have undertaken mergersmortgages, and acquisitions in the past. Most recently, the Bankevent of Rajasthan, a private sector bank, merged with us effective August 12, 2010. In the past, the Reserve Bank of India has ordered mergers of weak banks with other banks primarily in the interest of depositors of the weak banks. More recently, the Indian government has indicated that public sector banks should pursue consolidation to create a smaller number of banks that are individually large in scale. We may in the future examine and seek opportunities for acquisitions in countries where we currently operate. Our non-banking subsidiaries in India may also undertake mergers, acquisitions and takeovers. Any future acquisitions or mergers or takeovers, both Indian or international, may involve a number of risks, including the possibility of a deterioration of asset quality, financial impact of employee related liabilities, diversion of our management’s attention required to integrate the acquired business and the failure to retain key acquired personnel and clients, leverage synergies or rationalize operations, or develop the skills required for new businesses and markets, or unknown and known liabilities including any ongoing litigation, claims or disputes concerning such acquisition, merger, its shareholders, share capital or its legal and regulatory compliance obligations or practices, some or all of which could have an adverse effect on our business.
We may also sell all or part of one or more of our businesses, including our subsidiaries, for a variety of reasons including changes in strategic focus, redeployment of capital, contractual obligations and regulatory requirements. See also“Business— Overview of Our Products and Services — Insurance”.
We and our customers are exposed to fluctuations in foreign exchange rates.
Several of our borrowers enter into derivative contracts to manage their foreign exchange risk exposures. Volatility in exchange rates may result in increased mark-to-market losses in derivative transactions for our clients. Upon the maturity or premature termination of the derivative contracts, these mark-to-market losses become receivables owed to us. Consequently, we become exposed to various kinds of risks including but not limited to credit risk, market risk and exchange risk.
As discussed above, in the past, concerns over India’s current account deficit and changes in capital flows due to changes in U.S. monetary policy have caused the rupee to depreciate against the dollar. See“—Risks relating to India and Other Economic and Market Risks—Current account deficits, including trade deficits, and capital flow and exchange rate volatility could adversely affect our business and the price of our equity shares and ADSs”. Some of our borrowers with foreign exchange and derivative exposures may be adverselycorporations being impacted by the depreciation of the rupee. These include borrowers impacted by higher rupee denominated interest or principal repayment on unhedged foreign currency borrowings; increases in the cost of raw material imports where there is limited ability to pass through such escalations to customers;global and the escalation of project costs due to higher imported equipment costs; and borrowers that may have taken adverse positions in the foreign exchange markets. The failure of our borrowers to manage their exposures to foreign exchange and derivative risk, particularly adverse movements and volatility in foreign exchange rates, may adversely affect our borrowers and consequently the quality of our exposure to our borrowers and our business volumes and profitability.
In January 2014, the Reserve Bank of India issued guidelines requiring higher capital and provisioning requirements for banks on their exposures to companies having unhedged foreign currency exposure, based on an assessment of likely loss on such exposures compared to the earnings of the corporate. An increase in non-performing or restructured assets on account of our borrowers’ inability to manage exchange rate risk and any increased capital or provisioning requirement against such exposures maylocal economic conditions it could have an adverse impact on our profitability,business.
36
Our international branches and banking subsidiaries have also made investments in bonds, certificates of deposit, mortgage backed securities, treasury bills and asset-backed commercial paper.
We are repositioning our international business strategy to sharpen our focus on the non-resident Indian community and on India-linked trade. We aim to progressively exit exposures that are not linked to India in a planned manner at our international branches. Our overseas banking subsidiaries will continue to serve local markets selectively with a focus on risk mitigation and granularity of business. There can be no assurance of our successful execution of this strategy. Moreover, the risk of future pandemics and financial crises may also increase challenges for our international branches and banking subsidiaries. If we are unable to manage these risks, our business andwould be adversely affected. The classification of the priceloan portfolio of our equity sharesinternational branches and ADSs. We have adopted certain risk management policiesbanking subsidiaries is also subject to mitigate such risk. However, there is no assurancethe regulations of respective local regulators. Such loans that such measures will be fully effectiveare identified as impaired as per host country regulations for reasons other than record of recovery, but which are standard as per the current Reserve Bank of India guidelines, are classified as non-performing to the extent of the amount of outstanding loan in mitigating such risks.the host country. Overseas regulators may also require higher provisions against loans held in their jurisdictions.
Entry into new businesses or rapid growth in existing loan portfolios may expose us to increased risks that may adversely affect our business.
The rapid growth of our retail, rural and small business loan business and our rural initiativeportfolios exposes us to increased risks within India including higher levels of non-performing loans in our unsecured retail credit portfolio, increased
operational risk, increased fraud risk and increased regulatory and legal risk. Since fiscal 2012 we have focusedWe continue to focus on scaling up our retail lending volumes and since fiscal 2015, we have also seen an increase in our retail unsecured portfolio. Our net domesticportfolio and our lending to small businesses and entrepreneurs. Retail lending, including unsecured retail loan portfolio grew by 18.5% in fiscal 2017 comparedcredit, has been an important driver of growth for the Indian banking system. We have also entered into partnerships with technology companies with large customer bases to an increaseoffer co-branded credit products and as well as with non-banking financial companies for co-origination and/or purchases of 5.0% in our overall gross loan portfolio. Further, we are also focusing on scaling up our business and distribution network in rural areas. loans. We intend to continue to pursue similar partnerships.
While we have taken measures to address the risks in these businesses, there can be no assurance that the businesses would perform according to our expectations or that there would not be any adverse developments in these businesses in the future. We use data analytics extensively in our lending to retail and small business customers, and there can be no assurance that these analytical models will perform as intended. Our focus on partnerships with other entities to grow our portfolio may not yield the desired results and may lead to additional risks. Our inability to manage such risks may have an adverse impact on our future business and strategy, our asset quality and profitability and the priceprices of our equity shares and ADSs.
Commission, exchange and brokerage income, profit on foreign exchange transactions and other sources of fee income are important elements of our profitability, and regulatory
37
changes and market conditions could cause these income streams to decline and adversely impact our financial performance.
We earn commission, exchange and brokerage income from a variety of activities, including loan processing, syndication and advisory services for corporate clients with respect to their acquisition and project financing, distribution of retail investment and insurance products, transaction banking and retail credit products. Our commission, exchange and brokerage income is therefore impacted by the level of corporate activity including new financing proposals, the demand for retail financial products and the overall level of economic and trade activity. Our commission, exchange and brokerage income is also impacted by applicable regulations governing various products and segments of financial services and changes in these regulations may adversely impact our income streams and ability to grow our business. Our fee income from distribution of third party financial products is dependent on applicable regulations, the demand for these products and our distribution strategy for banking and third party products.
Our industry is very competitive and our strategy depends on our ability to compete effectively.
Within the Indian market, we face intense competition from other commercial banks, investment banks, insurance companies, non-bank finance companies, new private sector banks like payments banks and small finance banks and non-bank entities offering retail payments services. Some Indian public and private sector banks have experienced higher growth and increase in market shares relative to us. The Reserve Bank of India has issued licenses to two new private sector banks, and in-principle licenses to 10 small finance banks and 11 payments banks. Of these, six small finance banks and four payments banks have begun operations and three payments banks have surrendered, or announced their intention to surrender, their licences. The Reserve Bank of India has also issued guidelines with respect to a continuous licensing policy for universal banks in the private sector. The expansion of existing competitors or the entry of new competitors could increase competition. competition for products and services. There could be greater competition for business opportunities if there is a slowdown in growth in the Indian banking sector. The establishment of account aggregators, permitted by the Reserve Bank of India, facilitates sharing of customer data with different financial service providers from whom customers may be seeking loans or other products and may increase competition by making it easier for new entrants to onboard customers at a lower cost than traditional models. A large private sector bank in India has executed a merger of its parent company, which is a large housing finance company, with itself, leading to a significant increase in size and scale for the bank. Further, a large private sector bank in India completed the acquisition of the consumer businesses of a foreign bank operating in India, which will consolidate the bank’s position in certain retail products. These moves may significantly impact competition in the industry, especially for deposits and retail products.
Further, technology innovations in mobility and digitization of financial services require banks and financial services companies to continuously develop new and simplified models for offering banking products and services. The emergence of new platforms, or new operating models or new types of banks or other entities offering digital banking solutions, are trends that could increase competitive pressures on banks, including us. Innovations in the payments system and increasing use of mobile banking are leading to emergence of new platforms for cashless payments. This can also lead to new types of banks expanding their presence in other financial products like insurance and mutual funds. These trendsNon-financial companies, particularly international technology companies including large e-commerce players and internet-based service providers are increasing their presence in technology could increase competitive pressures onthe financial sector and are offering payment platforms and select services. We are currently partnering with some of these entities to jointly offer payment and credit products and services. Some or all of these entities, which have substantially more
38
resources than us and other Indian banks, may eventually seek a larger share of the banking and financial services market in India and compete with us. Our subsidiaries also face similar risks, including us, to adapt toenhanced competition from new, operatingtechnology-led players with disruptive business models and upgrade back-end infrastructure on an ongoing basis.that may result in a loss of market share or reduced profitability or both, for existing players. There is no assurance that we will be able to continue to respond promptly to new technologytechnological developments, and be in a position to participate in new market opportunities or dedicate resources to upgrade our systems and compete with new players entering the market. In addition, the moderationSee also “—Risks relating to technology—The growing use of growthtechnology in the Indian banking sector may lead to greaterand financial services creates additional risks of competition, for business opportunities.reliability and security”.
We face competition from non-banking finance companies that are lending in segments in which banks also have a presence, including home loans and vehicle loans. Their presence in the market may grow during periods when banks are unable to grow their advances due to challenges and stress in other businesses. There is no assurance that we will be able to effectively compete with these non-banking finance companies at all times. Further, changes in the banking sector structure due to consolidation as well as entry of new competitors may lead to volatility and new challenges and may increase pressure on banks to remain competitive.
In October 2013, the Reserve Bank of India completely deregulated branch licensing requirements and banks are permitted to open branches across Tier 1 to Tier 6 centers without the prior approval of the Reserve Bank of India, subject to them maintaining a prescribed proportion of 25% of their incremental branches in rural and semi-urban areas. Banks are also allowed to merge, close or shift a branch in metropolitan and urban centers without prior approval. See also “Supervision and Regulation—Regulations Relating to the Opening of Branches”. In March 2017, the Reserve Bank of India issued revised guidelines on the rationalization of branch authorisation. As per the revised guidelines, banks are permitted to open, unless otherwise specifically restricted, banking outlets in Tier 1 to Tier 6 centers without having the need to take permission from the Reserve Bank of India in each case. The opening of banking outlets during a financial year will be subject to condition that at least 25% of the total number of banking outlets opened during a financial year should be opened in unbanked rural centers.
The Reserve Bank of India has also released the framework for the presence of foreign banks in India, and has proposed according treatment substantively similar to domestic banks for foreign banks, based on the principles of reciprocity and subsidiary mode of presence. In May 2014, the Reserve Bank of India released the report of the committee constituted to review the governance of boards of banks in India which, among others, has proposed several measures aimed at improving the governance, ownership and board oversight of public sector banks. Following these recommendations, the Government split the position of chairman and managing director in public sector banks such that one person is no longer permitted to hold both positions. Any changes in the banking structure in India, including the entry of new banks, greater competition between existing players and improvement in the efficiency and competitiveness of existing banks, may have an adverse impact on our business. Due to competitive pressures, we may be unable to successfully execute our growth strategy or offer
products and services at reasonable returns and this may adversely impact our business. See also ““Business—Competition”and“Overview of the Indian Financial Sector—Commercial Banks—Foreign BanksCompetition”.
In our international operations we also face intense competition from the full range of competitors in the financial services industry, both banks and non-banks and both Indian and foreign banks. We remain a small to mid-size player in the international marketsmarket and many of our competitors have resources much greater than our own.
Changes in the regulation and structure of the financial markets in India may adversely impact our business.
The Indian financial markets have in recent years experienced, and continue to experience, changes and developments aimed at reducing the cost and improving the quality of service delivery to users of financial services. We may experience an adverse impact on the cash float and fees from our cash management business resulting from the development and increased usage of payment systems, as well as other similar structural changes. Some structural changes in banking transactions in India include free access for a customer of any bank to ATMs of all other banks with restrictions on the amount and number of transactions. Furthermore, the Reserve Bank of India, from time to time, also imposes limits on transaction charges levied by banks on customers, including those on cash and card transactions. Banks were directed to remove foreclosure charges on home loans and floating rate term loans given to individual borrowers. Banks were prohibited from levying penalty on non-operative accounts for non-maintenance of minimum balance. Such developments may adversely impact the profitability of banks, including us, by reducing float balances and fee incomes, and increasing costs. See also “—The regulatory environment for financial institutions is facing unprecedented change in the post-financial crisis environment”. Our subsidiaries are also subject to similar risks. For example, in the Union Budget for fiscal 2015, the Finance Minister announced an increase in the long-term capital gains tax rate on investments in debt mutual funds from 10% to 20% and also increased the minimum holding period for qualification as a long-term investment from 12 months to 36 months. Further, starting from April 2015, the Association of Mutual Funds of India has introduced a cap of 100 basis points on upfront commission for all mutual fund schemes. These changes may have an impact on the inflows and earnings of asset management companies, including our asset management subsidiary and also affect our fee and other incomes related to such activity. See also “—While our insurance businesses are an important part of our business, there can be no assurance of their future rates of growth or levels of profitability”.
Additional capital requirements of our insurance subsidiaries or our inability to monetize a part of our shareholding in these subsidiaries may adversely impact our business and the price of our equity shares and ADSs.
Although, our insurance businesses are profitable and we currently do not anticipate they would require capital, additional capital may be required to support the business which may, among other reasons, arise due to regulatory requirements. For instance, in the past, in accordance with an order of the Insurance Regulatory and Development Authority of India, all general insurance companies in India, including our general insurance subsidiary, ICICI Lombard General Insurance Company Limited, were required to provide for losses on the third-party motor pool (a multilateral arrangement for insurance in respect of third-party claims against commercial vehicles, the results of which were shared by all general insurance companies in proportion to their overall market share). Since the losses were allocated to general insurance companies based on their overall market shares, the profitability and solvency ratio of our general insurance subsidiary were adversely impacted. Accordingly, we invested Rs. 740.0 million of capital into our general insurance subsidiary in fiscal 2013. Our ability to invest additional capital in these businesses is subject to the Reserve Bank of India’s regulations on capital adequacy and its para-banking guidelines that prescribe limits for our aggregate investment in financial sector enterprises. All such investments require prior approval of the Reserve Bank of India. See also “—Loss reserves for our general insurance business are based on estimates as to future claims liabilities and adverse developments relating to claims could lead to further reserve additions and materially adversely affect the operation of our general insurance subsidiary”.
Any additional capital requirements of our insurance subsidiaries and restrictions on our ability to capitalize them could adversely impact their growth, our future capital adequacy, our financial performance and the price of our equity shares and ADSs.
The Insurance Laws (Amendment) Act, 2015, increased the foreign shareholding limit in insurance companies from 26.0% to 49.0%, subject to the companies being Indian-owned and controlled, and to regulatory approval. During fiscal 2016, we sold a 6.0% stake in our life insurance subsidiary, ICICI Prudential Life Insurance Company, to financial investors, thereby reducing our share ownership in ICICI Prudential Life Insurance Company from approximately 74% to 68%. In fiscal 2017, we sold a further 12.63% out of our
shareholding in ICICI Prudential Life Insurance Company through an offer for sale in an initial public offering of its shares. ICICI Prudential Life Insurance Company was listed on the National Stock Exchange of India Limited and the BSE Limited on September 29, 2016. During fiscal 2016, Fairfax Financial Holdings and ICICI Bank agreed that Fairfax Financial Holdings (through its affiliate) would increase its shareholding in ICICI Lombard General Insurance Company by 9.0%. The transaction was completed in March 2016, resulting in our share ownership in ICICI Lombard General Insurance Company reducing to 63%. In June 2017, our Board of Directors of the Bank approved the sale of a part of our shareholding in ICICI Lombard General Insurance Company Limited in an initial public offering by the Company, subject to requisite approvals and market conditions. There is no assurance that we will be able to complete the above sale as planned or that we will undertake further monetization of our investments in our subsidiaries, through public offering or otherwise, or of the level of valuation of the subsidiaries at which such monetization may take place. See also “Business—Overview of Our Products and Services—Insurance” and “—While our insurance businesses are an important part of our business, there can be no assurance of their future rates of growth or levels of profitability”.
While our insurance businesses are an important part of our business, there can be no assurance of their future rates of growth or levels of profitability.
Our life insurance and general insurance businesses are an important part of our business. See also “Business—Overview of Our Products and Services—Insurance”. These businesses have experienced volatility in growth rates in the past and there can be no assurance of their future rates of growth or profitability.
The Indian life insurance sector has experienced significant regulatory changes in recent years. In fiscal 2011, the Insurance Regulatory and Development Authority of India changed the regulations relating to unit-linked life insurance products. Subsequently, the Insurance Regulatory and Development Authority of India also issued revised regulations relating to non-linked life insurance products, which became effective during fiscal 2014. The key changes related to commissions payable to agents and distributors, lapse of policies, surrender values and minimum death benefits. As a result of these changes, the life insurance sector experienced low growth and changes in the product mix in recent years, as life insurance companies were required to modify their products and distribution strategies. While there was initially a shift in the product mix towards non-unit linked products, more recently the share of unit-linked products has increased driven by favorable cost structures of these products from a customer perspective, as well as by improved capital market conditions. Linked products contributed to 85.9% of the retail weighted received premium of ICICI Prudential Life Insurance Company in fiscal 2017, compared to 83.3% of the retail weighted received premium in fiscal 2016, 84.8% in fiscal 2015 and 66.5% in fiscal 2014. The demand for these products may be influenced by any volatility or downturn in capital markets. The regulatory changes have also resulted in reduced profit margins on life insurance products. In fiscal 2015, the Insurance Laws (Amendment) Act, 2015, amended the existing statute to provide that no policy of life insurance shall be called in question on any grounds, including misstatement of facts or fraud, at any time after three years from the date of the policy, i.e., from the date of issuance of the policy, commencement of risk, revival of the policy or the rider to the policy, whichever is later.
ICICI Lombard General Insurance Company’s gross direct premium income (GDPI) was Rs. 107.3 billion in fiscal 2017, a growth of 32.6% over fiscal 2016. ICICI Lombard General Insurance Company’s growth and profitability depend on various factors, including the proportion of certain profitable products in its portfolio, the maintenance on its relationship with key distribution partners and reinsurers, continuation of support by the government of India of certain insurance schemes, regulatory changes, and market movements. There can be no assurance of the future rates of growth in the insurance business. While this subsidiary has been making profits since fiscal 2013, there can be no assurance of the future profitability or rates of growth in the insurance business. See also “—Additional capital requirements of our insurance subsidiaries or our inability to monetize a part of our shareholding in these subsidiaries may adversely impact our business and the price of our equity shares and ADSs” and “Supervision and Regulation—Regulations Governing Insurance Companies”.
The Insurance Regulatory Development Authority of India has from time to time proposed changes to the regulations governing distribution of insurance products by corporate agents, including banks. ICICI Bank is a corporate agent of its insurance subsidiaries and accounts for a significant portion of the business volumes of its life insurance subsidiary. While the latest regulatory proposals are not expected to impact this activity significantly, any future regulatory restrictions may require our insurance subsidiaries to change their distribution strategies, which may result in increased costs and lower business volumes, as well as impacting ICICI Bank’s distribution of their products and the associated fee income. A slowdown in growth in the Indian economy, further regulatory changes or customer dissatisfaction with our insurance products could adversely impact the future growth of these businesses. See also “—The regulatory environment for financial institutions is facing unprecedented change in the post-financial crisis environment”. Any slowdown in these businesses
and in particular in the life insurance business could have an adverse impact on our business and the price of our equity shares and ADSs.
The proposed initial public offerings of our general insurance subsidiary may not be completed, and if completed, will increase the complexity of our business.
Our Board of Directors has approved the further sale of up to approximately 7.0% out of our shareholding in ICICI Lombard General Insurance Company through an offer for sale in an initial public offering of the company’s shares, subject to necessary approvals and market conditions, and ICICI Lombard General Insurance Company has filed a draft red herring prospectus with the Securities and Exchange Board of India for the proposed public offering.
However, adverse developments in the financial markets, the Indian general insurance industry, or in the business of our general insurance subsidiary, in addition to various other factors, may result in our failure to complete the proposed initial public offering on the terms currently contemplated, or at all. Our inability to complete the initial public offering on the terms currently contemplated, or at all, may adversely affect our results of operation and financial condition.
If completed, the proposed initial public offering will lead to increased complexity in our business. Upon becoming a publicly traded company, our general insurance subsidiary will have to begin interacting with public company investors and complying with the increasingly complex laws pertaining to public companies. If our and our subsidiary’s management teams are not able to successfully or efficiently manage our subsidiary’s transition to being a public company, increased oversight and continuous scrutiny of securities analysts and investors, it could adversely affect our business, results of operations and financial condition.
Actuarial experience and other factors could differ from assumptions made in the calculation of life actuarial reserves and other actuarial information.
The assumptions our life insurance subsidiary makes in assessing its life insurance reserves and computing other actuarial information may differ from what it experiences in the future. These assumptions include the assessment of the long-term development of interest rates, investment returns, the allocation of investments between equity, fixed income and other categories, persistency, mortality and morbidity rates, policyholder lapses, policy discontinuation and future expense levels. In addition, there is risk that the model used to estimate life and health insurance reserves based on such assumptions is itself incorrect.
Our life insurance subsidiary monitors its actual experience of these assumptions and to the extent that it considers any deviation from assumption to continue in the longer term, it refines its long-term assumptions. Changes in any such assumptions may lead to changes in the estimates of life and health insurance reserves and other actuarial information. Such changes may also impact the valuation of our life insurance subsidiary by existing or potential investors, and the valuation at which any future monetization of our shareholding in the life insurance subsidiary takes place, if at all.
Loss reserves for our general insurance business are based on estimates as to future claims liabilities and adverse developments relating to claims could lead to further reserve additions and materially adversely affect the operation of our general insurance subsidiary.
In accordance with the general insurance industry practice and accounting and regulatory requirements, our general insurance subsidiary establishes reserves for loss and loss adjustment expenses related to its general insurance business. Reserves are based on estimates of future payments that will be made in respect of claims, including expenses relating to such claims. Such estimates are made on both a case-by-case basis of claims that have been reported but not settled, based on the facts and circumstances available at the time the reserves are established, as well as in respect of losses that have been incurred but not reported. These reserves represent the estimated ultimate cost necessary to bring all pending claims to final settlement.
Reserves are subject to change due to a number of variables which affect the ultimate cost of claims, such as changes in claims handling procedures, legal environment, social attitudes, results of litigation, costs of repairs, changing trends in medical costs, minimum wages and other factors such as inflation and exchange rates. Our general insurance subsidiary’s reserves for environmental and other latent claims are particularly subject to such variables. The results of operations of our general insurance subsidiary depend significantly upon the extent to which its actual claims experience is consistent with the assumptions it uses in setting the prices for products and establishing the liabilities for obligations for technical provisions and claims. To the
extent that its actual claims experience is less favorable than the underlying assumptions used in establishing such liabilities, it may be required to increase its reserves, which may materially adversely affect its results of operations.
Established loss reserves estimates are periodically adjusted in the ordinary course of settlement, using the most current information available to management, and any adjustments resulting from changes in reserve estimates are reflected in current results of operations. Our general insurance subsidiary also conducts reviews of various lines of business to consider the adequacy of reserve levels. Based on current information available and on the basis of internal procedures, the management of our general insurance subsidiary considers that these reserves are adequate. However, because the establishment of reserves for loss and loss adjustment expenses is an inherently uncertain process, there can be no assurance that ultimate losses will not materially exceed the established reserves for loss and loss adjustment expenses and have a material adverse effect on the results of operations of our general insurance subsidiary. See also “—Additional capital requirements of our insurance subsidiaries or our inability to monetize a part of our shareholding in these subsidiaries may adversely impact our business and the price of our equity shares and ADSs”.
The financial results of our insurance subsidiaries could be materially adversely affected by the occurrence of catastrophe.
Portions of our general insurance subsidiary’s business may cover losses from unpredictable events such as hurricanes, windstorms, monsoons, earthquakes, fires, industrial explosions, floods, riots and other man-made or natural disasters, including acts of terrorism. The incidence and severity of these catastrophes in any given period are inherently unpredictable.
In addition, our life insurance subsidiary’s operations are also exposed to claims arising out of catastrophes due to increased mortality and morbidity claims of affected customers. In addition, catastrophes could result in losses in the investment portfolios of our life insurance subsidiary due to, among other reasons, the failure of its counterparties to perform their obligations or significant volatility or disruption in the financial markets.
Although our subsidiaries monitor their overall exposure to catastrophes and other unpredictable events in each geographic region and determine their underwriting limits related to insurance coverage for losses from catastrophic events, the subsidiaries generally seek to reduce their exposure through the purchase of reinsurance, selective underwriting practices and by monitoring risk accumulation. Claims relating to catastrophes may result in unusually high levels of losses and may require additional capital to maintain solvency margins and could have a material adverse effect on our financial position or results of operations.
There is operational risk associated with the financial industry which, when realized, may have an adverse impact on our business.
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 and third parties (including violation of regulations for prevention of corrupt practices, and other regulations governing our business activities), misreporting or non-reporting with respect to statutory, legal or regulatory reporting and disclosure obligations, or operational errors, including non-compliance with internal processes, clerical or recordkeeping and reconciliation errors or errors resulting from faulty computer or telecommunications systems. We have experienced significant growth in a fast changing environment, and management as well as our regulators are aware that this may pose significant challenges to our control framework. As a result of our internal evaluations, we and our regulators have noted certain areas where our processes and controls could be improved. Our growth, particularly in retail, lending, oursmall business and rural initiative,lending, our international business and our insurance businesses, exposesand our extensive use of digital technology, expose us to additional operational and control risks. Regulatory scrutiny of areas related to operational risk, including internal audit information, systems and data processing is increasing. The large size of our treasury and retail operations, which use
39
automated control and recording systems as well as manual checks and recordkeeping, exposes us to the risk of errors in control, recordkeeping and reconciliation. The increasing size of our insurance business and the complexities of the products expose us to the risk that the models set up on actuarial software to compute the actuarial liabilities and deferred acquisition cost may contain errors or may require continuous improvement over a period of time. We also outsource some functions, like collections, 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, employee tampering, manipulation of those systems and deficiency in access control management 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,instance, computer viruses or electrical or telecommunication outages), which may give rise to deterioration in customer service
and to loss or liability to us. Unexpected events, such as the withdrawal
We also outsource some functions, like collections, sourcing of high denomination currency notes, could result in a sharp increase in our transaction volumesretail loans and increase the pressure on our systemsmanagement of ATMs to keep pace with regulatory changes in a short period of time, which may result in inadvertent operational errors in our branch operationsother agencies and resultant regulatory action. Wehence we are furtheralso exposed to the risk that external vendors may be unable to fulfil their contractual obligations to us (or will be subject to the same risk of fraud or operational errors by their respective employees as we are), and to the risk that our (or our 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 proveproves inadequate, or areis circumvented, thereby causing delays in detection or errors in information. We are also exposed to operational risks from transactions with other financial institutions and intermediaries. Although we maintain a system of controls designed to keep operational risk at appropriate levels, like all banks and insurance companies 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 that may be material in amount, and our reputation could be adversely affected by the occurrence of any such events involving our employees, customers or third parties.
In addition, regulators or legalgovernmental authorities or courts may also hold banks, including us, liable for losses on account of customer errors such as inadvertent sharing of confidential account related information. There are inherent limitations to the effectiveness of any system especially of controls and procedures, including the possibility of human error, circumvention or over-ridingoverriding of the controls and procedures, in a fast changing environment or when entering new areas of business or expanding geographic reach. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. We are committed to continuing to implement and improve internal controls and our risk management processes, and this remains a key priority for us. If, however, we are unable to manage operational risk in India and in the other jurisdictions in which we operate, or if we are perceived as being unable to manage such risk, we may be subject to enhanced regulatory oversight and scrutiny. For a discussion of how operational risk is managed, see also ““Business—Risk Management—Market Risk—Operational Risk”.
FraudOur failure to establish, maintain and significant security breaches inapply an adequate internal control over financial reporting could have a material adverse affect on our computer system and network infrastructure could adversely impact our business.reputation, business, financial condition or results of operations.
We are responsible for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting
Our business operations are based on a high volume
40
and preparation and fair presentation of our published Indian GAAP consolidated financial statements and disclosures relating to safeguard against system-relatedU.S. GAAP net income reconciliation, stockholders’ equity reconciliation and other fraud,disclosures as required by U.S. Securities and Exchange Commission and applicable GAAP. Our management is required to assess the effectiveness of our internal control over financial reporting and disclose whether such internal controls are effective. Our independent registered public accounting firm has to conduct an audit to evaluate and then render an opinion on the effectiveness of our internal control over financial reporting. See “Management—Summary Comparison of Corporate Governance Practices—Management’s Report on Internal Control Over Financial Reporting”.
We have established internal controls over financial reporting, as well as policies and procedures for evaluating those controls, in order to provide reasonable assurance of the reliability of our financial reporting and the preparation of financial statements. However, these controls may not prevent or detect errors. Any evaluation of effectiveness of future periods is subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. To the extent any issues are identified through the foregoing processes, there can be no assurance that we wouldwill be able to prevent fraud. Ourresolve them in a timely manner or at all. If this occurs, our reputation couldmay be adversely affected by fraud committed by employees, customers or outsiders, or by our perceived inability to properly manage fraud-related risks. Our inability or perceived inability to manage these risksdamaged, which could lead to enhanced regulatory oversighta decline in investor confidence in us and scrutiny. Our branch network expansion,may adversely affect our rural initiative, our international growthbusiness, financial conditions and results of operations.
We and our expansion to product lines such as insurance may create additional challenges with respect to managing the risk of fraud due to increased geographical dispersion and use of intermediaries. See also “Operating and Financial Review and Prospects—Provisions for Non-performing Assets and Restructured Loans” and“Business—Risk Management—Operational Risk”. Physical or electronic break-ins, security breaches or other disruptions caused by power disruptions or the increased use of technology could also affect the security of information stored in and transmitted through our computer systems and network infrastructure. Technology has been undergoing a rapid evolution driven by mobility, cloud computing and social networks and this has led to increased cyber threats such as distributed denial of service attacks, spear phishing attacks and proliferation of malware and trojans. Given our focus on technology and presence in diverse geographies, wecustomers are exposed to such attacks whichfluctuations in foreign exchange rates.
Certain of our borrowers enter into derivative contracts to manage their foreign exchange risk exposures. Volatility in exchange rates may result in increased mark-to-market losses in derivative transactions for our clients. Upon the maturity or premature termination of the derivative contracts, these mark-to-market losses become receivables owed to us. Consequently, we become exposed to various kinds of risks including but not limited to credit risk, market risk and exchange risk.
Exchange rates are impacted by a number of factors including volatility of international capital markets, geo-political events, interest rates and monetary policy stance in developed economies like the United States, level of inflation and interest rates in India, the balance of payment position and trends in economic activity. Rising volatility in capital flows due to changes in monetary policy in the United States or other economies or a reduction in risk appetite or increase in risk aversion among global investors and consequent reduction in global liquidity may impact the confidentiality, integrityIndian economy and financial markets. During fiscal 2022, several factors impacted the exchange rate including the second and third wave of the COVID-19 pandemic, geo-political tensions due to the crisis in Ukraine and sanctions on Russia, and deterioration in economic conditions following a sharp rise in global crude oil prices and increase in inflation in developed economies. The rupee depreciated to Rs. 75.87 per U.S. dollar at March 31, 2022 from Rs. 73.17 per U.S. dollar at March 31, 2021.
As discussed above, in the past, concerns over India’s current account deficit and changes in capital flows due to changes in U.S. monetary policy have caused the rupee to depreciate against the U.S. dollar. The rupee depreciated to Rs. 82.19 per U.S. dollar at March 31, 2023. This was following the tightening of monetary policy by the U.S. Federal Reserve due to rising inflation concerns including the failure of three regional banks in the U.S. and a bank in Europe; the
41
ongoing war between Russia and Ukraine and the sanctions imposed on Russia. Some of our borrowers with foreign exchange and derivative exposures may be adversely impacted by the depreciation of the rupee. These include borrowers impacted by higher rupee denominated interest or availabilityprincipal repayment on unhedged foreign currency borrowings; increases in the cost of data pertainingraw material imports where there is limited ability to us orpass through such escalations to customers; and the escalation of project costs due to higher imported equipment costs; and borrowers that may have taken adverse positions in the foreign exchange markets. The failure of our customers, whichborrowers to manage their exposures to foreign exchange and derivative risk, particularly adverse movements and volatility in turnforeign exchange rates, may cause damageadversely affect our borrowers and consequently the quality of our exposure to our reputationborrowers and adversely impact our business volumes and financial results. While we maintain insurance coverage thatprofitability.
Further, any increased intervention in the foreign exchange market or other measures by the Reserve Bank of India to control the volatility of the exchange rate, may in accordance with the policy terms and conditions, cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses. We have a governance framework in place for security and has implemented information security policies, procedures and technologies. However, considering that technology is currentlyresult in a phase of rapid evolutiondecline in India’s foreign exchange reserves and considering that the methods used for cyber-attacks are also changing frequently or, in some cases, are not recognized until an actual attack, we may not be able to anticipate or to implement effective preventive measures against all security breaches. Like many other large global financial institutions, we have also experienced a distributed denial of services attack which was intended to disrupt customer access to our main portal. While our monitoringreduced liquidity and mitigating controls were able to detect and effectively respond to this incident, there can be no assurance that these security measures will be successfulhigher interest rates in the future. A significant failureIndian economy. Prolonged periods of volatility in security measuresexchange rates, reduced liquidity and high interest rates could have a material adverse effect onadversely affect our business, our future financial performance our stockholders’ equity and the priceprices of our equity shares and ADSs. A sharp depreciation in the exchange rate may also impact some corporate borrowers having foreign currency obligations that are not fully hedged.
System failures could adverselyAn increase in non-performing or restructured assets on account of our borrowers’ inability to manage exchange rate risk and any increased capital or provisioning requirement against such exposures may have an adverse impact on our business.
Given the large share of retail products and services and transaction banking services in our total business, the importance of systems technology toprofitability, our business has increased significantly. We have also launched delivery of banking services through mobile phones, apart from ATMs, call centers and the Internet. While we have procedures to monitor for and prevent system failures, and to recover from system failures in the event they occur, there is no guarantee that these procedures will successfully prevent a system failure or allow us to recover quickly from a system failure. In the event that our data center is severely impacted due to a major
power outage, floods, earthquakes, internet link failures or other events, while we have a secondary disaster recovery data center, recovery of some of our systems and services may be delayed, thereby adversely impacting our operations and customer service levels. Any failure in our systems, particularly for retail products and services and transaction banking, could significantly affect our operations and the quality of our customer service and could result in enhanced regulatory scrutiny and business and financial losses that would adversely affect the priceprices of our equity shares and ADSs. Regulatory scrutinyWe have adopted certain risk management policies to mitigate such risk. However, there is no assurance that such measures will be fully effective in this area is increasing. See also “—mitigating such risks.
The enhanced supervisoryWe may seek opportunities for growth through acquisitions, divest our existing businesses, or be required to undertake mergers by the Reserve Bank of India and compliance environmentcould face integration and other acquisitions risks.
We may seek opportunities for growth through acquisitions or be required to undertake mergers mandated by the Reserve Bank of India under its statutory powers. In the past, we have undertaken mergers and acquisitions. In some cases, the Reserve Bank of India has ordered mergers of weak banks with other banks primarily in the interest of depositors of the weak banks. For example, the Government of India announced the amalgamation of 10 public sector banks into four larger banks from April 2020 as part of a consolidation measure to create fewer banks that are individually larger in scale. We may in the future examine and seek opportunities for acquisitions. Our subsidiaries in India may also undertake mergers, acquisitions and takeovers in India or internationally.
We may also increase or reduce our shareholding in our subsidiaries and affiliates, or divest other existing businesses wholly or partially, for a variety of reasons including changes in strategic focus, redeployment of capital, contractual obligations and regulatory requirements. Mergers and acquisitions by our subsidiaries could lead to reduction in our shareholding in such subsidiaries (including to below majority ownership in certain subsidiaries), and under applicable law that may require us to reduce our shareholding to 30.0% or less, unless we receive regulatory and governmental approval to maintain a higher level of shareholding, which may be subject to
42
various conditions including divestment to the required level of 30.0% within a specified timeframe. During fiscal 2022, following the completion of a previously announced all-stock merger by ICICI Lombard General Insurance Company, the Bank’s shareholding in ICICI Lombard General Insurance decreased to 48.1%, and ICICI Lombard General Insurance ceased to be a subsidiary of the Bank. To reduce its shareholding in ICICI Lombard General Insurance to 30.0%, the Bank was granted time until September 2023, which was further extended to September 2024. In May 2023, the Board of Directors of the Bank approved an increase in shareholding in ICICI Lombard General Insurance Company, in multiple tranches up to 4.0% additional shareholding, to ensure compliance with the Banking Regulation Act, 1949 and make ICICI Lombard General Insurance Company a subsidiary of the Bank. This will be subject to the receipt of necessary regulatory approvals.
At March 31, 2023, ICICI Bank held 74.85% of the equity shares of its broking subsidiary, ICICI Securities Limited (ICICI Securities), and the balance 25.15% equity shares were held by the public. In June 2023, the Board of Directors of the Bank approved the draft scheme of arrangement for delisting of equity shares of our broking subsidiary, ICICI Securities Limited (“ICICI Securities”), by issuing equity shares of the Bank to the public shareholders of ICICI Securities in lieu of cancellation of their equity shares in ICICI Securities, thereby making ICICI Securities a wholly-owned subsidiary of the Bank, in accordance with Chapter VI, Part C, Regulation 37 of the SEBI (Delisting of Equity Shares) Regulations, 2021, subject to receipt of requisite approvals from the shareholders and creditors of the Bank and ICICI Securities, Reserve Bank of India, the National Company Law Tribunal, BSE Limited and the National Stock Exchange of India Limited and other statutory and regulatory authorities, under applicable law. Pursuant to the Scheme, public shareholders of ICICI Securities would be allotted 67 equity shares of ICICI Bank for every 100 equity shares of ICICI Securities.
Any future acquisitions or mergers or takeovers, whether by us or our subsidiaries, may involve a number of risks, Risks may include the possibility of a deterioration of asset quality, quality of business and business operations, financial sector increasesimpact of employee related liabilities, and diversion of our management’s attention required to integrate the acquired business. Risks may include the failure to retain key acquired personnel and clients, leverage synergies or rationalize operations, or develop the skills required for new businesses and markets. We are also at risk of liabilities including any ongoing litigation, claims or disputes concerning such acquisition, merger, its shareholders, share capital or its legal and regulatory action,compliance obligations or practices. Some or all of these risks could have an adverse effect on our business or that of our subsidiaries.
We depend on the accuracy and completeness of information about customers and counterparties.
In deciding whether formalto extend credit or informal. Followingenter 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 their independent auditors. For instance, in deciding whether to extend credit, we may assume that a customer’s audited financial statements conform to generally accepted accounting principles and present fairly, in all material respects, the financial crisis, regulators are increasingly viewing us, as well ascondition, results of operations and cash flows of the customer. Our financial condition
43
and results of operations could be negatively affected by relying on financial statements that do not comply with generally accepted accounting principles or other financial institutions, as presenting a higher risk profile thaninformation that is materially misleading. According to data published by the Reserve Bank of India, frauds reported in the past”.Indian banking sector have shown an increasing trend in recent years, and the composition of the fraud amount reported is largely dominated by frauds related to loans and advances. In addition, our access to information about the credit histories of our borrowers, especially individuals and small businesses, may be limited, relative to what is typically available for similar borrowers in developed economies with more established nation-wide credit bureaus. This may affect the quality of information available to us about the credit history of our borrowers, especially individuals and small businesses. As a result, our ability to effectively manage our credit risk may be adversely affected.
A determination against us in respect of disputed tax assessments may adversely impact our financial performance.
We are regularly assessed by the governmentGovernment of India’s tax authorities, and on account of outstanding tax demands we have included in contingent liabilities Rs. 51.082.5 billion in additional taxes in excess of our provisions at year-end fiscal 2017.March 31, 2023. These additional tax demands mainly relate to issues disputedincome tax, service tax, goods and services tax, sales tax and value added tax demands by us and the Government of India’s tax authorities such as the disallowancefor past years. The amount of depreciation on leased assets, disallowance of expenditure incurred towards exempt income, withdrawal of a special reserve, marked-to-market losses and indirect tax matters. As explained under “Business—Legal and Regulatory Proceedings”, no provision has been made in the accounts for these contingent liabilities. The Rs. 51.082.5 billion included in our contingent liabilities does not include further disputed tax assessments amounting to Rs. 53.134.9 billion, of which Rs. 30.5 billion mainly relatingrelates to bad debts written off, broken period interest and penalties levied, where the possibility of liability arising has been considered remote based on favorable Supreme Court of India decisions in own or other similar cases, and Rs. 2.33.6 billion relating to disallowance of taxes paid.error requiring rectification by tax authorities. See also “Business—Legal and Regulatory Proceedings”. Further, we are subject to various inquiries by the tax authorities through ongoing investigations/ notices which mainly consist of levy of service tax on deemed services provided by banks to customers maintaining specified minimum balances in their deposit accounts and denial of goods and services input tax credit on non-cashless settlements and marketing expenses in the case of our insurance subsidiary and affiliate. These issues are industry wide issues and the ICICI Group is contesting these issues with the tax authorities. The tax related inquiries are usually not included in contingent liabilities, as we believe that such proceedings will not be upheld by judicial authorities. In one such matter, our life insurance subsidiary has received a show cause cum demand notice from the Directorate General of Goods and Services Tax Intelligence in June 2023, disputing input tax credit being availed and utilised on certain expenses. The Group believes that input tax credit utilised is in compliance with the provisions of applicable laws and is currently in the process of filing its response to the said notice. Accordingly, an amount of Rs. 4.9 billion has been included in contingent liability in the period subsequent to March 31, 2023.
We have appealedcontested all of these demands.issues which are the subject matter of investigations initiated or unfavorable orders issued by the tax authorities. While we expect that no additional liability will arise out of these disputed demandsmatters based on our consultations with tax counsel and favorable decisions in our own and other cases, wherever applicable, 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 priceprices of our equity shares and ADSs.
44
There could be a difference in the assessment of our indirect tax liability which may lead to additional demand being raised subsequently by tax authorities. For instance, the service tax authorities, in earlier years, had raised a demand on trusts for certain funds managed by ICICI Venture Funds Management Company Limited (“ICICI Venture”), our private equity subsidiary, including in relation to the amounts retained by the trusts for incurring various expenses, distribution of certain class of unit holders and provisions for certain expenses/losses. This matter is under litigation in the High Court and is pending for resolution.
We are involved in various litigations. Any final judgment awarding material damages against us could have a material adverse impact on our future financial performance and our stockholders’ equity.
We and our group companies, or our or their directors or officers, are often involved in litigations (civil and criminal) in India and in the other jurisdictions in which we operate for a variety of reasons, which generally arise because we seek to recover our duesamounts due from borrowers or because customers seek claims against us or disputes may arise in connection with banking services. In certain instances, former employees have instituted legal and other proceedings against us. The majority of these cases arise in the normal course of business 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. We estimate the probability of losses that may be incurred in connection with legal and regulatory proceedings as of the date on which our unconsolidated and consolidated financial statements are prepared. We recognize a provision when we have a present obligation as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. We determine the amount of provision based on our estimate of the amount required to settle the obligation at the balance sheet date, supplemented by our experience in similar situations. We review provisions at each balance sheet date and adjust them to reflect current estimates. In cases where the available information indicates that a loss is reasonably possible but the amount of such loss cannot be reasonably estimated, we make a disclosure to this effect in the unconsolidated and consolidated financial statements. In certain instances, presentWhenever we consider it appropriate and former employees have institutedthe legal and otheror regulatory guidelines so permit, we may seek to settle or compound legal or regulatory proceedings against us alleging irregularities.through consensual process with the concerned claimant or regulator, which may entail monetary payment or receipt or agreeing to non-monetary terms. When there is only a remote risk of loss, we do not recognize a provision nor do we include a disclosure in the unconsolidated and consolidated financial statements. See also “Business—Legal and Regulatory Proceedings”. We cannot guarantee that the judgments in, or the outcomes of any of the litigation or other proceedings or of any settlement or compounding of legal or regulatory proceedings 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.
Further, certain investors of a real estate investment fund, registered in Mauritius, which is an investor in a real estate fund in India managed by ICICI Venture had initiated legal proceedings in Mauritius alleging, among others, mis-selling and mismanagement. The court has stayed the proceedings against ICICI Bank and ICICI Venture. In view of the stay, application for removal of averments/prayers against ICICI Bank and ICICI Venture was made, which was allowed by the court. The plaintiffs subsequently filed an appeal against the order permitting removal of averments/prayers against ICICI Bank and ICICI Venture.
45
In the same matter, ICICI Venture after receiving a notice from the Securities and Exchange Board of India, settled the matter with the Securities and Exchange Board of India. However, one of the investors in the real estate investment fund, registered in Mauritius has filed a writ petition in the Bombay High Court against, among others, the Securities and Exchange Board of India and ICICI Venture in respect of the settlement order. In the said writ petition, no reliefs have been sought as against ICICI Venture. At present, the writ petition has not been admitted and no notice to ICICI Venture has been issued by the Bombay High Court. See also, “—Risks Relating to Our Business—A determination against us in respect of disputed tax assessments may adversely impact our financial performance.” and “Business—Legal and Regulatory Proceedings”.
We continue to expand our branch network and any inability to use these branches productively may have an adverse impact on our growth and profitability.
The Bank’s branch network in India increased from 5,418 branches at March 31, 2022 to 5,900 branches at March 31, 2023. Although we plan to leverage our extensive geographical reach to support growth in our business, our new branches typically operate at lower productivity levels, as compared to our existing branches. See also “—Risks Relating to Our Business—We may seek opportunities for growth through acquisitions, divest our existing businesses, or be required to undertake mergers by the Reserve Bank of India and could face integration and other acquisitions risks”. We also have a substantial branch network in rural and semi-urban areas and have also established branches in villages that did not have any banking services. Any inability to achieve or substantial delays in achieving desired levels of deposits, advances and revenues from the new branches would have an adverse impact on our growth and profitability and the prices of our equity shares and ADSs.
We depend on the knowledge and skills of our senior management. Any inability to attract them and retain them and other talented professionals or any loss of senior management or other talented professionals may adversely impact our business.
Our business has become more complex with both product line expansion including the insurance area and geographic expansion internationally and through the rural initiatives. Our continued success depends in part on the continued service of key members of our management team and our ability to continue to attract, train,
motivate and retain highly qualified professionals. This is a key element of our strategy and we believe it to be a significant source of competitive advantage. The successful implementation of our strategy depends on the availability of skilled management, both at our head office and at each of our business units and international locations, continuity in the service of our directors, executives and onsenior managers, and our ability to attract and train young professionals. A substantial portion
The appointment of our compensation structure for middle and senior management is in the form of employee stock options, and dependent on the market price of our equity shares. Depending on market and business conditions, we may decide to reduce our employee strengthindividuals in certain of our businesses. Increased competition, including the entry of new banks into an already competitive sector, may affect our abilitypositions is subject to hireregulatory and retain qualified employees. Further, anyshareholder approvals. Any stringent requirements by our regulator for appointing key members in the management may require us to reorganize our management structure and may affect our ability to identify, hire and appoint suitable professionals for various roles.
The loss of any member from our senior management, including directors and key personnel, can have a material impact on our business, our financial performance, our stockholders’ equity, our ability to implement our strategy and the prices of our equity shares and ADSs. If we or one of our business units or other functions fail to staff operations appropriately, or lose one or more
46
key senior executives or qualified young professionals and fail to replace them in a satisfactory and timely manner, our business, financial condition and results of operations, including our control and operational risks, may be adversely affected. Likewise, if we fail to attract and appropriately train, motivate and retain young professionals or other talent, our business may likewise be affected. We have recently made several changes to our human resource management practices, including key performance indicators, unit-level operating flexibility and accountability and a shift from grades to functional designations at senior levels, aimed at greater agility and synergy across the organization. There can be no assurance that these measures will be successful in meeting the desired objectives.
A substantial portion of our compensation structure for middle and senior management is in the form of employee stock options and dependent on the market price of our equity shares. We introduced an employee stock unit scheme aimed primarily at up to the middle-level management employees pursuant to which, stock units will be issued at the face value of Rs. 2.0 per unit, with phased vesting of units based upon the continuation of the employee. However, increased competition, including the entry of new banks into an already competitive sector, may affect our ability to hire and retain qualified employees. See also “Business—Employees”.
Future health epidemics or natural disasters could impact our employees, including senior management. There can be no assurance that this would not impact our ability to manage or conduct our business or the price of our equity shares and ADSs.
Risks relating to technology
AdoptionThe growing use of technology in banking and financial services creates additional risks of competition, reliability and security.
Our business and our operations are heavily dependent upon our ability to offer digital products and services and process large volumes of transactions. This has increased our reliance on technology in recent years. Technology innovations in financial services require banks and financial services companies to continuously develop new and simplified models for offering banking products and services. See also “—Risks Relating to Our Business—Our industry is very competitive and our strategy depends on our ability to compete effectively.”
The growing demand for digital banking services, accelerated in part due to the COVID-19 pandemic, has substantially increased the volume of transactions for the banking system, including us. This has required banks to enhance their focus on the availability and scalability of their systems in the context of growing customer dependence on digital transactions and increasing volumes of such transactions and may require additional investments. Any disruption in service delivery could impact our business, our financial position and our reputation, and also lead to regulatory action including imposing restrictions on business.
We face security risks, including denial of service attacks, hacking, social engineering attacks targeting our colleagues and customers, malware intrusion or data corruption attempts, and identity theft that could result in the disclosure of confidential information, adversely affect our business or reputation, and create significant legal and financial exposure.
47
Our businesses rely on our secure processing, transmission, storage and retrieval of confidential, proprietary and other information in our computer and data management systems and networks and in the computer and data management systems and networks of third parties. To access our products and services, our customers may use personal smartphones, tablets, laptops, PCs, and other mobile devices that are beyond our control systems and subject to their own cybersecurity risks. Given our reliance and focus on technology and presence in diverse geographies, our technologies, systems, networks, and our customers’ devices are subject to security risks and are susceptible to cyber-attacks (such as, denial of service attacks, hacking, terrorist activities or identity theft) that could negatively impact the confidentiality, integrity or availability of data pertaining to us or our customers, which in turn may cause direct loss of money to our customers or to us, damage to our reputation and adversely impact our business and financial results. Third parties with which we do business or that facilitate our business activities could also be sources of operational and information security risk to us, including from breakdowns or failures of their own systems or capacity constraints.
We, our customers, regulators and other third parties, including other financial services institutions and companies engaged in data processing, have been subject to, and are likely to continue to be the target of, cyber-attacks. These cyber-attacks include computer viruses, malicious or destructive code, phishing attacks, denial of service or information, ransomware, advanced threats from large language models, improper access by employees or vendors, attacks on personal email of employees, ransom demands to not expose security vulnerabilities in our systems or the systems of third parties or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information of ours, our employees, our customers or of third parties, damage our systems or otherwise materially disrupt our or our customers’ or other third parties’ network access or business operations. Like many other large global financial institutions, we have also experienced a few attacks pertaining to distributed denial of services which were intended to disrupt customer access to our main portal. While our monitoring and mitigating controls were able to detect and effectively respond to such incidents, there can be no assurance that these security measures will be successful in the future. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.
We have a governance framework in place for security and have implemented information security policies, procedures and technologies. However, considering that technology is currently in a phase of rapid evolution and that the methods used for cyber-attacks are also changing frequently or, in some cases, are not recognized until an actual attack, we may not be able to anticipate or to implement effective preventive measures against all security breaches. Cyber threats are rapidly evolving and we may not be able to anticipate or prevent all such attacks and could be held liable for any security breach or loss.
Cybersecurity risks for banking organizations have significantly increased in recent years in part because of the proliferation of new technologies, and the use of the internet and telecommunications technologies to conduct financial transactions. For example, cybersecurity risks may increase as we continue to increase our mobile-payment and other internet-based product offerings and expand our internal usage of web-based products and applications. In addition, cybersecurity risks have significantly increased in recent years in part due to the increased sophistication and activities of organized crime affiliates, terrorist organizations,
48
hostile foreign governments, disgruntled employees or vendors, activists and other external parties, including those involved in corporate espionage. Some of the newer technologies like quantum computing harnesses the laws of quantum mechanics to solve problems that are too complex for classical computers. Encryption tools are used to secure online communications between parties from any possible attackers. Such newer technologies could pose a threat to the existing encryption protocols and could lead to unauthorized access to internal data. Even the most advanced internal control environment may be vulnerable to compromise. Targeted social engineering attacks and “spear phishing” attacks are becoming more sophisticated and are extremely difficult to prevent. In such an attack, an attacker will attempt to fraudulently induce colleagues, customers or other users of our systems to disclose sensitive information in order to gain access to its data or that of its clients. Persistent attackers may succeed in penetrating defenses given enough resources, time, and motive. The techniques used by cyber criminals change frequently, may not be recognized until launched and may not be recognized until well after a breach has occurred. The risk of a different basissecurity breach caused by a cyber-attack at a vendor or by unauthorized vendor access has also increased in recent years. Additionally, the existence of accountingcyber-attacks or new accounting standardssecurity breaches at third-party vendors with access to our data may not be disclosed to us in a timely manner. We could also face cybersecurity risks which result in direct loss of money, as has happened with certain other banks in the past where their high value payment systems were compromised resulting in direct monetary loss for the Bank. We also face risks where our customers could lose money because of cyber attacks, and these could result in monetary as well as reputational risks for the Bank.
We also face indirect technology, cybersecurity and operational risks relating to clients and other third parties with whom we do business or upon whom we rely to facilitate or enable our business activities, including, for example, financial counterparties, regulators and providers of critical infrastructure such as internet access and electrical power. As a result of increasing consolidation, interdependence and complexity of financial entities and technology systems, a technology failure, cyber-attack or other information or security breach that significantly degrades, deletes or compromises the systems or data of one or more financial entities could have a material impact on counterparties or other market participants, including us. This consolidation, interconnectivity and complexity increases the risk of operational failure, on both individual and industry-wide bases, as disparate systems need to be integrated, often on an accelerated basis.
Any third-party technology failure, cyber-attack or other information or security breach, termination or constraint could, among other things, adversely affect our ability to effect transactions, service our clients, manage our exposure to risk or expand our business. Cyber-attacks or other information or security breaches, whether directed at us or third parties, may result in changesa material loss or have material consequences. Furthermore, the public perception that a cyber-attack on our systems has been successful, whether or not this perception is correct, may damage our reputation with customers and third parties with whom we do business. Hacking of personal information and identity theft risks, in particular, could cause serious reputational harm. A successful penetration or circumvention of system security could cause us serious negative consequences, including our loss of customers and business opportunities, costs associated with maintaining business relationships after an attack or breach; significant business disruption to our operations and business, misappropriation, exposure, or destruction of our confidential information, intellectual property, funds, and/or those of our customers; or damage to our computers or systems, and could result in a violation of applicable privacy laws and other laws,
49
litigation exposure, regulatory fines, penalties or intervention, loss of confidence in our reported financial positionsecurity measures, reputational damage, reimbursement or other compensatory costs, additional compliance costs, and could adversely impact our results of operations, liquidity and financial condition.
Our customers could also be exposed to increased phishing and vishing attacks that could result in a financial loss to them, and in turn lead to claims for future and prior periods.compensation from the Bank or reputation loss for the Bank.
System failures or system downtime could adversely impact our business.
Given the large 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 business, financial, accounting, data processing systems or other operating systems and facilities may stop operating properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control, such as surges in customer transaction volume, utility disruptions or failures, natural disasters, diseases pandemics, events arising from political or social matters and terrorist attacks. While we have procedures to monitor for and prevent system downtime or failures, and to recover from system failures in the event they occur, there is no guarantee that these procedures will successfully prevent a system failure or allow us to recover quickly from a system failure. In the event that our data center is severely impacted, while we have a secondary disaster recovery data center, recovery of some of our systems and services may be delayed, thereby adversely impacting our operations and customer service levels. Any failure in our systems, particularly for retail products and services and transaction banking, could significantly affect our operations and the quality of our customer service and could result in enhanced regulatory scrutiny and business and financial losses that would adversely affect the prices of our equity shares and ADSs. Regulatory scrutiny in this area is increasing. See also “—Risks that arise as a result of our presence in a highly regulated sector—The enhanced supervisory and compliance environment in the financial sector increases the risk of regulatory action against us, whether formal or informal.”
The financial statements
Risks relating to our insurance subsidiary and affiliate
Additional capital requirements of our insurance subsidiary and affiliate or our inability to monetize a part of our shareholding or make further investments in these companies as required may adversely impact our business and the prices of our equity shares and ADSs.
At March 31, 2023, we owned 51.3% of the equity shares of our life insurance subsidiary, ICICI Prudential Life Insurance Company, and 48.0% of the equity shares of our general insurance affiliate, ICICI Lombard General Insurance Company.
Although our insurance businesses are profitable and we currently do not anticipate they would require capital, additional capital may be required to support the business which may, among other reasons, arise due to regulatory requirements or increased opportunities for growth or changes in loss experience and actuarial assumptions. See also “—Risks relating to our insurance subsidiary and affiliate— Actuarial experience and other financial information included or incorporated by referencefactors could differ from assumptions made in this annual reportthe calculation of life actuarial reserves and other actuarial information” and “—Risks relating to our insurance subsidiary and affiliate—Loss reserves for our affiliate’s general insurance business are based on estimates as to
50
future claims liabilities and adverse developments relating to claims could lead to further reserve additions and materially adversely affect the operation of our unconsolidatedgeneral insurance affiliate.” Our insurance subsidiary and consolidatedaffiliate may also explore mergers and acquisitions which may lead to issuance of equity shares. Issuance of additional equity shares for these or other reasons would reduce our shareholding, unless we invest additional capital in these businesses. Our ability to invest additional capital in these businesses is subject to the Reserve Bank of India’s regulations on capital adequacy and its guidelines on financial statements underservices provided by banks that prescribe limits for our aggregate investment in financial sector enterprises. All such investments require prior approval of the Reserve Bank of India.
Any additional capital requirements of our insurance companies, restrictions on our ability to capitalize them and a requirement that we reduce or increase our shareholding could adversely impact their growth, our future capital adequacy, our financial performance and the prices of their equity shares and our equity shares and ADSs. See also “Business—Overview of Our Products and Services—Insurance” and “—Risks relating to our insurance subsidiary and affiliate—While our insurance businesses are an important part of our business, there can be no assurance of their future rates of growth or levels of profitability.”
While our insurance businesses are an important part of our business, there can be no assurance of their future rates of growth or levels of profitability.
Our life insurance and general insurance businesses are an important part of our business. See also “Business—Overview of Our Products and Services—Insurance”. These businesses have experienced volatility in growth rates in the past and there can be no assurance of their future rates of growth or profitability.
The Indian GAAP.life insurance sector has experienced significant regulatory changes in recent years. See also “Supervision and Regulation—Regulations Governing Insurance Companies”. The Instituteregulatory changes, apart from impacting the business strategy, have also resulted in reduced profit margins on life insurance products. Our life insurance subsidiary’s growth and profitability depends on various factors, including the mix of Chartered Accountantsproducts in its portfolio, its relationship with various partners, regulatory changes and market movements. ICICI Bank is a corporate agent of its insurance subsidiary and accounts for less than 15% of the business volumes of its life insurance subsidiary based on annualised premium equivalent for fiscal 2023. The life insurance subsidiary’s business is well-diversified across its product and distribution mix. While the subsidiary has been making profits since fiscal 2010, there can be no assurance of the continued growth of the subsidiary’s business and profitability, including the business generated by the Bank.
We conduct our general insurance business through our general insurance affiliate, ICICI Lombard General Insurance Company. ICICI Lombard General Insurance Company’s growth and profitability depends on various factors, including the proportion of certain profitable products in its portfolio, the maintenance on its relationship with key distribution partners and reinsurers, continuation of support by the Government of India of certain insurance schemes, regulatory changes, climate change factors, changes to tax positions or judgements and market movements. There can be no assurance of the future rates of growth in the insurance business. While this affiliate has been making profits since fiscal 2013, there can be no assurance of the future profitability or rates of growth in the insurance business. See also “—Risks relating to our
51
insurance subsidiary and affiliate—Additional capital requirements of our insurance entities or our inability to monetize a part of our shareholding in these entities may adversely impact our business and the prices of our equity shares and ADSs.” and “Supervision and Regulation—Regulations Governing Insurance Companies.”
Further, the Insurance Regulatory Development Authority of India has issued Ind AS (a revised setfrom time to time proposed changes to the regulations governing distribution of accounting standards)insurance products by corporate agents, including banks. Any future regulatory changes or restrictions may require our insurance subsidiary and affiliate to change its distribution strategies, which largely convergesmay result in increased costs and lower business volumes, as well as impacting ICICI Bank’s distribution of their products and the associated fee income. A slowdown in growth in the Indian accounting standardseconomy, the impact from any future catastrophes and epidemics or pandemics, further regulatory changes or customer dissatisfaction with International Financial Reporting Standards. The Ministryour insurance products could adversely impact the future growth of Corporate Affairs, which is the law making authority for adoptionthese businesses. See also “—Risks that arise as a result of accounting standards in India, has notified these Ind AS for adoption. Further, the ministry has also issued a roadmap for transition to Ind AS by Indian companiesour presence in a phased manner starting from April 1, 2016. For banking companieshighly regulated sector— The enhanced supervisory and non-banking finance companies, the implementation of Ind AS will begin from April 1, 2018 and for insurance companies it will begin from April 1, 2020. Accordingly, ICICI Bank and our group companies, would report its financials as per Ind AS from April 1, 2018 onwards. Financial statements prepared under standards different from existing GAAP may diverge significantly fromcompliance environment in the financial statementssector increases the risk of regulatory action against us, whether formal or informal”. Any slowdown in these businesses could have an adverse impact on our business and the prices of our equity shares and ADSs.
Actuarial experience and other financial information included or incorporated by referencefactors could differ from assumptions made in this annual report. The major areasthe calculation of differences include classificationlife actuarial reserves and mark-to-market accounting of financial assets, impairment of financial assets, accounting of loan processing fees and costs, amortization of premium/discount on purchase of financial assets, employee stock option, deferred tax and consolidation accounting.other actuarial information.
Ind AS 109 - Financial Instruments (Standard equivalentThe assumptions our life insurance subsidiary makes in assessing its life insurance reserves and computing other actuarial information may differ from what it experiences in the future. These assumptions include the assessment of the long-term development of interest rates, investment returns, the allocation of investments between equity, fixed income and other categories, persistency, mortality and morbidity rates, policyholder lapses, policy discontinuation and future expense levels. In addition, there is a risk that the model used to International Financial Reporting Standard 9)estimate life and health insurance reserves based on such assumptions could be incorrect.
Our life insurance subsidiary monitors its actual experience of these assumptions and if any deviation from assumption is expected to continue in the longer term, it refines its long-term assumptions. Changes in any such assumptions may lead to changes in the estimates of life and health insurance reserves and other actuarial information. Such changes may also impact the valuation of our life insurance subsidiary by existing or potential investors, and the valuation at which any future monetization of our shareholding in the life insurance subsidiary may take place, if at all.
While our life insurance subsidiary monitors its experience and assumptions, events such as the COVID-19 pandemic are not anticipated in setting life insurance reserves. Higher claims due to any such pandemic in the future would have a significantan adverse impact on the way financial assetsearnings and net worth of the subsidiary.
Loss reserves for our affiliate’s general insurance business are based on estimates as to future claims liabilities are classified and measured, resulting in volatility in profit oradverse developments relating to claims could lead to further reserve additions and materially adversely affect the operation of our general insurance affiliate.
52
In accordance with the general insurance industry practice and accounting and regulatory requirements, our general insurance company establishes reserves for loss and equity.loss adjustment expenses related to its general insurance business. Reserves are based on estimates of future payments that will be made in respect of claims, including expenses relating to such claims. The estimation of the loss reserves relies on several key actuarial steps and assumptions, for example, selection of the actuarial methods by line of business, groupings of similar product lines and determination of underlying actuarial assumptions like expected loss ratios, loss development factors, and loss cost trend factors. Such estimates are made on both a case-by-case basis of claims that have been reported but not settled, based on the facts and circumstances available at the time the reserves are established, as well as in respect of losses that have been incurred but not reported. These reserves represent the estimated ultimate cost necessary to bring all pending claims to final settlement.
Reserves are subject to change due to a number of variables which affect the ultimate cost of claims, such as changes in claims handling procedures, legal environment, social attitudes, results of litigation, costs of repairs, changing trends in medical costs, minimum wages and other factors such as inflation and exchange rates. Our general insurance company’s reserves for environmental and other latent claims are particularly subject to such variables. The results of operations of our general insurance company depend significantly upon the extent to which its actual claims experience is consistent with the assumptions it uses in setting the prices for products and establishing the liabilities for obligations for technical provisions and claims. To the extent that its actual claims experience is less favorable than the underlying assumptions used in establishing such liabilities, it may be required to increase its reserves, which may materially adversely affect its results of operations.
Established loss reserves estimates are periodically adjusted in the ordinary course of settlement, using the most current information available to management, and any adjustments resulting from changes in reserve estimates are reflected in current results of operations. Our general insurance company also conducts reviews of various lines of business to consider the adequacy of reserve levels. Based on current information available and on the basis of internal procedures, the management of our general insurance company considers that these reserves are adequate. However, because the establishment of reserves for loss and loss adjustment expenses is an inherently uncertain process, there can be no assurance that ultimate losses will not materially exceed the established reserves for loss and loss adjustment expenses and have a material adverse effect on the results of operations of our general insurance company. Such adverse effect may also impact the valuation of our general insurance company by existing or potential investors, and the valuation at which any future monetization of our shareholding in the general insurance company may take place, if at all. See also ““Operating—Risks relating to our insurance subsidiary and Financial review Prospects – Convergenceaffiliate—Additional capital requirements of Indian accounting standards with International Financial Reporting Standards”our insurance entities or our inability to monetize a part of our shareholding in these entities may adversely impact our business and the prices of our equity shares and ADSs”.
The financial results of our insurance companies could be materially adversely affected by the occurrence of a catastrophe.
Portions of our general insurance business may cover losses from unpredictable events such as hurricanes, windstorms, epidemics, monsoons, earthquakes, fires, industrial explosions, floods, riots and other man-made or natural disasters, including acts of terrorism, and epidemics
53
or pandemics. The incidence and severity of these catastrophes in any given period are inherently unpredictable. Although reserves are established after an assessment of potential losses relating to catastrophes covered, there is no assurance that such reserves would be sufficient to pay for all related claims.
In addition, our life insurance subsidiary’s business may incur losses due to increased mortality and morbidity claims of customers, affected by catastrophes and epidemics or pandemics. In addition, catastrophes could result in losses in the investment portfolios of our life insurance subsidiary due to, among other reasons, the failure of its counterparties to perform their obligations or significant volatility or disruption in the financial markets.
Our general insurance company’s operations are exposed to claims relating to catastrophes and epidemics or pandemics. Continuing higher claims related to COVID-19 may adversely impact the profitability of our general insurance company.
Although our insurance subsidiary and affiliate monitor their overall exposure to catastrophes and epidemics and other unpredictable events in each geographic region and determine their underwriting limits related to insurance coverage for losses from such events, the insurance subsidiary and affiliate generally seek to reduce their exposure through the purchase of reinsurance, selective underwriting practices and by monitoring risk accumulation. Claims relating to catastrophes and epidemics or pandemics in future may result in unusually high levels of losses and may require additional capital to maintain solvency margins and could have a material adverse effect on our financial position or results of operations.
Risks Relating to 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 subject to delays and legal restrictions.
Our ADS holders have no voting rights, unlikewhile holders of our equity shares whodo have voting rights. For certain information regardingThe ceiling on voting rights for any individual holder of equity shares is 26.0% of the total voting rights of the equity shares underlying our ADSs, seea bank. See also “Business—Shareholding Structure and Relationship with the Government of IndiaMajor Shareholders”. If you wish, you may withdraw the equity shares underlying your ADSs and seek to exercise your voting rights under the equity shares you obtain from the withdrawal. However, for foreign investors, this withdrawal process may be subject to delays. For a discussion of the legal restrictions triggered by a withdrawal of the equity shares from the depositary facility upon surrender of ADSs, see also “Restriction on Foreign Ownership of Indian Securities”.
Your holdings may be diluted by additional issuances of equity and any dilution may adversely affect the market priceprices of our equity shares and ADSs.
In fiscal 2008,August 2020, we concludedraised Rs. 150.00 billion (US$ 2.0 billion) of equity capital through a capital raising exercise comprising a public offeringQualified Institutions Placement. We may in India and an ADS offering aggregating Rs. 199.7 billion. We maythe future conduct additional equity offerings to fund the growth of our business, including our international operations, our insurance business or our other subsidiaries.business. In addition, up to 10.0% of our issued equity shares from time to time, may be granted in accordance with our EmployeeEmployees Stock Option Scheme and Employees Stock Unit Scheme. AnyWe constantly evaluate different financing options and any future issuance of equity shares or ADSs or exercise of employee stock options that would dilute the positions of
54
investors in equity shares and ADSs and could adversely affect the market priceprices of our equity shares and ADSs.
You may be unable to exercise preemptivepre-emptive rights available to other shareholders.
A company incorporated in India must offer its holders of equity shares preemptivepre-emptive 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. United States investors in ADSs may be unable to exercise these preemptivepre-emptive rights for equity shares underlying ADSs unless a registration statement under the Securities Act of 1933, as amended (the “Securities Act”“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 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 preemptivepre-emptive rights, their proportional ownership interests in us would be reduced.
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 also “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 reissuance and 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. Further, the number of equity shares that can be deposited in exchange of ADSs or the number of reissuances of the ADSs may be restricted subject to any amendment in the overall size of the ADS program. These restrictions increase the risk that the market price of our ADSs will be below that of the equity shares.
55
The depositary facility pursuant to which the ADSs are issued may be amended. Such amendment could include changes in the size of the ADS program. Any such amendment could adversely affect the market price and liquidity of our equity shares and ADSs or adversely affect the ability to trade the ADSs.
Certain shareholders own a large percentage of our equity shares and their actions could adversely affect the priceprices of our equity shares and ADSs.
The Life Insurance Corporation of India, the General Insurance Corporation of India and other government-owned general insurance companies, all of which are directly controlled by the Indian government, are among our principal shareholders. At June 30, 2017,March 31, 2023, the Life Insurance Corporation of India held 10.4%6.2% of our outstanding equity shares and SBI Mutual Fund along with other entities in the General Insurance Corporation of India and other government-owned general insurance companiesSBI Group held 1.7%7.7% of our outstanding equity shares. See also “Business—Shareholding Structure and Relationship with the Government of IndiaMajor Shareholders”. Any substantial sale of our equity shares by these or other large shareholders could adversely affect the priceprices of our equity shares and ADSs. The Reserve Bank of India, in exercise of powers conferred by the Banking Regulation Act has notified a ceiling on voting rights in a banking company for a single shareholder of 15.0%26.0%. Deutsche Bank Trust Company Americas held approximately 25.1%19.1% of our equity shares at June 30, 2017 as depositary for ADS holdersMarch 31, 2023 and currently votes on only 15.0% of these shares as per the ceiling notified by the Reserve Bank of India. In addition, under the terms of our deposit agreement, Deutsche Bank Trust Company Americas must vote these shares as directed by our Board of Directors. See also “Overview of the Indian Financial Sector—Structural Reforms—Amendments to the Banking Regulation Act”.
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 April 2003,Following the decline in the priceoutbreak of the equity shares of a leading Indian software company createdCOVID-19 pandemic in early 2020, the benchmark S&P BSE Sensex declined during the three months ended March 31, 2020 by 28.6%. During this period, several listed securities were impacted, including our securities. The index has subsequently recovered and at June 30, 2023, the S&P BSE Sensex closed at 64,719. Even before the volatility caused by the COVID-19 pandemic, volatility in the Indian stock markets andhave created temporary concerns regarding our exposure to the equity markets. On May 17, 2004, the S&P 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 Limited and the National Stock Exchange of India Limited halted trading on the exchanges on May 17, 2004 in view of the sharp fall in prices of securities. The Indian securities markets experienced rapid appreciation during fiscal 2006 but underwent a sharp correction in May 2006. The markets experienced a recovery thereafter and the S&P BSE Sensex reached an all-time high of 20,873 on January 8, 2008 but subsequently experienced a sharp correction, with the S&P BSE Sensex declining to 8,160 on March 9, 2009. In the 24 months since then, the equity markets had recovered with the S&P BSE Sensex at 19,445 at year-end fiscal 2011. However, the European debt crisis, volatile crude oil prices and concerns on growth in India caused a decline in the domestic equity markets with the S&P BSE Sensex at 17,404 at March 30, 2012. The markets have recovered subsequently and at year-end fiscal 2017 the S&P BSE Sensex was at 29,621. In recent years, there have been changes in laws and regulations regulating the taxation of dividend income, which have impacted the Indian equity capital markets. See also “Dividends”. Similar problems or changes in the future could adversely affect the market price and liquidity of our equity shares and ADSs.
We are subject to regulatory restrictions on the payment of dividend to shareholders. Any change in such restrictions or increase in capital requirements may have an impact on our dividend payout to our equity share and ADS holders.
The Reserve Bank of India has prescribed limits on the dividend payout ratio of banks in India linked to certain parameters such as the risk-based capital ratio and net non-performing assets ratio. Under the Reserve Bank of India’s Basel III guidelines, banks are subject to higher minimum capital requirements and must maintain a capital conservation buffer above the minimum requirements to avoid restrictions on capital distributions and discretionary bonus payments. Any change in restrictions on payment of dividend or capital requirements may limit our ability to pay dividends to our equity share and ADS holders.
Settlement of trades of equity shares on Indian stock exchanges may be subject to delays.
The equity shares represented by ADSs are currently listed on the BSE Limited and the National Stock Exchange of India Limited. 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. See also “—Risks Relating to ADSs and Equity Shares—Conditions in the Indian securities market may adversely affect the price or liquidity of our equity shares and ADSsADSs.”.
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 equity shares and 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 also “Restriction on Foreign Ownership of Indian Securities”. Historically, our ADSs have generally traded at a small premium to the trading price of our underlying equity shares on the Indian stock exchanges. See also “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 among some investors to trade dollar-denominated securities. In fiscal 2006 and fiscal 2008, we conducted offerings of ADSs 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. As a result, any premium enjoyed by 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.
Because the equity shares underlying 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 ADSs in U.S. dollars and are subject to currency fluctuation risk and convertibility risks since the equity shares underlying ADSs are
56
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 U.S. 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 “—Risks Relating to ADSs and Equity Shares—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” and “Exchange RatesControls”.
You may be subject to Indian taxes arising out of capital gains.
In certain circumstances, capital gains arising on the sale of the underlying equity shares are subject to Indian capital gains tax. Investors are advised to consult their own tax advisors and to carefully consider the potential tax consequences of owning ADSs or underlying equity shares. See also “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.
57
Shareholding Structure and Relationship with Government of India
The following table sets forth, at June 30, 2023, certain information regarding the ownership of our equity shares.
Percentage of Total Equity Shares Outstanding | Number of Equity Shares Held | |||||||
Government Controlled Shareholders: | ||||||||
Life Insurance Corporation of India | 6.1 | 429,892,591 | ||||||
Other Government-controlled institutions, insurance companies, reinsurers, corporations and banks | 0.7 | 50,314,193 | ||||||
Total government-controlled shareholders | 6.9 | 480,206,784 | ||||||
Other Indian Investors: | ||||||||
SBI Mutual Fund | 5.9 | 410,693,963 | ||||||
ICICI Prudential Mutual Fund | 3.0 | 210,909,032 | ||||||
HDFC Mutual Fund | 2.4 | 170,813,777 | ||||||
National Pension Scheme Trust | 2.1 | 145,419,837 | ||||||
UTI Mutual Fund | 1.9 | 134,956,158 | ||||||
Aditya Birla Sun Life Mutual Fund | 1.3 | 94,180,586 | ||||||
Kotak Mahindra Mutual Fund | 1.3 | 89,932,811 | ||||||
Nippon Life India Mutual Fund | 1.2 | 83,381,375 | ||||||
Axis Mutual Fund | 1.0 | 71,358,162 | ||||||
SBI Life Insurance Company Limited | 1.2 | 81,786,288 | ||||||
Mirae Asset Mutual Fund | 1.1 | 76,125,930 | ||||||
Other mutual funds and alternative investment funds | 4.9 | 345,191,481 | ||||||
Private sector insurance companies other than SBI Life Insurance Company | 2.3 | 158,507,276 | ||||||
Other private sector corporations and financial institutions | 1.2 | 87,109,402 | ||||||
Investor education protection fund | 0.1 | 8,185,782 | ||||||
Individual domestic investors(1),(2) | 6.4 | 447,603,052 | ||||||
Total other Indian investors | 37.4 | 2,616,154,912 | ||||||
Total Indian investors | 44.3 | 3,096,361,696 | ||||||
Foreign investors: | ||||||||
Deutsche Bank Trust Company Americas, as depositary for American Depositary Shares (ADS) holders | 19.3 | 1,352,219,913 | ||||||
Government of Singapore | 2.7 | 189,100,025 | ||||||
Dodge and Cox International Stock Fund | 1.1 | 80,206,480 | ||||||
Europacific Growth Fund | 1.0 | 73,046,757 | ||||||
Other foreign institutional investors, foreign banks, overseas corporate bodies, foreign companies, foreign nationals, foreign institutional investors and non-resident Indians(2) | 31.5 | 2,205,715,551 | ||||||
Total foreign investors | 55.7 | 3,900,288,726 | ||||||
Total | 100.0 | 6,996,650,422 |
(1) | Executive officers and directors (including non-executive directors) as a group held about 0.01% of ICICI Bank’s equity shares at June 30, 2023. |
(2) | No single shareholder in this group owned 5.0% or more of ICICI Bank’s equity shares as of this date. |
58
The holding of government-controlled shareholders was 6.9% at June 30, 2023 against 7.6% at June 30, 2022 and 7.0% at June 30, 2021. The holding of Life Insurance Corporation of India was 6.1% at June 30, 2023 against 6.7% at June 30, 2022 and 5.9% at June 30, 2021.
We operate as an autonomous commercial enterprise and the Indian government has never directly held any of our shares. We are not aware of or a party to any shareholders’ agreement or voting trust relating to the ownership of the shares held by the government-controlled shareholders. We do not have any agreement with our government-controlled shareholders regarding management control, voting rights, anti-dilution or any other matter. Our Articles of Association include a provision for the government of India to appoint, pursuant to the provisions of guarantee agreements between the government of India and ICICI, a representative to our Board. At present, there is no representative of the government of India on our Board. At June 30, 2023, we do not have government guaranteed borrowings outstanding. See also “Management—Directors and Executive Officers” for a discussion of the composition of our Board of Directors.
The holding of other Indian investors was 37.4% at June 30, 2023 against 38.9% at June 30, 2022 and 33.5% at June 30, 2021. The total holding of Indian investors was 44.3% at June 30, 2023 against 46.5% at June 30, 2022 and 40.5% at June 30, 2021. The holding of foreign investors was 55.7% at June 30, 2023 against 53.5% at June 30, 2022 and 59.5% at June 30, 2021. The Reserve Bank of India, exercising its powers under the Banking Regulation Act has established a limit of 26% on the voting rights of a single shareholder in a banking company. Deutsche Bank Trust Company Americas holds the equity shares represented by about 676 million American Depositary Receipts outstanding as depositary on behalf of the holders of the American Depositary Shares (ADS). The ADS are listed on the New York Stock Exchange. The Deutsche Bank Trust Company Americas (as depositary) which held 19.3% of our equity shares at June 30, 2023, must vote these shares as directed by our Board of Directors. Our ADS holders themselves have no voting rights unlike holders of our equity shares who have voting rights. Except as stated above, no shareholder has differential voting rights. See also “Supervision and Regulation—Structural Reforms— Amendments to the Banking Regulation Act” and “Supervision and Regulation—Ownership and Voting Restrictions”.
59
In fiscal 2023, we entered into transactions with related parties consisting of (i) associates/other related entities and (ii) key management personnel and their close family members.
Related Parties
Associates/Other Related Entities
For fiscal 2023, the following parties were identified as our associates/other related entities: ICICI Lombard General Insurance Company Limited, Arteria Technologies Private Limited, India Advantage Fund-III, India Advantage Fund-IV, India Infradebt Limited, ICICI Merchant Services Private Limited, I-Process Services (India) Private Limited, NIIT Institute of Finance, Banking and Insurance Training Limited, Comm Trade Services Limited, ICICI Foundation for Inclusive Growth and Cheryl Advisory Private Limited.
Key Management Personnel and their Close Family Members
Our key management personnel include our executive directors. The following individuals were our key management personnel in fiscal 2023: Mr. Sandeep Bakhshi, Mr. Anup Bagchi, Mr. Sandeep Batra, Mr. Rakesh Jha (with effect from September 2, 2022) and Ms. Vishakha Mulye (up to May 31, 2022). The close family members of the above key management personnel are also our related parties. Close family members in relation to the executive directors mean their spouses, children, children’s spouses, grand children, grand children’s spouses, siblings, sibling’s spouses, parents, maternal grandparents and paternal grandparents. We have applied the Indian GAAP standard and Reserve Bank of India Act, 1934 in determining the close family members of the executive directors.
Related Party Transactions
The following are the material transactions between us and our associates/other related entities or our key management personnel or their close family members.
For additional details, see also “Management—Compensation and Benefits to Directors and Officers—Loans” and note 2 - “Related Party Transactions” of Schedule 18 to the consolidated financial statements included herein.
Insurance Services
During fiscal 2023, we received insurance premiums from our associates/other related entities amounting to Rs. 55 million, from key management personnel of the Bank amounting to Rs. 3 million and from the close family members of key management personnel amounting to Rs. 1 million. The premiums received were towards cover for life insurance and investment linked insurance plans. The material transactions during fiscal 2023 included Rs. 54 million of premium received from ICICI Lombard General Insurance Company Limited.
During fiscal 2023, we paid insurance premiums amounting to Rs. 3.5 billion to ICICI Lombard General Insurance Company Limited. The premiums paid were towards cover for health insurance, personal accident and miscellaneous items.
During fiscal 2023, we paid claims including maturity, annuity and policy surrender value to our associates/other related entities amounting to Rs. 19 million and to key management personnel of the
60
Bank amounting to Rs. 1 million. The material transactions during fiscal 2023 included Rs. 16 million paid to ICICI Lombard General Insurance Company Limited.
During fiscal 2023, we received claims towards health, personal accident, fire, motor and other miscellaneous items amounting to Rs. 163 million from ICICI Lombard General Insurance Company Limited.
Income from services rendered
During fiscal 2023, we earned income from services rendered to our associates/other related entities amounting to Rs. 1.4 billion, from key management personnel of the Bank amounting to Rs. 1 million and from the close family members of key management personnel amounting to Rs. 2 million. These transactions primarily arose from marketing and promotion fee, sponsorship and banking service fee, arranger fees and bank charges. The material transactions during fiscal 2023 included Rs. 1.3 billion of income from services received from ICICI Lombard General Insurance Company Limited.
Income from Shared Services
During fiscal 2023, we recovered cost towards sharing of premises, corporate infrastructure facilities and technology services from our associates/other related entities amounting to Rs. 327 million. The material transactions during fiscal 2023 included recovery of Rs. 262 million from ICICI Lombard General Insurance Company Limited and recovery of Rs. 37 million from ICICI Foundation for Inclusive Growth.
Expenses for shared services and other payments
During fiscal 2023, we paid cost towards sharing of premises, corporate infrastructure facilities and technology services to our associates/other related entities amounting to Rs. 1 million.
Expenses for services received
During fiscal 2023, we paid brokerage, fees and other expenses to our associates/other related entities amounting to Rs. 15.7 billion. These transactions primarily pertain to availing manpower services for certain activities of the Bank and expenses towards providing basic banking services. The material transactions during fiscal 2023 included Rs. 10.4 billion in expenses for services paid to I-Process Services (India) Private Limited and Rs. 5.2 billion in expenses for services paid to ICICI Merchant Services Private Limited.
Investments in Securities Issued by Related Parties
During fiscal 2023, we invested Rs. 1.9 billion in securities issued by India Infradebt Limited.
Issuance of Securities to Related Parties
During fiscal 2023, we issued securities amounting to Rs. 1.0 billion to ICICI Lombard General Insurance Company Limited.
Redemption/buyback of Investments
During fiscal 2023, we paid Rs. 1.6 billion to ICICI Lombard General Insurance Company Limited on account of redemption of bonds.
61
Purchase of Investments
During fiscal 2023, we purchased securities of Rs. 1.6 billion from ICICI Lombard General Insurance Company Limited.
Interest Expenses
During fiscal 2023, we paid interest on bond borrowings and deposits accepted to our associates/other related entities amounting to Rs. 205 million, to our key management personnel amounting to Rs. 15 million and to the close family members of key management personnel amounting to Rs. 5 million. The material transactions during fiscal 2023 included Rs. 141 million of interest paid to ICICI Lombard General Insurance Company Limited and Rs. 26 million of interest paid to ICICI Merchant Services Private Limited.
Interest Earned
During fiscal 2023, we received interest on investments in bonds and loans from our associates/other related entities amounting to Rs. 435 million and from our key management personnel amounting to Rs. 3 million. The material transaction during fiscal 2023 included Rs. 421 million of interest received from India Infradebt Limited.
Purchase of Fixed assets
During fiscal 2023, we purchased fixed assets from our associates/other related entities amounting to Rs. 3 million.
Dividend Income
During fiscal 2023, we received dividend income from our associates/other related entities amounting to Rs. 2.3 billion. The material transaction during fiscal 2023 was Rs. 2.2 billion of dividend received from ICICI Lombard General Insurance Company Limited.
Gain/(loss) on Foreign Exchange and Derivative Transactions (Net)
During fiscal 2023, we earned income on foreign exchange and derivative transactions from ICICI Lombard General Insurance Company Limited amounting to Rs. 51 million.
CSR related reimbursement of expenses
During fiscal 2023, we reimbursed expenses to ICICI Foundation for Inclusive Growth amounting to Rs. 4.4 billion for corporate social responsibility related activities.
Dividend Paid
During fiscal 2023, we paid dividends to our key management personnel, amounting to Rs. 3.2 million and to the close family members of key management personnel, amounting to Rs. 0.7 million.
Value of ESOPs exercised
During fiscal 2023, our key management personnel exercised ESOPs amounting to Rs. 306 million. The value of ESOPs exercised during fiscal 2023 by Mr. Sandeep Bakhshi was Rs. 27 million, by Mr. Anup
62
Bagchi was Rs. 183 million, by Mr. Sandeep Batra was Rs. 22 million and by Ms. Vishakha Mulye was Rs. 74 million.
Sale of Investments
During fiscal 2023, we sold securities to our associates/other related entities amounting to Rs. 31.7 billion. The material transactions during fiscal 2023 included Rs. 24.6 billion of securities sold to ICICI Lombard General Insurance Company Limited and Rs. 7.0 billion of securities sold to India Infradebt Limited. Sale of securities included government securities and corporate bonds/debentures in secondary market.
Donations Given
During fiscal 2023, we gave donations to ICICI Foundation for Inclusive Growth amounting to Rs. 565 million.
Sale of Fixed assets
During fiscal 2023, we sold fixed assets to our key management personnel amounting to Rs. 0.2 million.
Related Party Balances
The following table sets forth, at the date indicated, our balance payable to/receivable from our associates/other related entities:
Items | At year-end fiscal 2023 | |||
(in million) | ||||
Deposits from related parties held by us | Rs. | 2,603 | ||
Payables to related parties | 3,717 | |||
Our investments in related parties | 24,864 | |||
Investments of related parties in the Group | 1,600 | |||
Loans and advances to related parties(2) | 191 | |||
Receivables from related parties | 1,539 | |||
Guarantees issued by us for related parties | 63 |
The following table sets forth, at the date indicated, the balance payable to/receivable from the key management personnel:
Items | At year-end fiscal 2023 | |||
(in million) | ||||
Deposits from key management personnel | Rs. | 261 | ||
Payables to key management personnel | 0.4 | |||
Investments in our shares held by key management personnel | 1 | |||
Loans and advances to key management personnel(3) | 86 |
The following table sets forth, at the date indicated, the balance payable to/receivable from the close family members of key management personnel:
Items | At year-end fiscal 2023 | |||
(in million) | ||||
Deposits from close family members of key management personnel | Rs. | 96 | ||
Payables to close family members of key management personnel | 1 |
63
Items | At year-end fiscal 2023 | |||
(in million) |
Investments in our shares held by close family members of key management personnel | 0.2 | |||
Loans and advances to close family members of key management personnel(2) | 0.4 |
The following table sets forth, for the period indicated, the maximum balance payable to/receivable from the key management personnel:
Items | At year-end fiscal 2023 | |||
(in million) | ||||
Deposits from key management personnel | Rs. | 421 | ||
Payables to key management personnel | 0.4 | |||
Investments in our shares held by key management personnel | 2 | |||
Loans and advances to key management personnel(3) | 139 |
The following table sets forth, for the period indicated, the maximum balance payable to/receivable from the close family members of key management personnel:
Items | At year-end fiscal 2023 | |||
(in million) | ||||
Deposits from close family members of key management personnel | Rs. | 267 | ||
Payables to close family members of key management personnel | 1 | |||
Investments in our shares held by close family members of key management personnel | 0.3 | |||
Loans and advances to close family members of key management personnel(2) | 2 |
(1) | Insignificant amount. |
(2) | The loans and advances (a) were made in the ordinary course of business, (b) were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and (c) did not involve more than the normal risk of collectability or present other unfavorable features. |
(3) | The loans and advances (a) were made in the ordinary course of business and were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons or (b) were made on the same terms, including interest rates and collateral, as those prevailing at the time for other employees as part of employee loan scheme, and (c) did not involve more than the normal risk of collectability or present other unfavorable features. |
Joint Ventures and Affiliates
From fiscal 2008, I-Process Services (India) Private Limited and NIIT Institute of Finance Banking and Insurance Training Limited were accounted as equity affiliates in consolidated financial statements.
From fiscal 2010, ICICI Merchant Services Private Limited was accounted as an equity affiliate in the consolidated financial statements.
From fiscal 2013, India Infradebt Limited was accounted as an equity affiliate. From fiscal 2015, India Advantage Fund-III and India Advantage Fund-IV were accounted as equity affiliates. From fiscal 2019, Arteria Technologies Private Limited was accounted as an equity affiliate. From April 1, 2021, ICICI Lombard General Insurance Company Limited ceased to be a subsidiary and was accounted as an equity affiliate.
64
We are a diversified financial services group offering a wide range of banking and financial services to corporate and retail customers through a variety of delivery channels. We are the largest private sector bank in India in terms of total assets on a consolidated basis. Apart from banking products and services, we offer life and general insurance, asset management, securities brokeringbroking, and private equity products and services through our specialized subsidiaries.subsidiaries and affiliates. Our consolidated total assets at year-end fiscal 20172023 were Rs. 9,860.419,584.9 billion. Our consolidated capital and reserves and surplus including employees’ stock options outstanding at year-end fiscal 20172023 were Rs. 1,046.32,145.0 billion and our consolidated net profit (after minority interest) for fiscal 20172023 was Rs. 101.9340.4 billion.
Our primary business consists of commercial banking operations for Indianretail and corporate customers. Our commercial banking operations for retail customers consist of retail lending, deposit taking, distribution of insurance and retail customers.investment products and other fee-based products and services. We provide a range of commercial banking and project finance products and services, including loan products, fee and commission-based products and services, deposit products and foreign exchange and derivatives products to India’s leadinglarge corporations, middle market companies and small and medium enterprises. Our commercial banking operations for retail customers consist of retail lending and deposit taking and distribution of third party insurance and investment products. We also offer agricultural and rural banking products. We earn interest and fee income from our commercial banking operations. We deliver our products and services through a variety of channels, including bank branches, ATMs, call centers, the internet social media and mobile phones. ICICI BankWe had a network of 4,8505,900 branches and 13,88216,650 ATMs and cash recycler machines in India at year-end fiscal 2017.2023.
In ourOur international banking operations, our primary focus isfranchise focuses on offering productsfour strategic pillars, namely the (a) non-resident Indian ecosystem comprising deposits, remittances, investments and services to persons of Indian origin, Indian businesses, select local businesses and multi-national corporations, and insured mortgage productsasset products; (b) multinational corporation ecosystem comprising foreign multinational companies investing in our Canadian subsidiary, as well as offering deposit products to the larger community. Our overseas branches take deposits, raise borrowings and make loans toIndia, Indian companies for theirpresent in overseas operations as well as for theirmarkets, and back-offices of multinational companies located in India; (c) trade ecosystem, comprising primarily India-linked trade transactions; and (d) funds ecosystem, to capture foreign currency requirements ininvestment flows into India global multi-national corporations and local companies in their jurisdiction. They also engage in advisory and syndication activities for fund-raising by Indian companies and their overseas operations. We currently have. At year-end fiscal 2023, we had banking subsidiaries in the United Kingdom and Canada, branches in China, Singapore, Dubai International Finance Centre, Sri Lanka, Hong Kong, Qatar Finance Centre, the United States South Africa(New York),Bahrain, Offshore Banking Unit located in the Santacruz Electronic Exports Promotion Zone, Mumbai and Bahrain andIFSC Banking Unit, Gandhinagar, Gujarat. At year-end fiscal 2023, we had representative offices in the United Arab Emirates (Dubai, Abu Dhabi and Sharjah), Bangladesh, Nepal, Malaysia, United States (Texas and California), Sri Lanka and Indonesia. Our subsidiary in the United Kingdom has established a branch in each of Antwerp, Belgium and Frankfurt, Germany. Our subsidiaries in the United Kingdom and Canada and our branches in Bahrain, Dubai, Singapore and Hong Kong have the largest share of our international assets and liabilities. See also “Risk factors—Risks Relating to Our Business—OurThe exposures of our international operations increase the complexitybranches and banking subsidiaries could generally affect our business, financial condition and results of the risks that we faceoperations”.
Our treasury operations include the maintenance and management of regulatory reserves, proprietary trading in equity and fixed income and a range of foreign exchange and derivatives products and services for corporate customers, such as forward contracts and interest rate and currency swaps. We take advantage of movements in markets to earn treasury income. Our overseas branches and subsidiaries also have investments in credit derivatives, bonds of non-India financial institutions and asset backed securities.
We are also engaged in insurance, asset management, securities broking business and private equity fund management through specialized subsidiaries. Our subsidiaries, ICICI Prudential Life Insurance Company ICICI Lombard General Insurance Company and ICICI Prudential Asset Management Company, provide a wide range of life and general insurance and asset management products and services to retail and corporate customers. ICICI Prudential Life Insurance Company was the largest private sector life insurance company in India during fiscal 2017, with a market share of 12.0% in new business written (on retail weighted received premium basis) according to the Life Insurance Council. During fiscal 2017, ICICI Prudential Life Insurance Company was listed on the National Stock Exchange of India Limited and the BSE Limited, following the sale of 12.63% out of the shares held by ICICI Bank through an offer for sale in an initial public offering by the company. ICICI Prudential Pension Funds Management Company Limited, a 100% subsidiary of ICICI Prudential Life Insurance Company, is one of the fund managers for the pension assets of Indian citizens (other than the mandated pension funds of government employees) under the National Pension System. This pension scheme was launched by the Indian government in 2004 for all citizens on a voluntary basis, and has allowed professional fund managers to invest the scheme’s funds since 2008.respectively.
Our affiliate, ICICI Lombard General Insurance Company was the largest private sectorLimited provides a wide range of general insurance companyproducts. The Bank’s holding in India during fiscal 2017, with a market share of 8.4% on a gross direct premium income basis according to theICICI Lombard General Insurance Council. ICICI Prudential Asset Management Company manages the ICICI Prudential Mutual Fund, whichLimited was the largest mutual fund in India in terms of average funds under management for the three months ended48.0% at March 31, 20172023. In May 2023, the board of directors of ICICI Bank Limited approved acquisition of up to 4.0% of ICICI Lombard General Insurance Company Limited's shareholding, to make it a subsidiary of the Bank, subject to regulatory approvals.
65
according to the Association of Mutual Funds in India. We cross-sell the products of our insurance and asset management subsidiaries and of other asset management companies to our retail and corporate customers. Our subsidiariessubsidiary ICICI Securities Limited is engaged in equities underwriting, securities broking and distribution of financial products. Our subsidiary ICICI Securities Primary Dealership Limited areis engaged in equity underwriting and brokerage and primary dealership inof government securities and fixed income market operations, respectively. ICICI Securities ownsicicidirect.com, a leading online brokerage platform. ICICI Securities Limited has a subsidiary in the United States, ICICI Securities Holdings Inc. that in turn has an operating subsidiary in the United States, ICICI Securities Inc., which is engaged in brokerage services.securities. Our private equity fund management subsidiary ICICI Venture, Funds Management Company, manages funds that make private equity investments. In fiscal 2013,On June 29, 2023, the boards of directors of ICICI Bank in partnership with domesticLimited and international banks and financial institutions, launched India’s first infrastructure debt fund, India InfradebtICICI Securities Limited structured asapproved a non-banking finance company in whichdraft scheme of arrangement for delisting of equity shares of ICICI Securities Limited by issuing equity shares of ICICI Bank andto the public shareholders of ICICI Securities Limited in lieu of cancellation of their equity shares in ICICI Securities Limited, thereby making ICICI Securities a wholly ownedwholly-owned subsidiary together have a shareholding of 40.0%.ICICI Bank Limited, subject to requisite approvals. The public shareholders of ICICI Securities Limited will be allotted 67 equity shares of ICICI Bank Limited for every 100 equity shares of ICICI Securities Limited.
Our legal name is ICICI Bank Limited, but we are known commercially as ICICI Bank. We were incorporated on January 5, 1994 under the laws of India as a limited liability corporation. The duration of ICICI Bank is unlimited. Our principal corporate office is located at ICICI Bank Towers, Bandra-Kurla Complex, Mumbai 400 051, India, our telephone number is +91 22 3366 77772653 6173 and our website address is www.icicibank.com. www.icicibank.com. None of the contents of our and our subsidiaries’ websites are incorporated in this annual report. Our agent for service of process in the United States is Mr. Akashdeep Sarpal, Joint General Manager,Akshay Chaturvedi, Country Head, ICICI Bank Limited, New York Branch, 500575 Fifth Avenue, 26th floor, Suite 2830,2600, New York, New York 10110.10017.
ICICI was formed in 1955 at the initiative of the World Bank, the governmentGovernment of India and Indian industry representatives. The principal objective was to create a development financial institution for providing medium-term and long-term project financing to Indian businesses. Until the late 1980s, ICICI primarily focused its activities on project finance, providing long-term funds to a variety of industrial projects. With the liberalization of the financial sector in India in the 1990s, ICICI transformed its business from a development financial institution offering only project finance to a diversified financial services provider that, along with its subsidiaries and other group companies, offered a wide variety of products and services. As India’s economy became more market-oriented and integrated with the world economy, ICICI capitalized on the new opportunities to provide a wider range of financial products and services to a broader spectrum of clients. ICICI Bank was incorporated in 1994 as a part of the ICICI group.
The issue of universal banking, which in the Indian context means conversion of long-term lending institutions such as ICICI into commercial banks, had been discussed at length in the late 1990s. Conversion into a bank offered ICICI the ability to accept low-cost demand deposits and offer a wider range of products and services, and greater opportunities for earning non-fund based income in the form of banking fees and commissions. ICICI Bank also considered various strategic alternatives in the context of the emerging competitive scenario in the Indian banking industry. ICICI Bank identified a large capital base and size and scale of operations as key success factors in the Indian banking industry. In view of the benefits of transformation into a bank and the Reserve Bank of India’s pronouncements on universal banking, ICICI and ICICI Bank merged in 2002.
In fiscal 2023, we maintained our strategic focus on profitable growth in business within the guardrails of risk and compliance. We grew our credit portfolio with a focus on granularity and saw healthy growth across our retail and business banking and wholesale portfolios. We continued to focus on holistically serving our clients and their ecosystems. We sought to maintain and enhance our liability franchise. We focused on maintaining a strong balance sheet, with robust liquidity, prudent provisioning and healthy capital adequacy. Our capital adequacy ratios were significantly above regulatory requirements at March 31, 2023.
Going forward, we will continue with our strategic focus on growing the profit before tax excluding treasury income i.e. the core operating profit less provisions in a risk-calibrated manner. Our Risk Appetite and Enterprise Risk Management framework sets out our risk appetite, including a limit framework for various risk categories. We will focus on growing our loan portfolio in a granular manner based on risk and reward, with focus on return of capital and containment of provisions within targeted levels. We have no specific targets for loan mix or segment-wise loan growth. We will aim to continue to grow our deposit franchise, maintain a stable and healthy funding profile and our competitive advantage in cost of funds.
We see significant opportunities for profitable growth across various sectors of the Indian economy.
66
Shareholding StructureThe key elements of our strategy to maximize our share of these opportunities are:
360-degree customer centric approach
We leverage our branch network, digital channels, partnerships and Relationshippresence across various ecosystems to expand our customer base. Using ICICI STACK, the Bank offers solutions to its customers to suit their life-stage and business needs. We plan to continue to focus on maximizing the total life-cycle value of the relationship with the Governmentcustomer.
Focus on ecosystems
We aim to serve all financial requirements of Indiacustomers and their ecosystems. Using ICICI STACK for Corporates, we offer customized solutions to corporates and their network of employees, vendors, dealers and other parts of their ecosystems. We focus on capturing the fund flows in the corporate’s supply chain with dealers and vendors by offering various digital solutions. Our ecosystem branches house multi-functional teams required to grow customer relationships and bring the entire bouquet of services of the Bank to clients and their ecosystems. Our “Merchant Stack” provides a wide range of banking and value added services to the merchant ecosystem comprising retailers, online businesses and large e-commerce firms.
Focus on micro markets
The following table sets forth, at June 30, 2017, certain information regardingBank follows a micro-market-based approach to create an efficient distribution and resource allocation strategy. Our data analytics capabilities enable us to analyze relevant geographical, demographic and economic data combined with internal data to identify locally relevant opportunities. This also includes allocating appropriate resources and strengthening the ownershipbranch network where required.
Internal cross-functional collaboration and external partnerships
The Bank has focused on increasing collaboration to provide solutions that meet the complete banking requirements of customers. Cross-functional teams have been created to tap into various ecosystems, enabling 360-degree coverage of customers and increasing wallet share.
Partnerships with technology companies and platforms with large customer bases and transaction volumes offer unique opportunities for acquiring new customers and enhancing service delivery and customer experience. We have also set up a start-up investment and partnerships team to collaborate with and invest in fintech startups and co-develop products aligned with our digital roadmap.
Process decongestion and operating flexibility
Our strategy emphasizes decongestion of internal process to make customer onboarding and service delivery frictionless, thereby improving the customer experience. We have reduced the layers of management in our organization structure and empowered operating teams, to create flexibility and agility in capturing business opportunities while operating within the guardrails of compliance and risk.
Leveraging technology and digital across businesses
The Bank has embarked on a journey to transform from Bank to BankTech, with a focus on creating an enterprise architecture framework across digital platforms, data and analytics, micro services based architecture, cloud computing, cognitive intelligence and other emerging technologies. This is based on
67
the key pillars of scalability, modularity, flexibility, agility, resilience and reliability, and creating delightful and digitally native customer experiences to enable sustainable profitable growth.
We extensively leverage data analytics for deeper insights into customer needs and behavior and create unique propositions for customer and market segments. Our various digital platforms such as iMobile Pay, internet banking platforms, InstaBIZ and Trade Online provide end-to-end seamless digital journeys, personalized solutions and value added features to customers and enable effective data driven cross-sell and up-sell. The open architecture feature of iMobile Pay and InstaBIZ helps us to acquire new customers in a frictionless manner. We have taken a number of initiatives to offer a convenient and frictionless experience to customers by digitizing the credit underwriting process, with instant loan approvals. We will continue to enhance our cyber security and invest in technology to enhance our offerings to customers as well as the scalability, flexibility and resilience of our equity shares.technology architecture.
Percentage of Total Equity Shares Outstanding | Number of Equity Shares Held | |||||||
Government Controlled Shareholders: | ||||||||
Life Insurance Corporation of India | 10.4 | % | 663,975,994 | |||||
General Insurance Corporation of India and government-owned general insurance companies | 1.7 | 110,604,022 | ||||||
UTI and UTI Mutual Fund | 1.0 | 65,912,669 | ||||||
Other government-controlled institutions, mutual funds, corporations and banks | 0.2 | 15,587,349 | ||||||
Total government-controlled shareholders | 13.3 | 856,080,034 | ||||||
Other Indian investors: | ||||||||
Individual domestic investors(1),(2) | 6.6 | 424,082,749 | ||||||
Mutual funds and banks (other than government-controlled mutual funds and banks)(2) | 14.4 | 919,099,815 | ||||||
HDFC Trustee Company Limited – HDFC Equity Fund | 1.0 | 64,278,189 | ||||||
Other Indian corporations and others(2) | 4.3 | 275,845,888 | ||||||
Total other Indian investors | 26.3 | 1,683,306,641 | ||||||
Total Indian investors | 39.6 | 2,539,386,675 | ||||||
Foreign investors: | ||||||||
Deutsche Bank Trust Company Americas, as depositary for ADS holders | 25.1 | 1,609,486,267 | ||||||
Dodge and Cox International Stock Fund | 6.2 | 396,386,743 | ||||||
Government of Singapore | 1.1 | 67,379,722 | ||||||
Other foreign institutional investors, foreign banks, overseas corporate bodies, foreign companies, foreign nationals, foreign institutional investors and non-resident Indians(2) | 28.1 | 1,800,190,577 | ||||||
Total foreign investors | 60.4 | 3,873,443,309 | ||||||
Total | 100.0 | % | 6,412,829,984 | |||||
Risk and compliance culture
The Bank recognizes the importance of establishing an effective framework and supporting processes so that all employees seek to exhibit desired behaviours aligned to the Risk and Compliance Culture Policy. The Bank aims to uphold a strong risk and compliance culture throughout the Bank. The Risk and Compliance Culture Policy establishes the risk and compliance culture guiding principles and the framework for implementation of the same. The Bank has identified five guiding principles for risk and compliance culture across the organization:
The holding of government-controlled shareholders was 13.3% at June 30, 2017 against 13.1% at June 30, 2016 and 11.2% at June 30, 2015. The holding of Life Insurance Corporation of India was 10.4% at June 30, 2017 against 10.4% at June 30, 2016 and 8.5% at June 30, 2015.
We operate as an autonomous commercial enterprise and the Indian government has never directly held any of our shares. We are not aware of or a party to any shareholders’ agreement or voting trust relating to the ownership of the shares held by the government-controlled shareholders. We do not have any agreement with our government-controlled shareholders regarding management control, voting rights, anti-dilution or any other matter. Our Articles of Association provide for the government of India to appoint, pursuant to the provisions of guarantee agreements between the government of India and ICICI, a representative to our Board. The government of India has appointed one representative to our Board. We have traditionally invited a representative of each of the government-controlled insurance companies that are among our principal institutional shareholders, Life Insurance Corporation of India and General Insurance Corporation of India to join our Board. There is currently a representative of Life Insurance Corporation of India but no representative of General Insurance Corporation of India on our Board. See also “Management—Directors and Executive Officers” for a discussion of the composition of our Board of Directors.
The holding of other Indian investors was 26.3% at June 30, 2017 against 21.8% at June 30, 2016 and 19.2% at June 30, 2015. The total holding of Indian investors was 39.6% at June 30, 2017 against 34.9% at June 30, 2016 and 30.4% at June 30, 2015. The holding of foreign investors was 60.4% at June 30, 2017 against 65.1% at June 30, 2016 and 69.6% at June 30, 2015. See also “Supervision and Regulation—Reserve Bank of India Regulations—Ownership Restrictions”. Deutsche Bank Trust Company Americas holds the equity shares represented by 805 million American Depositary Receipts outstanding as depositary on behalf of the holders of the American Depositary Shares. The American Depositary Shares are listed on the New York Stock Exchange. The Reserve Bank of India, exercising its powers under the Banking Regulation Act has notified a ceiling of 15.0% on the voting rights of a single shareholder in a banking company. Therefore, Deutsche Bank Trust Company Americas (as depositary), which held approximately 25.1% of our equity shares at June 30, 2017 can only vote 15.0% of our equity shares. In addition, under the terms of our deposit agreement, Deutsche Bank Trust Company Americas must vote these shares as directed by our Board of Directors.Our ADS holders themselves have no voting rights unlike holders of our equity shares who have voting rights.Except as stated above, no shareholder has differential voting rights. See also “Overview of the Indian Financial Sector—Structural Reforms— Amendments to the Banking Regulation Act”.
In fiscal 2017, we continued to focus on opportunities for sustainable profitable growth by enhancing our retail franchise, including growing our retail loan portfolio and maintaining the proportion of current and savings accounts and retail term deposits in our domestic deposit base. We continued to build our rural and inclusive banking franchise, focused on strengthening our insurance, asset management and securities businesses, and unlocking value from our investments in our insurance subsidiaries. We continued to leverage technology to improve the customer experience as well as our operating efficiency. During the withdrawal of high denomination currency notes and the introduction of new currency notes by the government of India in the second half of fiscal 2017, we ensured minimal disruptions in our banking operations, took steps to manage availability of cash, recalibration of our ATMs to accept new notes, announced waivers on specific banking transactions and enhanced our services to customers. During fiscal 2017, we continued to adopt a cautious approach to lending to the corporate sector, and refined and strengthened the framework for managing concentration risks, including thresholds and limits with respect to single borrower and group exposure. We focused on asset resolution and exposure reduction in identified areas though the progress was slower than expected. We maintained a strong capital position with capital adequacy ratios significantly above the regulatory requirements.
The success of our strategy depends on several factors, including our ability to grow our low cost deposit base, grow our loan book profitably, contain non-performing and restructured loans, resolve stressed assets promptly, manage our treasury business, maintain regulatory compliance in an evolving regulatory environment, address regulators’ assessments of and observations on our operations, and compete effectively in the Indian corporate and retail financial services market. Regulations governing the financial sector in India, including banking, insurance and asset management, continue to evolve, with a potential impact on the growth and profitability of financial services groups such as us. Our overseas branches are primarily funded from wholesale sources and global financial market conditions may impact our ability to raise funds and grow the business of our overseas branches.
Going forward, our objective will be to sustain our robust funding profile and leverage our capital base for profitable growth with diversification of risk. Our strategic priorities are summarized below:
Improving portfolio quality
Continuing to enhance our franchiseThe effective implementation of the policy includes a governance framework with roles and responsibilities of the Board, Managing Director & Chief Executive Officer and Executive Directors and the Risk and Compliance Culture Council.
Meeting customer expectationsWe are focused on service qualitythe principles of “Return of Capital” emphasizing the need to conserve capital as paramount, “One Bank, One Team, One RoE” emphasizing the need to maximize our share of the target opportunity across all products and attractingservices, and retaining talented professionals will be important elementsthe principle of “Fair to Customer, Fair to Bank” emphasizing the goal of delivering fair value to customers, while creating value for shareholders. The Bank-level core operating profit and containing the total provisions within a certain level of core operating profit of the Bank are key performance indicators for the Bank’s leadership team. We seek to sell products and offer services which meet societal needs and are in the interest of our strategy.customers. We focus on building a culture where every employee upholds this principle and serves customers with humility. We aim to be the trusted financial services provider of choice for our customers.
Overview of Our Products and Services
We offer products and services in the commercial banking area to corporate and retail customers, both domestic and international. We also undertake treasury operations and offer treasury-related products and services to our customers. We are also engaged in insurance, asset management, securities business, venture capital and private equity fund management through specialized subsidiaries.
Commercial Banking for Retail Customers
Our commercial banking operations for retail customers consist of retail lending and deposits, and fee based products and services like credit, debit and prepaid cards, depositary share accounts and distribution of third party investment and insurance products, other fee-based products and services, and the issuance of unsecured redeemable bonds.products.
Retail Lending Activities
68
Our retail lending activities include home loans, automobile loans, commercial business loans, (including primarily commercial vehicle loans), business banking loans (including dealer funding and small ticket loans to small businesses), personal loans, credit cards, consumer durable goods financing, loans against time deposits and loans against securities, loans against jewelry and retail lending in rural markets.securities. We also fund dealers who sell automobiles and commercial vehicles. The retailUp to fiscal 2020, we reported business banking and various products of our rural portfolio increased from Rs. 2,385.7 billion constituting 46.8%such as loans against jewellery, kisan credit card as a part of gross loans at year-end fiscal 2016 to Rs. 2,689.6 billion constituting 50.2% of gross loans at year-end fiscal 2017. This was driven primarily by growth in securedour retail lending categories like mortgagesactivities. From fiscal 2022, we started presenting business banking and automobile loans. We also selectively offer unsecured products such as personal loans and credit cards to our customers. We believe that retail credit has a robust long-term growth potential due to India’s favorable demographics and under-penetration of retail products in the Indian market.rural portfolio separately.
Our suite of products and services for retail customers includes savings, investment, credit and protection products, along with convenient payment and transaction banking services. Our retail portfolio consists largely of secured lending, with growth based on proprietary data and analytics in addition to credit bureau checks. Our deposit franchise enables us to offer competitive pricing. We also leverage our existing customer database for sale of key retail asset products are generally fixed rate products repayable in equated monthly installments other than our floating ratethrough cross-sell and up-sell. Our underwriting process involves a combination of key variables to assess the cash flow and repayment ability of the customer like income, leverage, customer profile, affluence markers, credit bureau data and demographics. We utilize multiple data points including liability and asset relationships, transaction behavior and bureau behavior along with proprietary machine learning and statistical models for making credit decisions.
The following table sets forth, at the dates indicated, the breakdown of the Group’s gross retail finance portfolio.
At March 31, | ||||||||||||||||
2022 | 2023 | 2023 | 2023 | |||||||||||||
(Rs. in billions) | (% share) | (US$ in millions) | ||||||||||||||
Home loans | Rs. | 3,323.8 | Rs. | 3,782.8 | 62.9 | % | US$ | 46,024 | ||||||||
Automobile loans | 406.5 | 499.8 | 8.3 | 6,081 | ||||||||||||
Commercial business loans(1) | 266.0 | 278.6 | 4.6 | 3,391 | ||||||||||||
Others(2) | 129.9 | 151.9 | 2.5 | 1,849 | ||||||||||||
Total secured retail finance portfolio | 4,126.2 | 4,713.1 | 78.3 | 57,345 | ||||||||||||
Personal loans | 632.8 | 883.2 | 14.7 | 10,745 | ||||||||||||
Credit card receivables | 254.7 | 384.2 | 6.4 | 4,674 | ||||||||||||
Others(3) | 26.7 | 34.9 | 0.6 | 425 | ||||||||||||
Total unsecured retail finance portfolio | 914.2 | 1,302.3 | 21.7 | 15,844 | ||||||||||||
Total retail finance portfolio | Rs. | 5,040.4 | Rs. | 6,015.4 | 100 | % | US$ | 73,189 |
(1) | Includes commercial vehicles and construction equipment. |
(2) | Includes two-wheeler loans, loan against securities and dealer financing. |
(3) | Primarily includes dealer financing. |
Home Loans
Our home loan portfolio where any change inincludes loans for purchase and construction of homes and by mortgaging residential or commercial properties. We also offer instant top-up on home loans to existing home loan customers. Our policies for home loans are based on certain stipulated ratios such as the benchmark rateloan-to-value ratio and the ratio of fixed debt obligations to which the ratea borrower’s income. The initial repayment term of interest on the loan is referenced is passed on to the borrower on the first day of the succeeding quarter or succeeding month, as applicable. Any decrease in the rate of interest payable on floating rate home loans is generally implemented by an acceleration15 to 20 years with payments in the form of equal monthly installments. The credit process includes cashflow assessment of the repayment schedule, keepingborrower as well as evaluating the monthly installment amount unchanged. Any increaseproperty being mortgaged against the legal and technical standards defined at the Bank.
We follow robust credit appraisal processes for loan-against-property. The average loan-to-value ratios of the loan-against-property portfolio are lower compared to our home loan portfolio. Lending is
69
based on cash flows of borrowers and not just the value of the collateral. We also provide loans to customers belonging to economically weaker sections and customers buying homes in the rate of interest payable on floating rate home loans is generally effected inlow-cost affordable housing segment. Our initiatives to digitize the first instance by an extensionentire underwriting process with instant approvals have been one of the repayment schedule, keeping the monthly installment amount unchanged, and based on certain criteria, by changing the monthly installment amount.drivers of growth in our home loan portfolio. See also “Technology” and “Risk Factors—Risks Relating to Our Business—Our banking and trading activities are 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, the quality of our loan portfolio and our financial performanceperformance”.”.
Commercial Banking for Rural and Agricultural Customers
Our rural banking operation catershome loans primarily have floating interest rates linked to the financial requirements of customers in rural and semi-urban locations, primarily engaged in agriculture and allied activities. We offer a comprehensive product suite covering the entire agricultural value chain including farmers, commodity traders, seed and farm input dealers and processors. Our products include working capital loans for growing crops and financing post harvest activities, including farm equipment loans and financing against warehouse receipts and gold jewelry. We also provide consumption loans for low-income customers. The Reserve Bank of India’s directed lending norms also require us to lend a portion of advances to the agricultural sector and micro enterprises. See also“—Loan Portfolio—Directed Lending”.
We offer financial solutions to micro-finance institutions, self-help groups, co-operatives constituted by farmers, corporations and medium enterprises engaged in agriculture-linked businesses. Rural banking services are offered through multiple channels including branches, micro ATMs, point of sale terminals and mobile branches. We have tied up with telecom companies to offer mobile based banking services. Our rural customers can also avail themselves of basic banking facilities at retail outlets like grocery shops and customer service points through business correspondents. As per the requirementrepo rate of the Reserve Bank of India, we have formulated a board-approved financial inclusion plan to provide financial services to customers residingIndia. Home loans are repaid in rural and unbanked areas. From fiscal 2015, we have supportedequated monthly installments over the government’s financial inclusion initiative to provide a bank account to every household in unbanked areastenor of the country. We have enabled remittancesloan. An increase in the repo rate will increase the interest rate on home loans and account based transfers, baseda decrease in the repo rate will decrease the interest rate on Aadhaar, India’s unique identification number, for our customers who are beneficiaries of direct benefit transfers underhome loans. When interest rates on home loans increase, the social security schemestenor of the government of India. During
fiscal 2016, we began offering insurance and pension products to our customers. The Bank has also tied up with National Commodity and Derivatives Exchange Limited to offer loans against electronic warehouse receipts. In fiscal 2017, the Bank launched a unique mobile application, Mera iMobile, which allows users, including non-ICICI Bank customers, in rural areas to access banking services as well as information on agricultural services. This application provides around 135 services andloan is available in English and several Indian regional languages. Rural banking presents significant challenges in terms of geographical coverage and high unit transaction costs. We continuously explore various models for operating through cost effective structures in rural locations, including technology-based channels and have opened 571 low cost branches in rural locations, which offer basic banking services to rural customers. We have also pursued initiatives in empowering villagesextended and in creating a digital ecosystem in line withinstances where this is not possible, the government’s focusequated monthly installments of the loan are increased. Borrowers are given options to shift towards a less-cash economy. The village promotion programme encompasses digitizationincrease their installments instead of transactions and commercial activities and provides credit facilities and a market linkagetenure. When interest rates on home loans decrease, the tenor of the loan is reduced leaving the equated monthly installments unchanged, unless borrowers opt to help villagers earn a sustainable livelihood. During fiscal 2017, we converted 100 villages into digital villages. reduce the installment amount. See also ““Risk factors—Risk Factors—Risks RelatingOur banking and trading activities are particularly vulnerable to Our Business— Entry into new businesses or rapid growthinterest rate risk and volatility in existing loan portfolios may expose us to increased risks that mayinterest rates could adversely affect our business”.
The following table sets forth, atnet interest margin, the dates indicated, the break-downvalue of our gross retail finance portfolio.
At March 31, | ||||||||||||||||||||
2015 | 2016 | 2017 | 2017 | 2017 | ||||||||||||||||
(Rs. in billions) | (% share) | (US$ in millions) | ||||||||||||||||||
Home loans | Rs. | 1,094.0 | Rs. | 1,334.3 | Rs. | 1,528.4 | 56.9 | % | US$ | 23,569 | ||||||||||
Automobile loans | 190.0 | 224.6 | 256.1 | 9.5 | 3,949 | |||||||||||||||
Commercial business loans | 109.4 | 129.2 | 150.3 | 5.6 | 2,317 | |||||||||||||||
Business banking(1) | 73.2 | 80.9 | 77.4 | 2.9 | 1,194 | |||||||||||||||
Others(2),(3) | 332.2 | 398.8 | 379.9 | 14.0 | 5,858 | |||||||||||||||
Total secured retail finance portfolio | 1,798.8 | 2,167.8 | 2,392.1 | 88.9 | % | 36,887 | ||||||||||||||
Personal loans | 71.3 | 102.2 | 143.7 | 5.3 | 2,215 | |||||||||||||||
Credit card receivables | 41.4 | 55.2 | 75.5 | 2.8 | 1,164 | |||||||||||||||
Business banking(1) | 23.9 | 33.3 | 49.5 | 1.8 | 763 | |||||||||||||||
Others(2) | 21.5 | 27.2 | 28.8 | 1.2 | 446 | |||||||||||||||
Total unsecured retail finance portfolio | 158.1 | 217.9 | 297.5 | 11.1 | % | 4,588 | ||||||||||||||
Total retail finance portfolio | Rs. | 1,956.9 | Rs. | 2,385.7 | Rs. | 2,689.6 | 100.0 | % | US$ | 41,475 | ||||||||||
Our unsecured retailfixed income portfolio, primarily includes personal loansour income from treasury operations, the quality of our loan portfolio and loans against credit card receivables. Following the globalour financial crisis leading to increase in interest rates, tightening liquidity and challenging macro-economic environment and changes in regulations pertaining to the use of recovery agents by banks, we witnessed higher than anticipated losses in the unsecured retail portfolio. We reduced incremental lending in personal loans and credit card issuances, resulting in a decline in the overall unsecured retail lending portfolio. Since fiscal 2013, we have been growing our personal loans and credit card lending portfolio, primarily by offering these products to our existing customers. During fiscal 2017, ICICI Bank’s personal loan disbursements, at Rs.103.4 billion, were about 10.1% of total retail loan disbursements and the number of outstanding credit cards increased from around 3.7 million at year-end fiscal 2016 to about 4.3 million at year-end fiscal 2017. ICICI Bank’s personal loans typically range from Rs. 50,000 to Rs. 4,000,000 in size with tenors of one to five years and yields ranging from 11-20%performance”. Our personal loans portfolio increased from Rs. 102.2 billion at year-end fiscal 2016 to Rs. 143.7 billion at year-end fiscal 2017. The credit card receivables portfolio increased from Rs. 55.2 billion at year-end fiscal 2016 to Rs. 75.5 billion at year-end fiscal 2017. The proportion of unsecured retail loans in the total retail portfolio was 11.1% at year-end fiscal 2017 compared to 9.1% at year-end fiscal 2016.
We offer retail lendinghome loan products primarily in India through ICICI Bank and our wholly owned subsidiary, ICICI Home Finance Company Limited. Our homeThe loan portfolio includes both loans for the purchase and construction of homes as well as loans against property. Our policies for such loans are based on certain stipulated ratios such as the loan-to-value ratio and the ratio of fixed debt obligations to a borrower’s income. In
October 2015, the Reserve Bank of India revised the loan-to-value ratios for small size loans and capped the loan-to-value ratio at 90% for home loans up to Rs. 3.0 million, and at 80% for home loans between Rs. 3.0 million and Rs. 7.5 million. Loans above Rs. 7.5 million have a maximum loan-to-value ratio of 75.0%. The initial repayment term of such loans is 15 to 20 years with payments in the form of equated monthly installments. We conduct a part of our housing finance subsidiary includes home loans, loans-against-property and loans to developers among others. The loan business throughportfolio of ICICI Home Finance Company.Company Limited increased by 21% from Rs. 145.0 billion at March 31, 2022 to Rs. 175.4 billion at March 31, 2023. The total assets under management, including securitized assets, increased from Rs. 178.7 billion at March 31, 2022 to Rs. 220.4 billion at March 31, 2023. ICICI Home Finance Company Limited raises funds through term loans from banks (including external commercial borrowings), bonds and debentures, commercial papers, fixed deposits and refinance from National Housing Bank. At March 31, 2023, ICICI Home Finance Company Limited had a branch network of 200 branches.
Our banking subsidiary in Canada offers residential mortgages in the local market. The mortgages are insured and primarily have federal-backed insurance. At year-end fiscal 2017, ICICI Bank Canada held total residential mortgages amounting to CAD 3,4583,741 million (Rs. 168.0227.0 billion) at year-end fiscal 2023 as compared to CAD 3,2403,692 million (Rs. 166.0223.3 billion) at year-end fiscal 2016.2022. This includes mortgages of CAD 3,1452,336 million (Rs. 161.0141.7 billion) at year-end fiscal 20172023 as compared to CAD 2,9682,400 million (Rs. 152.0145.2 billion) at year-end fiscal 20162022 securitized under the Canadian National Housing Act – Mortgage—Mortgage Backed Securities program or through participation in the Canada Mortgage Bonds program. Further, the total residential mortgages also include conventional mortgages of CAD 1,356 million (Rs. 82.3 billion) at year-end fiscal 2023 as compared to CAD 1,223 million (Rs. 74.0 billion) at year-end fiscal 2022 and insured mortgages of CAD 52 million (Rs. 3.2 billion) at year-end fiscal 2023 as compared to CAD 69 million (Rs. 4.2 billion) at year-end fiscal 2022.
Automobile loans
We finance the purchase of new and used automobiles. Automobile loans are fixed rate products repayable in equal monthly installments. The interest rate is based on factors such as bureau score, customer relationship, car segment and tenure of loan, among others, for new automobiles and asset age car segment coupled with product variant like top-up or refinance, for used automobiles.
Commercial business loans
70
We finance the purchase of commercial vehicles and equipment. Commercial business loans are fixed rate products repayable in equal monthly installments. Our commercial business customers include individuals to large fleet operators, contractors, hirers as well as captive customers. Our commercial vehicles portfolio is not concentrated, with the top 20 customers contributing approximately 2.5% of the commercial vehicles portfolio at year-end fiscal 2023.
Personal loans and credit cards
We also offer unsecured products such as personal loans and credit cards to our customers. Personal loans and credit card receivables have fixed interest rates. We offer a range of instant personal loans and credit cards that are accessible entirely through our digital channels. Our average personal loan size is about Rs 0.7 million with average tenor about 4.5 years and average yields about 12.0%.
Retail Deposits
Our retail deposit products include time deposits and savings account deposits. We also offer these products with special features targeted products toat specific customer segments such as high net worth individuals, defense personnel, trusts and businessmen.business owners. We also offer real-time account opening and activation to savings account customers, through enhanced system-driven validations. We also offer corporate salary account products and current account (i.e., checking accounts for businesses) products to our small enterprise customers, who maintain balances with us. Further, we offer an international debit card in association with VISA International. At year-end fiscal 2017,2023, we had a debit card base in excess of 36approximately 33 million cards.
We continuously focus on increasing our currentcards compared to 37 million cards at year-end fiscal 2022. The decline was due to closure of dormant and savings account deposit base and maintaining the proportion of current and savingsinactive accounts in our total deposits. Leveraging our branch network in India and on technology platforms to improve the customer experience are critical elements of our strategy. We have been expanding our offerings through mobile phones, including mobile banking applications for account access and various transactions, and a mobile wallet. We open new customer accounts by using tablets to capture customer information digitally. By offering our products and services through technology-enabled channels, we aim to improve the customer experience as well as the efficiency of our operations.
For a description of the Reserve Bank of India’s regulations applicable to deposits in India and required deposit insurance, see “Supervision and Regulation—Reserve Bank of India Regulations—Regulations Relating to Deposits” and “Supervision and Regulation—Deposit Insurance”. For more information on the type, cost and maturity profile of our deposits, see “Business—Funding”.during fiscal 2023.
Fee-Based Products and Services
Through our distribution network, we offer various products including governmentGovernment of India savings bonds, sovereign gold bonds, insurance policies, bullion and public offerings of equity shares and debt securities by Indian companies. We offer several card-based products such as credit cards, debit cards, prepaid cards, travel cards and commercial cards. We also offer a variety of mutual fund products. We levy services charges on deposit accounts.
We also offer foreign exchange products to retail customers including sale of currency notes, traveler’s checks and travel cards. We also facilitate retail inward remittances from foreign geographies.
As a depositary participant of the National Securities Depository Limited and Central Depository Services (India) Limited, we offer depositary share accounts to settle securities transactions in a dematerialized mode. Further, we are one of the banks designated by the Reserve Bank of India for issuing approvals to non-resident Indians and overseas corporate bodies to trade in shares and convertible debentures on the Indian stock exchanges.exchanges and operating their banking and custody accounts.
LendingRetail lending for rural customers
The Bank’s rural banking operations aim to meet the financial requirements of customers in rural and semi-urban locations. Our products in this segment include working capital loans for growing crops, financing of post-harvest activities, loans against gold jewellery along with personal loans, financing against warehouse receipts, farm equipment loans and affordable housing finance and auto and two-wheeler loans. We also provide consumption loans for low-income customers. We offer financial solutions to micro-finance institutions, self-help groups, co-operatives constituted by farmers, corporations and medium enterprises engaged in agriculture-linked businesses. The rural banking
71
portfolio of the Bank grew by 13.5% from Rs. 795.1 billion at year-end fiscal 2022 compared to Rs. 902.1 billion at year-end fiscal 2023.
The following table sets forth, at the dates indicated, the breakdown of the Bank’s gross rural finance portfolio.
At March 31, | ||||||||||||||||
2022 | 2023 | 2023 | 2023 | |||||||||||||
(in billion) | % share | (US$ in million) | ||||||||||||||
Farmer finance1 | Rs. | 241.0 | Rs. | 252.2 | 28.0 | % | US$ | 3,068 | ||||||||
Loans against jewellery | 208.2 | 229.8 | 25.5 | 2,796 | ||||||||||||
Rural business credit | 193.8 | 231.5 | 25.7 | 2,816 | ||||||||||||
Others2 | 152.1 | 188.6 | 20.8 | 2,296 | ||||||||||||
Rural advances | Rs. | 795.1 | Rs. | 902.1 | 100 | % | US$ | 10,976 |
1. Includes kisan credit card
2. Includes term loans for farm equipment, self-help groups, loans to microfinance institutions for on-lending to individuals and inventory funding.
Our rural banking operations primarily focus on four main ecosystems identified in the rural market, which include farmers, dealers, self-employed persons and micro-entrepreneurs.
The farmer ecosystem includes participants such as farmers, seed producers, agri-input dealers, warehouses, agri-equipment dealers, commodity traders and agri processors. Products offered include working capital loans through the kisan credit card and gold loan products, and term loans for farm equipment, dairy livestock purchase and farm development. See also “Selected Statistical Information—Loan Concentration—Directed Lending”.
The dealer ecosystem comprises dealers/distributors of farm equipment, white goods, and pharmaceutical manufacturers. Similarly, the self-employed ecosystem comprises of rural entrepreneurs who are engaged into trading and manufacturing activities based out of commercial and industrial areas in the rural market dealing with both agriculture and non-agriculture related products. The micro-lending space includes women from the lower-income strata of the population, non-government organizations and other institutions working at the grass-root level in the rural economy.
We have scaled-up funding of electronic negotiable warehousing receipts, which provides an opportunity for farmers to access credit quickly and with ease. Farmers can use electronic negotiable warehousing receipts to get loans against underlying commodities. This protects the farmers from volatility and gives opportunities to avail better prices for their produce. Apart from meeting the financial requirements for business purposes, we also offer products to meet the personal requirements of customers in the rural ecosystem.
Our reach in rural areas comprises a network of branches, ATMs and field staff, and business correspondents providing last-mile access in remote areas. As at year-end fiscal 2023, we had a network of 5,900 branches, of which 51.4% were in rural and semi-urban areas with 651 branches in villages that were previously unbanked. As at March 31, 2023, we had 4,299 ATMs and cash recycler machines in rural areas. See also, “Risk Factors—Risks Relating to Our Business—Entry into new businesses or rapid growth in existing loan portfolios may expose us to increased risks that may adversely affect our business”. At year-end fiscal 2023, more than 9,500 customer service points were enabled through our business correspondent network.
72
See also “Risk Factors—Risks that arise as a result of our presence in a highly regulated sector—We are subject to the directed lending requirements of the Reserve Bank of India, which may also involve buying related certificates at a premium to meet the annual targets, and any shortfall in meeting these requirements may be required to be invested in Government of India schemes that yield low returns, thereby impacting our profitability. We may also experience a higher level of non-performing assets in our directed lending portfolio, which could adversely impact the quality of our loan portfolio, our business and the prices of our equity shares and ADSs.”
Commercial Banking for Small and Medium Enterprises and Business Banking
Our business banking and small and medium enterprises customers include proprietorship firms, partnership firms and public/private limited companies. We offer a comprehensive suitewide spectrum of banking products and solutions to address their evolving business needs. This involves customized offerings, faster turnaround time, transaction convenience, timely access to capital and cross-border trade and foreign exchange. Our focus in this segment is on using digital channels and ensuring granularity, obtaining adequate collateral and robust monitoring. More than 90% of our business banking portfolio has collateral covering more than 100% of the outstanding value of the loan. The loans are generally secured by collateral in the form of property apart from a charge on current assets. Our small and medium enterprise portfolio consists of enterprises with a turnover of up to Rs. 2.5 billion. We offer a wide spectrum of banking products and solutions to small and medium enterprises.enterprises to address their evolving business needs. This involves customized offerings, faster turnaround time, transaction convenience, timely access to capital and cross-border trade and foreign exchange. We also offer customized products to meet specific business requirements.digital solutions for on-boarding, payments and collections, lending and cross-border transactions. We have strengthened our capabilities in assessing credit risks across various sectors that enables us to provide customized solutions basedfocus on requirements of smallproviding parameterized and medium enterprises. We also offer supply chain financing solutions and vendor bill discounting through funding to the channel partners of corporate clients to meet the working capital needs of small businesses. We also have specialized teamsprogramme-based lending for current accounts (i.e. checking accounts), trade finance, cash management services and door-step banking. We are also proactively reaching out to small and medium enterprises, through various initiatives such aswhich is granular, adequately-collateralized and regularly monitored. The loans are generally secured by collateral in the “SME toolkit” —an online business and advisory resource for
small and medium enterprises; and the “Emerging India Awards” —aform of property apart from a charge on current assets. The small and medium enterprises recognition platform.portfolio of the Bank grew by 19.2% from Rs. 404.5 billion at year-end fiscal 2022 compared to Rs. 482.2 billion at year-end fiscal 2023. The business banking portfolio grew by 34.9% from Rs. 534.4 billion at year-end fiscal 2022 compared to Rs. 721.1 billion at year-end fiscal 2023.
We are focused on growing this portfolio by leveraging our distribution network and through various digital channels and platforms, tapping corporate ecosystems and ongoing efforts towards process decongestion.
Following the COVID-19 pandemic, we have provided financial assistance to clients based on various Government of India schemes, which includes providing moratorium on loan repayment and emergency credit lines to eligible small and medium enterprise customers. We had disbursed about Rs. 204.6 billion to our retail and micro, small and medium enterprises customers under the Government of India’s Emergency Credit Line Guarantee Scheme until year-end fiscal 2023.
Commercial Banking for Corporate Customers
We provide a range of commercial and investment banking products and services to India’s leading corporations and middle market companies. Our product suite for corporate customers includes working capital and term loan products and transaction banking services, fee and commission-based products and services, deposits and foreign exchange and derivatives products. The Corporate Banking Group focuses on originationproducts across trade, treasury, bonds, commercial papers, channel financing, supply chain solutions, and coverage of allvarious other activities. Our approach has been to deepen our partnership and support to clients through their life cycle. Our corporate clients. The Corporate Banking Group comprises relationshipcustomer base includes top business houses, large and credit teams. The Commercial Banking Group is responsible for growing the trade servicesmedium private and public sector companies, financial institutions, banks, non-bank finance companies, private equity funds and financial sponsors. We have established relationships with multinational companies operating in India, and financial sponsors, including private equity funds and their investee companies. We offer transaction banking business through identified branches, while working closely withservices to corporates to meet the corporate relationship teams.day-to-day needs for smooth functioning of their businesses. The Markets Group provides foreign exchangetransaction banking services offered include
73
account related services, payment and other treasury products to corporations. The Project Finance Group focuses on origination of large project finance mandates. We seek to syndicate corporate and project financing amongcollection services, domestic and international bankscross border trade finance, working capital finance and institutions.supply chain finance. We offer integrated cash management and trade finance solutions to our customers. Our transaction banking solutions are delivered to our customers through physical and digital channels and a team of account managers. In addition to leveraging the physical branch network, we have expanded our capabilities for providing transaction banking services to our customers from 211 locations at year-end fiscal 2022 to 225 locations at year-end fiscal 2023. Many of these expanded branch capabilities are in the factory/township premises of certain large conglomerates in the country.
Corporate Loan Portfolio
Our corporate loan portfolio consists of project and corporate finance (including structured finance and cross-border acquisition financing)term loan products and working capital financing.financing in the form of cash credit facilities, overdraft, demand loans and non-fund based facilities including bill discounting, letters of credit and guarantees. The domestic corporate portfolio of the Bank grew by 20.7% from Rs. 1,903.6 billion at year-end fiscal 2022 compared to Rs. 2,298.2 billion at year-end fiscal 2023. For further details on our loan portfolio, see “—Loan Portfolio—Selected Statistical Information—Loan Concentration”. For a description of our credit rating and approval system, see “—Risk Management—Credit Risk”.
Project financing constitutes a significant portion of our loan portfolio. Our project finance business consists principally of extending medium-term and long-term rupee and foreign currency loans to the manufacturing and infrastructure sectors. We also provide financing by way of investment in marketable instruments such as fixed rate and floating rate debentures. We generally have a security interest and first charge on the fixed assets of the borrower. Our working capitalborrower although some of our financing consists mainly of cash credit facilities, overdraft, demand loans and non-fund based facilities including bill discounting, letters of credit and guarantees. For more detailsis also extended on our credit risk procedures, see “—Risk Management—Credit Risk”.
From fiscal 2010, the Indian corporate sector undertook significant investments, including in the infrastructure and commodity sectors. This led to high loan growth in the banking sector, including for us. Subsequently, the Indian economy experienced challenges in terms of high inflation and consequently higher interest rates, currency depreciation and a sharp slowdown in economic growth. The corporate sector experienced a decline in sales and profit growth, an elongation of working capital cycles and a high level of receivables, including from the government, and significant challenges in project completion and cash flow generation, due to policy changes, delays in approvals like clearances on environment and land permits, and judicial decisions like the deallocation of coal mines. Indian corporations, especially in the infrastructure and industrial sectors, had limited ability to access capital in view of the economic scenario and volatility in global and domestic financial markets, corporate investment activity declined. From fiscal 2014 onwards, these developments led to an increase in non-performing and restructured corporate loans in the Indian banking sector, including for us, and a substantial moderation in overall loan growth, driven primarily by lower growth in credit to the corporate sector. The corporate sector continued to be impacted due to lower than anticipated cash flow generation and high leverage. The significant decline in global commodity prices in fiscal 2015 and fiscal 2016, including metals, coal and crude oil, negatively impacted borrowers in commodity-linked sectors. Capital investments in the economy remained subdued, impacting corporations in investment-linked sectors like construction. Due to the lower than projected cash flows, the progress in reducing leverage in the corporate sector was slow.
During fiscal 2017, the additions to non-performing loans, including slippages from restructured loans, continued to remain elevated as the corporate sector challenges continued due to the slowdown in economic growth, low corporate profitability and subdued investment activity. The slowdown in economic growth was primarily in the industrial and services sectors, with growth in the industrial sector moderating to 5.6% during fiscal 2017 compared to 8.8% during fiscal 2016, and in the services sector to 7.7% in fiscal 2017 compared to 9.7% in fiscal 2016. Further, during the second half of fiscal 2017, there was a reduction in the availability of cash caused by the withdrawal of high denomination currency notes by the government of India, which also impacted businesses. While several companies are working with banks to restructure and reorganize their businesses and reduce their leverage through sales of businesses and assets, the process of resolution of stressed assets remained slower than expected due to delays in decision making at the Joint Lenders’ Forum that were set up to explore options for early resolution of stress in loan accounts. Several measures were announced by the Reserve Bank of India and the government, including the introduction of the Insolvency and Bankruptcy Code, during the year to enable early resolution of assets. However, the continued challenges in the operating and recovery environment adversely impacted the pace of resolution leading to a significant increase in non-
performing loans, including slippages from restructured loans, during fiscal 2017. Further, in June 2017, the Reserve Bank of India directed banks to commence proceedings under the Insolvency and Bankruptcy Code, enacted in 2016, in respect of certain corporate borrowers. Under this Code, a resolution plan for these borrowers would be required to be finalized within specified timeframes, failing which the borrowers would go into liquidation. The Reserve Bank of India has also specified higher provisions in respect of loans to these borrowers, which may impact our future provisions. With respect to other identified stressed accounts, the banks are required to finalise a resolution plan within six months, failing which banks shall be required to file for insolvency proceedings under the Insolvency and Bankruptcy Code.
We have adopted a cautious approach in incremental lending by focusing on lending to higher rated corporations and adopting a revised framework for management of concentration risk. See also “Risk Factors—Risks Relating to Our Business— If we are unable to adequately control the level of non-performing loans in our portfolio, our business will suffer” and “Business—Strategy” and “Operating and Financial Review and Prospects— Executive Summary—Business environment —Trends in fiscal 2017”.unsecured basis.
Fee and Commission-Based Activities
We generate fee income fromthrough our lending, transaction banking, syndication structured financing and project financing activities.foreign exchange related solutions provided to our corporate customers. We seek to leverage our project financing and structuring skills and our relationships with companies and financial institutions and banks to earn fee incomes from structuring and syndication.
Wealso offer our corporate customers a wide variety of fee and commission-based products and services including documentary credits, and standby letters of credit (called guarantees in India).
We also offer commercial banking services such as, collection and payment of export/import bills and cash management services, (such asincluding collection, payment and remittance services),services.
Further, we are one of the banks designated by the Reserve Bank of India for issuing approvals to non-resident Indians and overseas corporate bodies to trade in shares and convertible debentures on the Indian stock exchanges and operating their banking and custody accounts. We also offer services such as escrow, trust and retention account facilities, online payment facilities, custodial services and tax filing and collection services on behalf of the governmentGovernment of India and the governments of Indian states.
At year-end fiscal 2017,2023, total assets held in custody on behalf of our clients (mainly foreign institutional investors, offshore funds, overseas corporate bodies and depositary banks for GDR investors)Global Depository Receipts (“GDR”) investors were Rs. 2,262.919,566.0 billion. As a registered depositary participant of National Securities Depository Limited and Central Depository Services (India) Limited, the two securities depositaries operating in India, we also provide electronic depositary facilities to investors.
Corporate Deposits
We offer a variety of deposit products to our corporate customers including current accounts, time deposits and certificates of deposits. For more information on the type, cost and maturity profile of our deposits, see “—Business—Funding“Selected Statistical Information—Funding””.
Foreign Exchange and Derivatives
We provide customer specific products and services, which cater to risk hedging needs of corporations at domestic and international locations, arising out of currency and interest rate fluctuations.
74
The products and services include:
· | Foreign Exchange Products |
Products include cash, tom, spot and forwards transactions. We offer customized hedging and trading solutions to clients, on the basis of their business needs. These products are offered in India and across our international locations.
· | Derivatives |
We offer derivative products including interest rate swaps, currency swaps and options in all major currencies.
Commercial Banking for Government and Institutions
We provide a range of banking services including customized products and services for enhancing e-governance and financial management to government departments and bodies across various levels such as central, state, district and local bodies which include municipalities and gram panchayats. We assist the government for collection of central taxes, state taxes and goods and services tax payments through authorized branches and digital channels. Our integrated banking platforms provide simple online tax payment options to customers. Statutory payments like Employees’ Provident Fund Organization and Employees’ State Insurance Corporation dues can be done online through our platforms. These efforts also result in deposit balances for the Bank.
We have on-boarded a number of central and state government departments to ensure quick disbursement of funds and benefits to beneficiaries and implementing agencies through the Public Financial Management System of the Government of India. We are also assisting state level nodal agencies and last mile implementing agencies for adopting efficient release of Government of India scheme funds.
We also provide financial services to other institutions, including educational institutions, hospitals and cooperative societies, among others and offer a range of technology driven collections and payment solutions.
Commercial Banking for International Customers
Our strategy for growthinternational franchise focuses on four strategic pillars, namely (a) the non-resident Indian ecosystem comprising deposits, remittances, investments and asset products; (b) multinational corporation ecosystem comprising foreign multinational companies investing in internationalIndia, Indian companies present in overseas markets, is basedand back-offices of multinational companies located in India; (c) trade ecosystem, comprising primarily India-linked trade transactions; and (d) funds ecosystem, to capture foreign investment flows into India. During fiscal 2023, we continued to progress in our strategic objective of reducing the non-India linked exposures in a planned manner. Further, our overseas banking subsidiaries continue to serve local markets selectively with a focus on leveraging home country linksrisk mitigation and technology for international expansion in selected international markets. Our international strategy is focused on building a retail deposit franchise in geographies where we have such licenses, making loans to global multi-national corporations, meeting the foreign currency needsgranularity of our Indian corporate clients, taking select non-India trade finance exposures, and lending to corporations in the local jurisdiction. We also seek to build stable wholesale
funding sources and strong syndication capabilities to support our corporate and investment banking business, and to expand private banking operations for India-centric asset classes.
At March 31, 2017, we had subsidiaries in the United Kingdom and Canada, branches in Bahrain, Dubai International Finance Center, Hong Kong, China, Singapore, Sri Lanka, Qatar Financial Centre, South Africa and the United States and representative offices in Bangladesh, Indonesia, Malaysia and the United Arab Emirates. Our subsidiary in the United Kingdom has established a branch in Antwerp, Belgium and a branch in Frankfurt, Germany.business.
Many of the commercial banking products that we offer through our overseas branches and subsidiaries, as well as to international customers from our domestic network, such as debt financing, trade finance and letters of credit, are similar to the products offered to our customers in India. Some of the products and services that are unique to international customers are:
75
Total assets (net of inter-office balances) of ICICI Bank’s overseas branches at year-end fiscal 20172023 were Rs. 946.3731.9 billion and total advances were Rs. 749.9341.1 billion compared to total assets of Rs. 1,188.4866.0 billion and total advances ofwere Rs. 938.1412.8 billion at year-end fiscal 2016.2022. The year-on-year decrease in our overseas branches loan portfolio was primarily due to decline in the India-linked trade finance portfolio. Our overseas branches are primarily funded by debt capitalbond issuances, bilateral/syndicated loans from banks, loans from export credit agencies, money market borrowings, syndicated/bilateral loansdeposits and borrowingsrefinance from external commercial agencies.banks. The overseas loan portfolio of ICICI Bank was 3.3% of the overall loan portfolio at year-end fiscal 2023. The corporate fund and non-fund outstanding, net of cash/bank/insurance backed lending, was US$ 2.7 billion at March 31, 2023. Out of US$ 2.7 billion, 88.7% of the outstanding was to Indian corporates and their subsidiaries and joint ventures and 7.4% of the outstanding was to non-India companies with Indian or India-linked operations and activities and this portfolio is generally well-rated and the Indian operations of these companies are our target customers for deposit and transaction banking franchise. The Bank will continue to pursue risk calibrated opportunities in this segment. Out of US$ 2.7 billion, approximately 2.1% of the outstanding was to companies owned by non-resident Indians/person of Indian origins and 1.9% of the outstanding was to other non-India companies which is less than 0.5% of the total portfolio of the Bank. The non-India linked corporate portfolio reduced by 52.3% from about US$ 641 million year-on-year to US$ 306 million at March 31, 2023. See also, “Risk Factors—Risks Relating to Our Business—Our funding is primarily short-term and if depositors do not roll over deposited funds upon maturity, our business could be adversely affected”.
Our subsidiaries in the United Kingdom and Canada are full service banks offering retail, andbusiness banking, corporate banking and treasury services. These subsidiaries offer direct banking using theprovide services to its customers through robust digital channels through internet as the access channel.and mobile banking. Our subsidiary in the United Kingdom offers loansis primarily focused on India linked business and towards meeting the banking needs of the Indian community in the United Kingdom and Germany. The core services include meeting local banking requirements, remittance services to corporate businesses, including to Europe-based multinational corporations which have active tradeIndia, and investment flows with India, large businesses owned by persons of Indian origin and for Indian corporations seeking to develop their overseas businesses.facilitating banking requirements in India. Our subsidiary in Canada originates residential mortgages, primarily those insured and qualifying for insurance by either the Canadian federal government agency or insurance companies back-stopped by the Canadian federal government, and offers loans to both Canadian and US corporations as well as Indian corporations seeking to develop their business overseas, and both Canadian and US corporations.overseas.
At year-end fiscal 2017,2023, ICICI Bank UK PLC had eightseven branches in the United Kingdom and a branch in Belgium and Germany. At year-end fiscal 2017,2023, the total assets of ICICI Bank UK PLC were US$ 3.52.1 billion.
ICICI Bank UK PLC incurred a net loss of US$ 16 million during fiscal 2017, compared tomade a net profit of US$ 0.513 million during fiscal 2016.2023, compared to US$ 11 million during fiscal 2022. At year-end fiscal 2023, loans and advances of ICICI Bank UK PLC were US$ 0.9 billion and investments were US$ 0.6 billion.
At year-end fiscal 2017,2023, ICICI Bank Canada had eightseven branches and total assets of CAD 6.36.0 billion. ICICI Bank Canada incurredearned a net lossprofit of CAD 3346 million in fiscal 20172023 as compared to a net profit of CAD 2229 million in fiscal 2016.2022. At year-end fiscal 2023, net advances (net loans) of ICICI Bank Canada were CAD 5.2 billion and investments were CAD 0.6 billion.
See also “Risk Factors—Risks Relating to India and Other Economic and Market Risks—Financial instability in other countries, particularly emerging market countries and countries where we have established operations, could adversely affect our businessbusiness” and the price of our equity shares and ADSs” and “Risk“Risk Factors—Risks Relating to Our Business—OurThe exposures of our international operations increase the complexitybranches and banking subsidiaries could generally affect our business, financial condition and results of the risks that we faceoperations.””.
Delivery ChannelsBranch and ATM network and call centers
76
We deliver our products and services through a variety of channels, ranging from traditional bank branches to ATMs, cash recycler machines and call centers, the Internetcenters. In addition, our digital channels and mobiles.platforms have become increasingly important to our customers. See “Technology”. At year-end fiscal 2017,2023, we had a network of 4,8505,900 branches across several Indian states.
The following table sets forth the number of branches broken down by area at year-end fiscal 2017.
At March 31, 2016 | At March 31, 2017 | |||||||||||||||
Number of branches and extension counters | % of total | Number of branches and extension counters | % of total | |||||||||||||
Metropolitan | 1,159 | 26.0 | % | 1,287 | 26.5 | % | ||||||||||
Urban | 997 | 22.4 | 1,050 | 21.7 | ||||||||||||
Semi-urban | 1,341 | 30.1 | 1,442 | 29.7 | ||||||||||||
Rural | 953 | 21.4 | 1,071 | 22.1 | ||||||||||||
Total branches and extension counters | 4,450 | 100.0 | % | 4,850 | 100.0 | % |
As a part of its branch licensing conditions, the Reserve Bank of India has stipulated that at least 25.0% of our banking outlets must be located in tier 5 and tier 6 centers defined on the basis of the population size according to the 2011 census. See also “Supervision and Regulation—Regulations Relating to the Opening of Branches”. At year-end fiscal 2017, we were in compliance with this condition. At year-end fiscal 2017, we had 13,882 ATMs, of which 4,988 were located at our branches. We view our branch as key points of customer acquisition and service. The branch network serves as an integrated channel for deposit mobilization and selected retail asset origination. Our focus is to create fully digital branches and touch points for customer experience in order to maximize customer engagement time for solutions. Branches with higher number of customer visits, multi-service kiosks are deployed with touch-screen self-service devices, which allow customers to use banking services like deposit cheque, get quick account credit, update passbook, transfer funds instantly to ICICI and other bank customers and more than 50 fully digital other “Do-it-yourself” services, which help reduce customer wait times.
We believe that developments in technology are changingThe following table sets forth the way customers engage with banks and meet their banking needs. We offer our products and services through abreakdown of the number of technology-enabled channels.branches by area for the periods indicated.
At March 31, 2022 | At March 31, 2023 | |||||||||||||||
Branch by area(1) | Number of branches and extension counters | % of total | Number of branches and extension counters | % of total | ||||||||||||
Metropolitan | 1,567 | 28.9 | % | 1,709 | 29.0 | % | ||||||||||
Urban | 1,074 | 19.8 | 1,160 | 19.7 | % | |||||||||||
Semi-urban | 1,599 | 29.5 | 1,712 | 29.0 | % | |||||||||||
Rural | 1,178 | 21.7 | 1,319 | 22.3 | % | |||||||||||
Total branches and extension counters | 5,418 | 100.0 | % | 5,900 | 100.0 | % |
(1) | Classification of branches as per population census 2011. |
At March 31, 2023, we had 16,650 ATMs and cash recycler machines across India. Our customers can perform a wide range of transactions at our ATMs. We are also deploying automated devices,ATMs have additional value added services such as instant fund transfer, cardless cash acceptance machines,withdrawal and update of mobile numbers for ICICI Bank customers.
Our phone banking operations across locations at our branchesThane, Hyderabad, Guwahati, Indore, Bhubaneshwar and Chennai are operational around the clock and are equipped with interactive voice response systems, voice bot solution, voice biometric authentications, automatic call distribution, telephony integration and voice recorders. We seek to improveuse the latest technology to provide an integrated view of customer experienceinformation to the agents to get a complete overview of the customer’s relationship with us. We have a virtual relationship management platform, which provides superior and seamless connect that caters to the transaction and product needs of customers through human interface powered by artificial intelligence, which builds robust customer relationships. We have implemented a customer relationship management solution for the automation of customer service requests in all key banking products. The solution helps in tracking and timely resolution of various customer queries and issues. The solution has been deployed at the phone banking as well as efficiencyat a large number of our operations. Our employees open new customer accounts by using tablets to capture customer information digitally. Through our website, www.icicibank.com, we offer our customers, both retail and corporate, online access to account information, payment and fund transfer facilities and various other services including purchase of investment and insurance products. We provide telephone banking facilities through our call centers. We are expanding our suite of services through mobile telephones, including mobile banking applications for account access and various transactions, and a mobile wallet. Our customers can also access their accounts and perform transactions via social media platforms. During fiscal 2017, we introduced Chatbots, an artificial intelligence enabled chat feature to perform various banking transactions. We worked closely with the National Payments Corporation of India for the development of the Unified Payment Interface, a payment platform which allows instant fund transfer to any bank account using a virtual payment address, without requiring bank account details. The Unified Payment Interface has been promoted by us through various platforms, such as our mobile application and our digital wallet.branches.
We also enabled payment through the Bharat Interface for Money, a mobile application promoted by the government of India and built using the Unified Payment Interface.We further enabled payments using the Unified Payment Interface for users of the Truecaller app in India. We developed a mobile application for merchants in India, ‘Eazypay’, which allows merchants to accept payments on mobile phones through multiple modes including credit/debit cards of any bank, internet banking and our digital wallet. See also “Technology”.
Our investment banking operations principally consist of ICICI Bank’s treasury operations and the operations of ICICI Securities Primary Dealership Limited and of ICICI Securities Limited.
Treasury
Through our treasury operations, we seek to manage our balance sheet, including the maintenance of required regulatory reserves, and to optimize profits from our trading portfolio by taking advantage of market opportunities. Our domestic trading and securities portfolio includes our regulatory reserve
77
portfolio, as there is no restriction on active management of our regulatory reserve portfolio. Our treasury operations include a range of products and services for corporate and small enterprise customers, such as forward contracts and interest rate and currency swaps, and foreign exchange products and services. See also “—Commercial Banking for Corporate Customers—Foreign Exchange and Derivatives”.
Our treasury undertakes liquidity management by seeking to maintain an optimum level of liquidity, and complying with the cash reserve ratio requirement and ensuringseeking to maintain the smooth functioning of all our branches. We maintain a balance between interest-earning liquid assets and cash to optimize earnings and undertake reserve management by maintaining statutory reserves, including the cash reserve ratio and the statutory liquidity ratio. At year-end fiscal 2017,2023, ICICI Bank was required to maintain the statutory liquidity ratio requirement percentage at 20.5%18% of its domestic net demand and time liabilities by way of approved securities such as governmentGovernment of India securities and state government securities. We maintain the statutory liquidity ratio through a portfolio of government of India securities that itwe actively managesmanage to optimize the yield and benefit from price movements. Further, as a prudent liquidity management strategy, we generally maintain excess investments in securities eligible for classification under the statutory liquidity ratio requirement. We maintain the liquidity coverage ratio and net stable funding ratio, as required under Basel III, both on a standalone basis and at the group level. The minimum requirement is 100%. The liquidity coverage ratio requirement is met by investment in high quality liquid assets, which are primarily in the form of government securities and better-rated corporate bonds. Our average liquidity coverage ratio for the three months ended March 31, 2023 was 124.13% on a standalone basis and was 121.76% on a consolidated basis. Both of these ratios were higher than the regulatory requirement of 100%. See also “Supervision and Regulation—Legal Reserve Requirements”.
ICICI Bank engages in domestic investments and foreign exchange operations from a centralized trading floor in Mumbai.Mumbai and overseas branches. As a part of our treasury activities, we also maintain proprietary trading portfolios in domestic debt and equity securities and in foreign currency assets. Our treasury manages our foreign currency exposures and the foreign exchange and risk hedging derivative products offered to our customers and engages in market making and proprietary trading in currencies.currency and interest rate market. Our investment and market risk policies are approved by the Board of Directors.
ICICI Bank’s domestic investment portfolio is classified into three categories —held-to-maturity, available-for-sale and held-for-trading. Investments are classified as held-to-maturity subject to the current regulation issued by the Reserve Bank of India. Investments acquired by us with the intention to trade by taking advantage of the short-term price/interest rate movements are classified as held-for-trading. The investments which do not fall in the above two categories are classified as available-for-sale. Investments under the held-for-trading category should be sold within 90 days. Under each category the investments are classified under (a) government securities (b) other approved securities (c) shares (d) bonds and debentures (e) subsidiaries and joint ventures and (f) others. Investments classified under the held-to-maturity category are not marked to market and are carried at acquisition cost, unless the acquisition cost is more than the face value, in which case the premium is amortized over the period until maturity of such securities. At year-end fiscal 2017, 74.2% of ICICI Bank’s government securities portfolio was in the held-to-maturity category. Any premium over the face value of investments in government securities, classified as available-for-sale, is amortized over the period until maturity of such securities. The individual securities in the available-for-sale category are marked to market. Investments under this category are valued security-wise and depreciation/appreciation is aggregated for each classification. Net depreciation, if any, is provided for. Net appreciation, if any, is ignored. The individual securities in the held-for-trading category are accounted for in a similar manner as those in the available-for-sale category.
The following tables set forth, at the dates indicated, certain information related to our available-for-sale investments portfolio.
At March 31, 2015 | ||||||||||||||||
Amortized cost | Gross unrealized gain | Gross unrealized loss | Fair value | |||||||||||||
(in millions) | ||||||||||||||||
Corporate debt securities | Rs. | 130,904 | Rs. | 1,882 | Rs. | (385 | ) | Rs. | 132,401 | |||||||
Government securities | 207,817 | 790 | (187 | ) | 208,420 | |||||||||||
Other debt securities(1) | 126,776 | 3,766 | (493 | ) | 130,049 | |||||||||||
Total debt securities | 465,497 | 6,438 | (1,065 | ) | 470,870 | |||||||||||
Equity securities | 46,898 | 23,767 | (8,652 | ) | 62,013 | |||||||||||
Other investments(2) | 24,462 | 3,637 | (5,493 | ) | 22,606 | |||||||||||
Total | Rs. | 536,857 | Rs. | 33,842 | Rs. | (15,210 | ) | Rs. | 555,489 | |||||||
At March 31, 2016 | ||||||||||||||||
Amortized cost | Gross unrealized gain | Gross unrealized loss | Fair value | |||||||||||||
(in millions) | ||||||||||||||||
Corporate debt securities | Rs. | 118,778 | Rs. | 2,201 | Rs. | (1,102 | ) | Rs. | 119,877 | |||||||
Government securities | 246,801 | 611 | (23 | ) | 247,389 | |||||||||||
Other debt securities | 110,434 | 1,436 | (662 | ) | 111,208 | |||||||||||
Total debt securities | 476,013 | 4,248 | (1,787 | ) | 478,474 | |||||||||||
Equity securities | 63,841 | 21,587 | (10,860 | ) | 74,568 | |||||||||||
Other investments(1) | 23,674 | 2,691 | (409 | ) | 25,956 | |||||||||||
Total | Rs. | 563,528 | Rs. | 28,526 | Rs. | (13,056 | ) | Rs. | 578,998 | |||||||
At March 31, 2017 | ||||||||||||||||
Amortized cost | Gross unrealized gain | Gross unrealized loss | Fair value | |||||||||||||
(in millions) | ||||||||||||||||
Corporate debt securities | Rs. | 73,836 | Rs. | 2,198 | Rs. | (368 | ) | Rs. | 75,666 | |||||||
Government securities | 287,716 | 1,137 | (48 | ) | 288,805 | |||||||||||
Other debt securities | 166,709 | 1,189 | (495 | ) | 167,403 | |||||||||||
Total debt securities | 528,261 | 4,524 | (911 | ) | 531,874 | |||||||||||
Equity securities | 86,066 | 34,703 | (14,786 | ) | 105,983 | |||||||||||
Other investments(1) | 68,550 | 13,579 | (984 | ) | 81,145 | |||||||||||
Total | Rs. | 682,877 | Rs. | 52,806 | Rs. | (16,681 | ) | Rs. | 719,002 | |||||||
The investments in corporate debt securities decreased from Rs. 118.8 billion at year-end fiscal 2016 to Rs. 73.8 billion at year-end fiscal 2017, primarily due to a decrease in investment in corporate bonds and debentures. The investment in government securities increased from Rs. 246.8 billion at year-end fiscal 2016 to Rs. 287.7 billion at year-end fiscal 2017 primarily due to an increase in investment in government securities by ICICI Bank. Investments in other debt securities increased from Rs. 110.4 billion at year-end fiscal 2016 to Rs. 166.7 billion at year-end fiscal 2017, primarily due to an increase in investment in pass through certificate securities with underlying Indian receivables by ICICI Bank. Investments in equity shares increased from Rs. 63.8 billion at year-end fiscal 2016 to Rs. 86.1 billion at year-end fiscal 2017 primarily due to an increase in the equity portfolio of ICICI Bank, ICICI Prudential Life Insurance Company and ICICI Lombard General Insurance Company. Other investments increased from Rs. 23.7 billion at year-end fiscal 2016 to Rs. 68.6 billion at year-end fiscal 2017 primarily due to an increase in investment in security receipts issued by asset reconstruction companies and investments in liquid mutual funds by ICICI Prudential Life Insurance Company.
Net unrealized gain on debt investments increased from Rs. 2.5 billion at year-end fiscal 2016 to Rs. 3.6 billion at year-end fiscal 2017 primarily due to an increase in net unrealized gain on corporate debt securities and government securities. Net unrealized gain on corporate debt securities increased from Rs. 1.1 billion at year-end fiscal 2016 to Rs. 1.8 billion at year-end fiscal 2017. Net unrealized gain on government securities
increased from Rs. 0.6 billion at year-end fiscal 2016 to Rs. 1.1 billion at year-end fiscal 2017. The yields on the benchmark 10-year Government securities decreased from 7.4% at March 31, 2016 to 6.7% at March 31, 2017. Net unrealized gain on equity securities increased from Rs. 10.7 billion at year-end fiscal 2016 to Rs. 19.9 billion at year-end fiscal 2017. The benchmark equity index, the BSE Sensex, increased by 16.9% from 25,342 at year-end fiscal 2016 to 29,621 at year-end fiscal 2017. Net unrealized gain on other investment increased from Rs. 2.3 billion at year-end fiscal 2016 to Rs. 12.6 billion at year-end fiscal 2017 primarily due to an increase in net mark-to-market gains on security receipts issued by asset reconstruction companies.
The following table sets forth, for the periods indicated, income from available-for-sale securities.
Year ended March 31, | ||||||||||||||||
2015 | 2016 | 2017 | 2017 | |||||||||||||
(in millions) | ||||||||||||||||
Interest | Rs. | 31,219 | Rs. | 30,766 | Rs. | 34,736 | US$ | 536 | ||||||||
Dividend | 1,025 | 1,180 | 1,416 | 22 | ||||||||||||
Total | Rs. | 32,244 | Rs. | 31,946 | Rs. | 36,152 | US$ | 558 | ||||||||
Gross realized gain | 13,394 | 8,413 | 14,489 | US$ | 223 | |||||||||||
Gross realized loss | (1,609 | ) | (4,028 | ) | (2,721 | ) | (42 | ) | ||||||||
Total | Rs. | 11,785 | Rs. | 4,385 | Rs. | 11,768 | US$ | 181 |
Interest and dividend income from our available-for-sale securities portfolio increased from Rs. 31.9 billion in fiscal 2016 to Rs. 36.2 billion in fiscal 2017. The net realized gain from our available-for-sale securities increased from Rs. 4.4 billion in fiscal 2016 to Rs. 11.8 billion in fiscal 2017 primarily due to higher net realized gains from the equity and fixed income portfolios. In fiscal 2017, equity market improved and yield on securities declined resulting in better opportunities to realize gains on these securities.
The following table sets forth, at the date indicated, an analysis of the maturity profile of our investments in debt securities classified as available-for-sale investments, and yields thereon. This maturity profile is based on repayment dates and does not reflect re-pricing dates of floating rate investments.
At March 31, 2017 | ||||||||||||||||||||||||||||||||
Up to one year | One to five years | Five to ten years | More than ten years | |||||||||||||||||||||||||||||
Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | |||||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||||||
Corporate debt securities | Rs. | 9,864 | 4.5 | % | Rs. | 49,203 | 6.7 | % | Rs. | 10,044 | 7.0 | % | Rs. | 4,726 | 9.2 | % | ||||||||||||||||
Government securities | 180,970 | 6.0 | 90,467 | 6.6 | 15,244 | 7.6 | 1,035 | 7.7 | ||||||||||||||||||||||||
Other securities | 32,494 | 5.9 | 98,513 | 7.5 | 292 | 10.4 | 35,409 | 8.1 | ||||||||||||||||||||||||
Total amortized cost of interest-earning securities(1) | Rs. | 223,328 | 5.9 | % | Rs. | 238,183 | 7.0 | % | Rs. | 25,580 | 7.4 | % | Rs. | 41,170 | 8.2 | % | ||||||||||||||||
Total fair value | Rs. | 223,788 | Rs. | 238,672 | Rs. | 26,288 | Rs. | 43,127 | ||||||||||||||||||||||||
The amortized cost of our held-to-maturity portfolio decreased marginally from Rs. 1,226.0 billion at year-end fiscal 2016 to Rs. 1,223.0 billion at year-end fiscal 2017 primarily due to a decrease in investment in government securities, commercial papers and certificate of deposits, offset, in part, by an increase in corporate debt securities. Net unrealized gain on held-to-maturity portfolio increased from Rs. 14.5 billion at year-end fiscal 2016 to Rs. 34.9 billion at year-end fiscal 2017 primarily due to an increase in unrealized gain on government securities. Unrealized gains on government securities increased primarily due to a decline in yield on government securities. The yield on the benchmark 10-year Government securities decreased from 7.4% at March 31, 2016 to 6.7% at March 31, 2017. Interest income on held-to-maturity debt portfolio increased from Rs. 93.5 billion in fiscal 2016 to Rs. 97.1 billion in fiscal 2017 due to an increase in average investment portfolio in held-to-maturity category in fiscal 2017 as compared to fiscal 2016.
Investments in held-for-trading securities decreased from Rs. 308.4 billion at year-end fiscal 2016 to Rs. 239.2 billion at year-end fiscal 2017 primarily due to a decrease in investment in government securities and certificate of deposit, offset, in part, by an increase in investment in corporate bonds and debentures. Interest and dividend income on held-for-trading securities increased from Rs. 17.8 billion in fiscal 2016 to Rs. 21.3 billion
in fiscal 2017. Net realized and unrealized gains on the held-for-trading portfolio increased from Rs. 1.8 billion in fiscal 2016 to Rs. 9.1 billion in fiscal 2017 primarily due to higher realized/unrealized gains on government and other domestic fixed income securities reflecting higher trading opportunities in fiscal 2017.
At year-end fiscal 2017, we have investments in equity shares amounting to Rs. 108.2 billion. The Reserve Bank of India restricts investments in equity securities by banks by prescribing limits linked to capital funds. See also “Supervision and Regulation—Reserve Bank of India Regulations—Regulations Relating to Investments and Capital Market Exposure Limits”.
In general, we pursue a strategy of active management of our long-term equity portfolio to maximize our return on investment. To ensurereinforce compliance with the Securities and Exchange Board of India’s insider trading regulations, all dealings in our equity and debt investments in listed companies are undertaken by our treasury’s equity and corporate bonds dealing desks, which are segregated from both the other groups and desks in the treasury and from our other business groups, and which do not have access to unpublished price sensitive information about these companies that may be available to us as a lender.
We deal in several major foreign currencies and take deposits from non-resident Indians in major foreign currencies. We also manage onshore accounts in foreign currencies. The foreign exchange treasury manages our portfolio through money market and foreign exchange instruments to optimize yield and liquidity.
We provide a variety of risk management productssolutions to our corporate and small and medium enterprise clients, including foreign currency forward contracts, and currency and interest rate swaps.swaps and options. We monitor and control the market risk and credit risk on our foreign exchange trading portfolio through an internal model which sets counterparty limits, position limits, stop-loss limits and limits on the loss of the entire foreign exchange trading operations and exception reporting. See also “—Risk Management—Quantitative and Qualitative Disclosures About Market Risk—Exchange Rate Risk”.
Through our branchesSecurities broking and subsidiaries outside India and our offshoreinvestment banking unit in Mumbai, we have made investments in corporate and financial sector bonds and debt securities and mortgage and asset backed securities outside India.
The following table sets forth, at the date indicated, investments in corporate and financial sector debt securities and mortgage and asset backed securities by our overseas branches and banking subsidiaries by region and the mark-to-market and realized losses thereon.
At March 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||
Asset backed securities(1),(2) | Bonds(2),(3) | Others | Total | |||||||||||||||||||||||||||||||||||||||||
Trading | Available-for-sale and held-to-maturity | Trading | Available-for-sale and held-to-maturity | Trading | Available-for-sale and held-to-maturity | Trading | Available-for-sale and held-to-maturity | Mark-to-market gain/ (loss) in fiscal 2016 | Realized gain/(loss)/ Impairment loss in income statement for fiscal 2016 | Mark-to-market gain/ (loss) at March 31, 2016 | ||||||||||||||||||||||||||||||||||
(Rs. in millions) | ||||||||||||||||||||||||||||||||||||||||||||
U.S. | – | – | – | – | – | – | – | – | (1 | ) | 8 | - | ||||||||||||||||||||||||||||||||
Canada | – | – | – | 43,301 | – | – | – | 43,301 | (118 | ) | 14 | 204 | ||||||||||||||||||||||||||||||||
Europe | – | 5,016 | – | 3,305 | – | – | – | 8,321 | (146 | ) | 0 | (1,214 | ) | |||||||||||||||||||||||||||||||
India | – | – | – | 49,773 | – | – | – | 49,773 | (522 | ) | (169 | ) | (129 | ) | ||||||||||||||||||||||||||||||
Rest of Asia | – | – | – | – | – | 1,325 | – | 1,325 | 0 | 1 | 0 | |||||||||||||||||||||||||||||||||
Total portfolio | – | 5,016 | – | 96,379 | – | 1,325 | – | 102,720 | (787 | ) | (146 | ) | (1,139 | ) | ||||||||||||||||||||||||||||||
At March 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||
Asset backed securities(1),(2) | Bonds(2),(3) | Others | Total | |||||||||||||||||||||||||||||||||||||||||
Trading | Available-for-sale and held-to-maturity | Trading | Available-for-sale and held-to-maturity | Trading | Available-for-sale and held-to-maturity | Trading | Available-for-sale and held-to-maturity | Mark-to-market gain/ (loss) in fiscal 2017 | Realized gain/(loss)/ Impairment loss in income statement for fiscal 2017 | Mark-to-market gain/ (loss) at March 31, 2017 | ||||||||||||||||||||||||||||||||||
(Rs. in millions) | ||||||||||||||||||||||||||||||||||||||||||||
U.S. | – | – | – | 762 | – | – | – | 762 | (2 | ) | - | (2 | ) | |||||||||||||||||||||||||||||||
Canada | – | – | – | 28,268 | – | – | – | 28,268 | (203 | ) | 450 | 1 | ||||||||||||||||||||||||||||||||
Europe | – | 2,782 | – | 1,451 | – | – | – | 4.233 | 338 | 0 | (862 | ) | ||||||||||||||||||||||||||||||||
India | – | – | – | 42,500 | – | – | – | 42,500 | (120 | ) | (151 | ) | (243 | ) | ||||||||||||||||||||||||||||||
Rest of Asia | – | – | – | – | – | 3,306 | – | 3,306 | (1 | ) | - | (1 | ) | |||||||||||||||||||||||||||||||
Total portfolio | – | 2,782 | – | 72,981 | – | 3,306 | – | 79,069 | 12 | 299 | (1,107 | ) | ||||||||||||||||||||||||||||||||
Investments in corporate and financial sector debt securities and mortgage and asset backed securities by our overseas branches and banking subsidiaries decreased from Rs. 102.7 billion at year-end fiscal 2016 to Rs. 79.1 billion at year-end fiscal 2017 primarily due to a decrease in investments in bonds held by our Canadian subsidiary due to call back/maturity of bonds. At year-end fiscal 2017, our investments in Europe were Rs. 4.2 billion as compared to Rs. 8.3 billion at year-end fiscal 2016. The majority of our investments in Europe are in the United Kingdom.
The mark-to-market losses on the investment portfolio of our overseas branches and subsidiaries were Rs. 1.1 billion at year-end fiscal 2016 and year-end fiscal 2017. During fiscal 2017, there was a mark-to-market gain of Rs. 0.01 billion compared to a loss of Rs. 0.8 billion during fiscal 2016. Net realized gain/(loss) and impairment loss was a net gain of Rs. 0.3 billion during fiscal 2017 as compared to a net realized gain/(loss) and impairment loss was a net loss of Rs. 0.1 billion during fiscal 2016.
The following table sets forth a summary of the investment portfolio of our overseas branches and banking subsidiaries based on the category of investments.
At March 31 | ||||||||
Category | 2016 | 2017 | ||||||
(in millions) | ||||||||
Bonds | ||||||||
Banks and financial institutions | Rs. | 35,133 | Rs. | 25,086 | ||||
Corporate | 61,246 | 47,895 | ||||||
Total bonds | 96,379 | 72,981 | ||||||
Asset backed securities | 5,016 | 2,782 | ||||||
Others(1) | 1,325 | 3,306 | ||||||
Total | Rs. | 102,720 | Rs. | 79,069 | ||||
Our investments in securities of banks and financial institutions are spread over a number of banks and of this the investment in the top 10 banks accounted for approximately 94.6% of the total investments in banks and financial institutions at year-end fiscal 2017 as compared to approximately 89.2% at year-end fiscal 2016.
Approximately 36.4% of our investment in securities of corporate entities was India-linked at year-end fiscal 2017 as compared to approximately 31.6% at year-end fiscal 2016.
The bond portfolio decreased from Rs. 96.4 billion at year-end fiscal 2016 to Rs. 73.0 billion at year-end fiscal 2017 primarily due to call-back/maturity of bonds held by our Canadian subsidiary. Our total investment in asset backed securities represents less than 0.5% of our total assets at year-end fiscal 2017. The portfolio size of such securities was Rs. 2.8 billion and primarily comprised retail mortgage backed securities. The retail mortgage backed securities portfolio consists primarily of UK residential mortgage backed securities backed by prime and buy-to-let mortgages.
At year-end fiscal 2017, the fair value of investments in the government securities held by our overseas branches and banking subsidiaries was Rs. 54.4 billion, which was primarily in Canada.
The investments in these securities are governed by the respective investment policies of ICICI Bank and its banking subsidiaries. To mitigate significant concentrations in credit risk, the investment policy lays down a number of limits that need to be adhered to before investments can be made. The investment policy lays down rating and issuer wise investment limits at each of these units. Further, there are counterparty limits for individual banks and financial institutions. Country exposure limits have also been established for various countries. In addition, ICICI Bank monitors the credit spread risk arising out of such investments while ICICI Bank UK has instituted credit spread sensitivity limits on its portfolio. Any exceptions to the above limits are made with due approvals from the appropriate forums. ICICI Bank has not bought credit protection against any of its international investments.
ICICI Securities Limited
ICICI Securities Limited is an integrated securities firm offering a wide range offinancial services company operating across capital market segments including investment banking,retail and institutional broking, retail broking,equity, financial product distribution, private wealth management and financial product distribution.
78
investment banking. As at March 31, 2023, ICICI Securities Limited served 9 million customers. ICICI Securities Limited has an online share trading portal called icicidirect.com. The primary objective of icicidirect.com is to enablesecurities broking platform. ICICI Securities Limited assists its customers like retail investors, corporates, financial institutions, high net worth individuals to make investments and to offer a wide range of investment optionsultra-high networth individuals in meeting their financial goals by providing a seamless structure that integrates a customer’s bank account, demat accountthem with research, advisory and trading account.execution services. ICICI Securities Limited has a subsidiary in the United States, ICICI Securities Holdings Inc., which in turn has a subsidiary in the United States, ICICI Securities Inc., which is registered as a broker dealerbroker-dealer with the Securities and Exchange Commission. ICICI Securities Inc., whichCommission and is a member of the Financial Industry Regulatory Authority in the United States andStates. ICICI Securities Inc. also has a branch office in Singapore that is registered with the Monetary Authority of Singapore, where it holds thea capital markets services license for dealing in securitiescapital market products in Singapore. ICICI Securities is also registered as an international dealer in Canada in the provinces
The consolidated profit after tax of British Columbia, Ontario and Quebec. ICICI Securities Limited (consolidated) earned a net profit ofwas Rs. 3.411.4 billion in fiscal 20172023 as compared to a net profit of Rs. 2.414.0 billion in fiscal 2016.2022. ICICI Securities Limited was listed on the National Stock Exchange of India Limited and BSE Limited on April 4, 2018 following an offer for sale in an initial public offering of the company. Our share ownership in ICICI Securities Limited was 74.85% at March 31, 2023.
On June 29, 2023, the boards of directors of ICICI Bank Limited and ICICI Securities Limited approved a draft scheme of arrangement for delisting of equity shares of ICICI Securities Limited by issuing equity shares of ICICI Bank to the public shareholders of ICICI Securities Limited in lieu of cancellation of their equity shares in ICICI Securities Limited, thereby making ICICI Securities a wholly-owned subsidiary of ICICI Bank Limited, subject to requisite approvals. The public shareholders of ICICI Securities Limited will be allotted 67 equity shares of ICICI Bank Limited for every 100 equity shares of ICICI Securities Limited.
I-Process Services
I-Process Services (India) Private Limited (“iProcess”) is an associate company of ICICI Bank. iProcess has a service provider agreement only with the Bank to provide business auxiliary services across sales, marketing, data entry, operations and collection functions. At March 31, 2023, the Bank held 19.0% of the shareholding of iProcess. In February 2023, the Board of Directors of the Bank approved a proposal for making iProcess a wholly-owned subsidiary of the Bank, subject to receipt of requisite regulatory and statutory approvals.
Primary Dealershipdealership
ICICI Securities Primary Dealership is engaged in the primary dealership of Indian government securities. It also deals in other fixed income securities.securities and interest rate derivatives. In addition to this, it hasalso undertakes money market operations, underwriting, portfolio management services and placement of debt and money market operations.debt. ICICI Securities Primary Dealership earned a net profit of Rs. 4.11.3 billion in fiscal 20172023 compared to a net profit of Rs. 2.03.3 billion in fiscal 2016.2022. The revenues of the business are directly linked to conditions in the fixed income market.
Venture Capital and Private Equity
Our subsidiary ICICI Venture Funds Management Company Limited is a diversified specialist alternative asset manager with a presence across private equity, real estate, infrastructure and special situations. During fiscal 2017,2023, ICICI Venture successfully concluded a total of seven new investments involving an aggregate capital outlay of approximately Rs. 22.2 billion. In the first and final closing of a power platform, Resurgent Power Ventures Limited (which is co-sponsored bysame period, ICICI Venture and Tata Power Company) withconcluded six exit/liquidity transactions involving aggregate commitments of USD 843 million. ICICI Venture also concluded further closings of its fourth private equity fund, India Advantage Fund Series 4, taking its total capital to USD 315 million (including co-investment capital). ICICI Venture reported a net profitrealization of Rs. 0.1 billion in fiscal 2017 compared to a net loss of Rs. 0.2 billion in fiscal 2016.4.8 billion.
We provide asset management services through our subsidiary, ICICI Prudential Asset Management Company. ICICI Prudential Asset Management Company is a joint venture with Prudential PLC of the United Kingdom. We have approximately 51.0% interest in the entity.entity and Prudential PLC owns 49.0%. ICICI Prudential Asset Management Company
also provides portfolio management services and advisory services to clients. ICICI Prudential Asset Management Company had average mutual fund assets under management of Rs. 2,429.64,823.4 billion during fiscal 2017.2023. ICICI Prudential Asset Management Company earned a net profit of Rs. 4.815.1 billion during fiscal 20172023 compared to a net profit of Rs. 3.314.4 billion induring fiscal 2016.2022.
79
We provide a wide range of insurance products and services through our subsidiariessubsidiary ICICI Prudential Life Insurance Company Limited and our affiliate ICICI Lombard General Insurance Company.Company Limited. ICICI Prudential Life Insurance Company Limited is a joint venture with Prudential Corporation Holding Limited. Both ICICI Prudential Life Insurance Company Limited a part of the Prudential PLC group of the United Kingdom.and ICICI Lombard General Insurance Company was formed as a joint venture with Fairfax Financial Holdings of Canada. The joint venture was terminatedLimited are listed on July 3, 2017.relevant Indian stock exchanges.
In fiscal 2015, the Indian parliament approved legislation increasing the foreign shareholding limit in the insurance sector from 26.0% to 49.0%, and removing the requirement that promoters of insurance companies eventually reduce their shareholding to 26.0% following the completion of 10 years of commencement of business by the insurance company. Final regulations were issued by the government of India in fiscal 2016. Subsequently, we sold approximately 6.0% stake in our life insurance subsidiary, ICICI Prudential Life Insurance Company during fiscal 2016. In September 2016, we soldLimited has a further 12.63% out of our shareholding inwholly owned subsidiary, ICICI Prudential Life InsurancePension Funds Management Company through an offer for sale in an initial public offering of the company’s shares. ICICI Prudential Life Insurance Company was listed onLimited, which distributes products under the National Stock Exchange of India LimitedPension System and BSE Limited on September 29, 2016. After this sale, ouris a registered pension fund manager.
Our share ownership in ICICI Prudential Life Insurance Company came down from approximately 74% to approximately 55%.
The Insurance Regulatory and Development Authority of India had invited six life insurance companies, including our life insurance subsidiary, to assess their interest in taking over the liabilities of policyholders’ along with the corresponding assets of Sahara India Life Insurance Company Limited. Our life insurance subsidiary had accordingly made a proposal and subsequently received the order from the Insurance Regulatory and Development Authority of India to takeover the life insurance portfolio of Sahara India Life Insurance Company Limited on July 28, 2017. This transaction will be considered as a transfer, not a merger, of the life insurance portfolio and is less than 1.0% of our life insurance subsidiary’s balance sheet. Sahara India Life Insurance Company has appealed against the order.
We also sold a 9.0% stake in our general insurance company, ICICI Lombard General Insurance Company, to our then joint venture partner, Fairfax Financial Holdings (through its affiliate), during fiscal 2016. Following the transaction, the share ownership in ICICI Lombard General Insurance Company of ICICI Bank and Fairfax Financial Holdings Limited were approximately 64% and 35%, respectively. In July 2017, Fairfax Financial Holdings (through its affiliate) sold equity shares comprising 12.18% of the issued and paid-up capital of the company to three investors. In June 2017, our Board of Directors approved the sale of a part of our shareholding in ICICI Lombard General Insurance Company Limited in an initial public offering by the company, subject to requisite approvals and market conditions. In pursuance of the proposed initial public offering, on July 3, 2017 our joint venture agreement with Fairfax Financial Holdings was terminated with provisions for protection of the parties in the event of non-completion of the proposed initial public offering within the timelines specified in the termination agreement. ICICI Lombard General Insurance Company has filed a draft red herring prospectus with the Securities and Exchange Board of India for the proposed public offering.The Bank will continue to hold more than 50.0% shareholding in the general insurance subsidiary post the proposed initial public offer.51.27% at March 31, 2023.
ICICI Prudential Life Insurance Company Limited had an overallassets under management greater than Rs. 2.5 trillion at March 31, 2023 and had a market share of 12.0% based6.5% on retail weightedretail-weighted new business received premium in fiscal 2017, as compared to a market share of 11.2% for its nearest private sector competitor. It also had a market share of 22.3% in the private sector for premiums received from retail weighted new business in fiscal 2017 compared to 21.9% in fiscal 2016 according to2023 based on data published by the Life Insurance Council. The market share within the private sector was 9.9% in fiscal 2023. The total premium increased by 16.6%6.6% from Rs. 191.6 billion during fiscal 2016 to Rs. 223.5374.6 billion in fiscal 2017. The retail renewal premium increased by 18.5% from2022 to Rs. 120.0399.3 billion in fiscal 20162023. Within product segments, for fiscal 2023, there was an increase in the contribution of protection, annuity and non-linked savings products to Rs. 142.2 billionthe business of our life insurance subsidiary. While unit-linked products still contribute significantly to the business, the demand for unit linked products may be influenced by any volatility or downturn in fiscal 2017. The retailcapital markets. Our life insurance subsidiary is primarily focused on the growth in the absolute value of new business, premium increasedas a key profitability metric which measures the present value of future profits from Rs. 54.6 billion in fiscal 2016 to Rs. 70.7 billion in fiscal 2017. ICICI Prudential Life Insurance Company earned a net profitthe new business written during the period. The value of Rs. 16.9 billion during year-end fiscal 2017 compared to a net profit of Rs. 16.5 billion during year-end fiscal 2016.
In fiscal 2010, the Insurance Regulatory and Development Authority of India changed the regulations relating to unit-linked life insurance products. Subsequently, the Insurance Regulatory and Development Authority of India also issued revised regulations relating to non-linked life insurance products, which became effective during fiscal 2014. The key changes related to commissions payable to agents and distributors, lapse of policies, surrender values and minimum death benefits. As a result of these changes, the life insurance sector experienced low growth and changes in the product mix in recent years, as life insurance companies were required to modify their products and distribution strategies. While there was initially a shift in the product mix towards non-unit linked products, more recently the share of unit-linked products has increased primarily due to favorable cost structures of these products from a customer perspective, as well as improved capital market conditions. Linked products contributed to 84.1% of the annualized premium equivalentnew business of ICICI Prudential Life Insurance Company Limited increased from Rs 21.6 billion in fiscal 20172022 to Rs. 27.7 billion in fiscal 2023, a year-on-year growth of 27.8%. The value of new business margin improved from 28.0% in fiscal 2022 to 32.0% in fiscal 2023. The profit after tax of ICICI Prudential Life Insurance Company Limited was Rs. 8.1 billion in fiscal 2023 as compared to 80.8%Rs. 7.5 billion in fiscal 2016 and 83.1% in fiscal 2015. 2022.
See also “Risk Factors – Factors—Risks Relatingrelating to Our Business – our insurance subsidiaries—Additional capital requirements of our insurance entities or our inability to monetize a part of our shareholding in these entities may adversely impact our business and the prices of our equity shares and ADSs” and “Risk Factors—Risks relating to our insurance subsidiaries—While our insurance businesses are an important part of our business, there can be no assurance of their future rates of growth or levels of profitability”profitability” and “Operating“Operating and Financial Review and Prospects – Prospects—Segment Revenues and Assets – Assets—Life Insurance”. Further,
ICICI Lombard General Insurance Company Limited’s gross direct premium income was Rs. 210.3 billion in fiscal 2023 as compared to Rs. 179.8 billion in fiscal 2022. During fiscal 2023, ICICI Lombard General Insurance Company Limited was ranked second general insurance company in the country with a market share of 8.2% based on gross direct premium as per the data published by the General Insurance Council. ICICI Lombard General Insurance Company Limited earned a net profit of Rs. 17.3 billion in fiscal 2023 as compared to a net profit of Rs. 12.7 billion in fiscal 2022.
ICICI Lombard General Insurance Company Limited was formed as a joint venture with Fairfax Financial Holdings of Canada. The joint venture was terminated on July 3, 2017. During fiscal 2021, the Board of ICICI Lombard General Insurance Company Limited approved the Scheme of arrangement for demerger of the general insurance business of Bharti AXA General Insurance Company Limited to ICICI Lombard General Insurance Company Limited with an appointed date of April 1, 2020. ICICI Lombard General Insurance Company Limited received the approval from National Company Law Tribunal
80
through its order dated May 13, 2021 and the Insurance Regulatory and Development Authority of India hasgranted its final approval on September 3, 2021. The merger came into effect at September 8, 2021. As consideration towards the merger, ICICI Lombard General Insurance Company Limited issued guidelines on bancassurance (i.e.,new equity shares to shareholders of Bharti AXA General Insurance Company Limited whereby the practiceshareholding of banks selling insurance productsthe Bank in ICICI Lombard General Insurance Company Limited was reduced to less than 50% resulting in ICICI Lombard General Insurance Company Limited ceasing to be a marketing arrangement with insurance companies). subsidiary of the Bank.
As per the guidelines,Banking Regulation Act, 1949, as amended, a bank can hold either less than 30.0% or more than 50.0% in a company. Following the transaction of ICICI Lombard General Insurance Company Limited, the Bank’s shareholding in ICICI Lombard General Insurance Company Limited has gone below 50.0%. The Bank’s holding in ICICI Lombard General Insurance Company Limited was 48.0% at March 31, 2023. The Bank had initially been granted until September 2023, that was extended till September 2024, to reduce its shareholding in ICICI Lombard General Insurance to 30.0%, to comply with the requirements under the Banking Regulation Act, 1949. In May 2023, the Board of the Bank approved acquisition of up to 4.0% of ICICI Lombard General Insurance Company Limited's shareholding, to make it a subsidiary of the Bank, subject to regulatory approvals.
The Insurance Regulatory and Development Authority of India issued regulations on registration of corporate agents for the sale of insurance products. As per the regulations, banks can alignpartner with three insurance companies each in life, non-life and health insurance sectors.
We have entered into an agreement with our insurance subsidiaries, ICICI Lombard GeneralPrudential Life Insurance Company’s gross direct premium income increased by 32.6% from Rs. 80.9 billion during fiscal 2016 to Rs. 107.3 billion during fiscal 2017.Company Limited and ICICI Lombard General Insurance Company was the largest private general insurer withLimited, and operate as a market share of about 8.4% in gross direct premium income amongst allcorporate agent for these companies and distribute general insurance companies during fiscal 2017 according to General Insurance Council of India. ICICI Lombard General Insurance Company earned a net profit of Rs. 7.0 billion in fiscal 2017 compared to a net profit of Rs. 5.1 billion in fiscal 2016.
ICICI Bank earnsand selective life insurance products through our branches, phone banking and digital channels and earn commissions and fees from these subsidiaries as a distributor for sales of life and general insurance products.subsidiaries.
Our funding operations are designed to ensure stability of funding, minimize funding costs and effectively manage liquidity. Our primary source of domestic funding is deposits raised from both retail and corporate customers. We also raise funds through short-term rupee borrowings and domestic or overseas bond offerings. Our domestic bond borrowings include long-term bond borrowings for financing infrastructure projects and low-cost housing in accordance with the Reserve Bank of India guidelines.
Our overseas branches are primarily funded by bond issuances, syndicated loans from banks, money market borrowings, inter-bank bilateral loans and borrowings from external commercial agencies. See also “Risk Factors—Risks Relating to Our Business—Our funding is primarily short-term and if depositors do not roll over deposited funds upon maturity, our business could be adversely affected”. Our subsidiaries in the United Kingdom and Canada fund themselves primarily through retail deposits. Our Canadian subsidiary also funds itself through securitization of insured mortgages.
Our deposits were 52.0% of our total liabilities at year-end fiscal 2017 compared to 49.1% of our total liabilities at year-end fiscal 2016. Our borrowings were 19.1% of our total liabilities at year-end fiscal 2017 compared to 24.0% of our total liabilities at year-end fiscal 2016. Our deposits increased by 13.6% from Rs. 4,510.8 billion at year-end fiscal 2016 to Rs. 5,125.9 billion at year-end fiscal 2017. Our borrowings decreased by 14.6% from Rs. 2,203.8 billion at year-end fiscal 2016 to Rs. 1,882.9 billion at year-end fiscal 2017 primarily due to a decrease in call and term money borrowings, refinance borrowings, borrowings with the Reserve Bank of India under liquidity adjustment facility and subordinated bond borrowings, offset, in part, by an increase in bond borrowings.
The following table sets forth, at the dates indicated, the composition of deposits by type of deposit.
At March 31, | ||||||||||||||||||||||||
2015 | 2016 | 2017 | ||||||||||||||||||||||
Amount | % of total | Amount | % of total | Amount | % of total | |||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||
Current account deposits | Rs. | 504,596 | 13.1 | % | Rs. | 603,389 | 13.4 | % | Rs. | 767,900 | 15.0 | % | ||||||||||||
Savings deposits | 1,221,062 | 31.6 | 1,444,551 | 32.0 | 1,790,098 | 34.9 | ||||||||||||||||||
Time deposits | 2,133,894 | 55.3 | 2,462,834 | 54.6 | 2,567,875 | 50.1 | ||||||||||||||||||
Total deposits | Rs. | 3,859,552 | 100.0 | % | Rs. | 4,510,774 | 100.0 | % | Rs. | 5,125,873 | 100.0 | % |
The following table sets forth, for the periods indicated, the average volume and average cost of deposits by type of deposit.
Year ended March 31,(1) | ||||||||||||||||||||||||||||
2015 | 2016 | 2017 | ||||||||||||||||||||||||||
Amount | Cost(2) | Amount | Cost(2) | Amount | Amount | Cost(2) | ||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||
Interest-bearing deposits: | ||||||||||||||||||||||||||||
Savings deposits | Rs. | 1,058,154 | 3.8 | % | Rs. | 1,207,983 | 3.8 | % | Rs. | 1,474,489 | US$ | 22,737 | 3.8 | % | ||||||||||||||
Time deposits | 2,155,184 | 7.8 | 2,348,344 | 7.4 | 2,546,886 | 39,273 | 6.9 | |||||||||||||||||||||
Non-interest-bearing deposits: | ||||||||||||||||||||||||||||
Other demand deposits | 326,162 | — | 384,167 | — | 476,799 | 7,352 | — | |||||||||||||||||||||
Total deposits | Rs. | 3,539,500 | 5.9 | % | Rs. | 3,940,495 | 5.6 | % | Rs. | 4,498,174 | US$ | 69,362 | 5.2 | % | ||||||||||||||
Our average deposits increased from Rs. 3,940.5 billion at an average cost of 5.6% in fiscal 2016 to Rs. 4,498.2 billion at an average cost of 5.2% in fiscal 2017 primarily due to significantly higher current account and savings account deposit inflows in the second half of fiscal 2017 following the withdrawal of legal tender status of high denomination currency notes by the government of India. Our average time deposits increased from Rs. 2,348.3 billion at an average cost of 7.4% in fiscal 2016 to Rs. 2,546.9 billion at an average cost of 6.9% in fiscal 2017. The cost of time deposits decreased from 7.4% in fiscal 2016 to 6.9% in fiscal 2017 primarily due to a reduction of term deposit rates by ICICI Bank on select maturities reflecting the softening of interest rates in India. Our savings deposits include retail savings deposits accepted by ICICI Bank UK PLC. See also “Operating and Financial Review and Prospects—Financial Condition—Deposits”.
The following table sets forth, at the date indicated, the contractual maturity profile of deposits, by type of deposit.
At March 31, 2017 | ||||||||||||||||
Up to one year | After one year and within three years | After three years | Total | |||||||||||||
(in millions) | ||||||||||||||||
Interest-bearing deposits: | ||||||||||||||||
Savings deposits | Rs. | 1,790,098 | Rs. | – | Rs. | – | Rs. | 1,790,098 | ||||||||
Time deposits | 2,037,943 | 424,621 | 105,311 | 2,567,875 | ||||||||||||
Non-interest-bearing deposits: | ||||||||||||||||
Other demand deposits | 767,900 | – | – | 767,900 | ||||||||||||
Total deposits | Rs. | 4,595,941 | Rs. | 424,621 | Rs. | 105,311 | Rs. | 5,125,873 | ||||||||
The following table sets forth, for the periods indicated, average outstanding rupee borrowings and the percentage composition by category of borrowing. The average cost (interest expense divided by average balances) for each category of borrowings is provided in the footnotes.
At March 31,(1) | ||||||||||||||||||||||||||||
2015 | 2016 | 2017 | ||||||||||||||||||||||||||
Amount | % of total | Amount | % of total | Amount | Amount | % of total | ||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||
Money market borrowings(2),(3) | Rs. | 271,944 | 37.9 | % | Rs. | 290,536 | 35.6 | % | Rs. | 224,819 | US$ | 3,467 | 26.9 | % | ||||||||||||||
Other borrowings(4),(5) | 446,031 | 62.1 | 525,375 | 64.4 | 609,683 | 9,401 | 73.1 | |||||||||||||||||||||
Total | Rs. | 717,975 | 100.0 | % | Rs. | 815,911 | 100.0 | % | Rs. | 834,502 | US$ | 12,868 | 100.0 | % | ||||||||||||||
The following table sets forth, at the date indicated, the maturity profile of our rupee time deposits of Rs. 10 million or more.
At March 31, | ||||||||||||||||
2016 | 2017 | % of total deposits | ||||||||||||||
(in millions, except percentages) | ||||||||||||||||
Less than three months | Rs. | 330,880 | Rs. | 415,568 | US$ | 6,408 | 8.1 | % | ||||||||
Above three months and less than six months | 198,180 | 299,154 | 4,613 | 5.8 | ||||||||||||
Above six months and less than 12 months | 323,658 | 245,762 | 3,790 | 4.8 | ||||||||||||
More than 12 months | 37,886 | 75,202 | 1,160 | 1.5 | ||||||||||||
Total deposits of Rs. 10 million and more | Rs. | 890,604 | Rs. | 1,035,686 | US$ | 15,971 | 20.2 | % | ||||||||
The following table sets forth, at the dates indicated, certain information related to short-term rupee borrowings.
At March 31,(1) | ||||||||||||
2015 | 2016 | 2017 | ||||||||||
(in millions, except percentages) | ||||||||||||
Year-end balance | Rs. | 348,867 | Rs. | 248,793 | Rs. | 106,591 | ||||||
Average balance during the year(2) | 271,944 | 290,536 | 224,819 | |||||||||
Maximum quarter-end balance | 348,867 | 249,200 | 233,533 | |||||||||
Average interest rate during the year(3) | 8.7 | % | 7.7 | % | 6.7 | % | ||||||
Average interest rate at year-end(4) | 8.7 | % | 7.7 | % | 6.6 | % | ||||||
Following the withdrawal of high denomination currency notes in November 2016, there was a significant increase in savings and current account deposits leading to rise in liquidity for banks and resultant decrease in short term borrrowings. Our short-term rupee borrowings decreased from Rs. 248.8 billion at year-end fiscal 2016 to Rs. 106.6 billion at year-end fiscal 2017.
The following table sets forth, for the periods indicated, the average outstanding volume of foreign currency borrowings based on average balances by source and the percentage composition by source. The average cost (interest expense divided by average balances) for each source of borrowings is provided in the footnotes.
For year ended March 31,(1) | ||||||||||||||||||||||||||||
2015 | 2016 | 2017 | ||||||||||||||||||||||||||
Amount | % of total | Amount | % of total | Amount | Amount | % of total | ||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||
Bond borrowings(2) | Rs. | 510,239 | 42.9 | % | Rs. | 548,838 | 41.0 | % | Rs. | 558,214 | US$ | 8,608 | 43.0 | % | ||||||||||||||
Other borrowings(3) | 678,076 | 57.1 | 789,163 | 59.0 | 739,383 | 11,401 | 57.0 | |||||||||||||||||||||
Total | Rs. | 1,188,315 | 100.0 | % | Rs. | 1,338,001 | 100.0 | % | Rs. | 1,297,597 | US$ | 20,009 | 100.0 | % | ||||||||||||||
At year-end fiscal 2017, the outstanding debt capital instruments were Rs. 360.6 billion. The outstanding debt capital instruments include debt that is classified either as Additional Tier I or Tier II capital in calculating the capital adequacy ratio as per the grandfathering rules in accordance with the Reserve Bank of India’s regulations on capital adequacy as per Basel III. See also “Supervision and Regulation—Reserve Bank of India Regulations”.
As a financial intermediary, we are exposed to risks that are particular to our lending, transaction banking and trading businesses and the environment within which we operate. Our goal in risk management is to ensure that we understand, measure, monitor and manage the various risks that arise and that the organization adheres to the policies and processes, which are established to address these risks.
The key principles underlying our risk management framework are as follows:
· | The Board of Directors has oversight of all the risks assumed by us. |
· | Specific committees of the Board have been constituted to facilitate focused oversight of various risks. For a discussion of these and other committees, see |
· | Credit Committee: The |
· | Audit Committee: The |
· | Information Technology Strategy Committee: The |
81
risks, ensure alignment of information technology strategy with business strategy, review information technology investments by overseeing funding of information technology, review contribution of information technology to business, review future readiness of technology platforms, review progress on key projects and performance of critical systems, review key risk indicators pertaining to technology and Information Security teams, review compliance with regulatory audit observations and oversee activities of the digital council. The digital council is an internal forum to measure the Bank’s performance against the digital adoption targets set by the Government of India’s Ministry of Electronics and Information Technology. Key digital initiatives taken up by the Bank are discussed in this forum, along with measures to enhance performance.
· | Risk Committee: The |
the status of compliance with the Basel framework, risk dashboard covering various risks, outsourcing activities and the activities of the Asset Liability Management Committee. The |
· | Policies approved from time to time by the Board of Directors form the governing framework for each type of risk. The business activities are undertaken within this policy framework. |
· | Independent groups and sub-groups have been constituted across our organization to facilitate independent evaluation, monitoring and reporting of various risks. These groups function |
The risk management framework forms the basis for developing consistent risk principles across the Bank and its overseas banking subsidiaries. The boardBoard of directorsDirectors approves the Enterprise Risk Management and Risk Appetite Framework and thresholds/limits structure under which various business lines operate.
We are primarily exposed to credit risk, market risk, liquidity risk, operational risk, technology risk, compliance risk, cyber security risk and reputation risk. We have centralized groups, the Risk Management Group, the Compliance Group, the Corporate Legal Group, the Financial Crime Prevention and Reputation Risk Management Group and the Internal Audit Group with a mandate to identify, assess and monitor all of our principal risks in accordance with well-defined policies and procedures. In addition, the Credit MonitoringLending Services Operations Group, Treasury Control and Securities Services Group and the Operations Group monitor operational adherence to regulations, policies, terms of limit approved and other internal approvals.
The Risk Management Group is further organized into the Credit Risk Management Group, Market Risk Management Group, Operational Risk Management Group, Credit Monitoring Group and Information Technology Risk ManagementSecurity Group. The Risk Management Group Credit Monitoring Group, Treasury Control and Services Group and Operations Group reportreports to an Executive Director.the Risk Committee of the Board of Directors. The Compliance Group and the Internal Audit Group report to the Audit Committee of the Board of Directors and the Managing Director and Chief Executive Officer.Directors. The Risk Management Group, Compliance Group and Internal Audit GroupsGroup have administrative reporting to anthe Executive Director. Treasury and Securities Services Group, Lending Services Operations Group and Operations Group report to the Executive Director. These groups are independent of the business units and coordinate with representatives of the business units to implement our risk management methodologies.units.
82
Credit Risk
Credit risk is the risk of loss that may occur from the failure of any party to abide by the terms and conditions of any contract, principally the failure to make required payments of amounts due to us. In its lending operations, ICICI Bank is principally exposed to credit risk.
The creditCredit risk is governed by the Credit and Recovery Policy (credit policy)(“Credit Policy”) approved by the Board of Directors. The Credit and Recovery Policy outlines the type of products that can be offered, customer categories the targeted customer profile and the credit approval process, credit administration, credit limits and limits.other relevant matters.
ICICI Bank measures, monitors and manages credit risk at an individual borrower level and at the portfolio level for non-retailretail borrowers. The credit risk for retail borrowers is being managed at portfolio level. ICICI Bank has a structured and standardized credit approval process, which includes a well-established procedure of comprehensive credit appraisal. The Country Risk Management Policy addresses the recognition, measurement, monitoring and reporting of country risk.
The risk environment is currently volatile due to factors such as slowdown in the capital expenditure cycle in India, high leverage in some corporate groups and event risks. Considering these aspects, we have Bank has established a risk appetite and limit structure, with respect to credit risk, and specifically concentration risk.
We have takenrisk, which includes the following key measures:
· |
· |
· | portfolio limits for buyout and securitization; |
· | establishment of a separate credit monitoring group to enhance focus on monitoring of borrowers and to facilitate proactive action wherever |
· | enhanced monitoring of retail product portfolios through periodic reviews and vintage curve analysis. |
The credit committeeCredit Committee of the Board reviews the portfolio and large exposure groups ongroups. The Bank has a regular basis.dedicated group, namely the Financial Crime Prevention Group, overseeing and handling the fraud prevention, detection, investigation, monitoring and reporting, as well as fraud awareness activities.
Credit Approval Authorities
The Board of DirectorsDirectors/Credit Committee has delegated credit approval authority to various committees, forums and individual officers under the credit approval authorization policy. The credit approval authorization policy is based on the level of risk and the quantum of exposure, and is designed to ensure that transactions with higher exposure and higher levels of risk are sent to a correspondingly higher forum/committee for approval.
The Bank has established several levels of credit approval authorities for its corporate banking activities -the- the Credit Committee, the Committee of Executive Directors, the Committee of Senior Management, the Committee of Executives, and Regional Committees.the Corporate Lending Forum. For certain exposures to small and medium enterprises and rural and agricultural loans under programs, separate forums haveapproval under a joint authorization framework has been established for approval. These forums sanction programs formulated through a cluster-based approach wherein a lending program is implemented for a homogeneous group of individuals or business entities that comply with certain norms. To be eligible for funding under the programs, borrowers need to meet the stipulated credit norms and obtain a minimum score on a scoring model. We have incorporated control norms, borrower approval norms and review triggers in all such programs.established.
Retail credit facilities are required tomust comply with approved product policies. All products policies are approved by the Committee of Executive Directors. The individual credit proposals are evaluated and approved by individual officers/forums on the basis of the product policies.
Credit Risk Assessment Methodology for Standalone Entities
All credit proposals other than retail products, program lending, score card-based lending to small and medium enterprises and agri-businessesagricultural businesses and certain other specified products are rated internally by the Credit Risk Management Group, prior to approval by the appropriate forum.
83
The Credit Risk Management Group rates proposals, carries out industry analysis (through a centralized industry team), tracks the quality of the credit portfolio with regular rating reviews and reports periodically to the Credit Committee and the Risk Committee. The Bank also has a credit monitoring group, which monitors individual accounts jointly with the business and Risk Management Group on a regular basis including stock statements, bank statements and stock audit reports. For non-retail exposures, the Credit MonitoringLending Services Operations Group verifies adherence to the terms of the approval prior to the commitment and disbursement of credit facilities. WeThe Bank also managemanages credit risk through various limit structures, which are in line with the Reserve Bank of India’s prudential guidelines. The Bank has set up various exposure limits, including the single borrower exposure limit, the group borrower exposure limit, the industry exposure limit, the unsecured exposure limit, the long tenor exposure limit and limits on exposure to sensitive sectors such as capital markets, non-banking finance companies and real estate. Rating based thresholds for exposures to borrowersBased on rating and limittracking of the borrower and group, limits on incremental sanctionsexposures have also been put in place. Limits on countries and bank counterparties have also been stipulated.
ICICI Bank has an established credit analysis procedure leading to appropriate identification of credit risk both at the individual borrower and the portfolio level. Appropriate appraisal and credit rating methodologies have been established for various types of products and businesses. The methodology involves assessment of quantitative and qualitative parameters. For example, for any large corporate borrower, the rating methodology entails a comprehensive evaluation of the industry, borrower’s business position in the industry (benchmarking), financial position and projections, quality of management, impact of projects being undertaken by the borrower and structure of the transaction.
Borrower risk is evaluated by considering:
After conducting an analysis of a specific borrower’s risk, the Credit Risk Management Group assigns a credit rating to the borrower. We have a scale of 12 ratings ranging from AAA to B. A borrower’s credit rating is a vital input for the credit approval process. The borrower’s credit rating and the default pattern corresponding to that credit rating, formsform an important input in the risk-based pricing framework of the Bank. Every proposal for a financing facility is prepared by the relevant business unit and reviewed by the Credit Risk Management Group before being submitted for approval to the appropriate approval authority.authority other than retail products, program lending, score card-based lending to small and medium enterprises and agri-businesses and certain other specified products. The approval process for non-fund facilities is similar to that for fund-based facilities. The credit rating for every borrower is reviewed periodically. We also review the ratings of our borrowers in a particular industry upon the occurrence of any significant event impacting that industry.
On our current rating scale, ratings of below BBB- (i.e., BB and B ratings) are considered to be relatively high-risk categories. Our current credit policy does not expressly provide a minimum rating required for a borrower to be considered for a loan. All corporate loan proposals for fresh/incremental exposure with an internal rating of below BBB- are sent to our Credit Committee for its approval, which is constituted by a majorityapproval. See also “Consolidated financial Statements—Schedules forming part of non-executive directors.the consolidated financial statements—Additional Notes—Note 7—Credit quality indicators of loans”.
The following table sets forth a description of our internal rating grades linked to the likelihood of loss:
|
| |
At year-end fiscal 2017, our net non-investment grade loans including net non-performing and net restructured loans, constituted about 14.0% of our total net loans.
Working capital loans are generally approved for a period of 12 months for facilities internally rated BBB+ or below and 24 months for transaction for facilities internally rated A- or above. At the endappraisal process involves an in-depth study of the 12-month validity period, we review the loan arrangementindustry, financial, commercial, technical and the credit ratingmanagerial aspects of the borrower. On completionAn assessment of this review, a decisionthe financial requirements of the client is made on whetherin order to renewarrive at the working capital loan arrangement.amount of credit to be considered by the Bank. Each credit proposal is thereafter prepared in an appropriate appraisal format and placed before the approving authority as prescribed by the Board of Directors/ Credit Committee from time to time.
The following sections detail the risk assessment process for various business segments:
Assessment of Project Finance Exposures
ICICI Bank has a framework for the appraisal and execution of project finance transactions. We believe that this framework creates optimalFor better risk identification, allocation and mitigation and helpsto minimize residual risk.
Therisk in project finance approval process begins with atransactions, the Bank carries out detailed evaluation of technical commercial,and financial marketingaspects of the project and management factors and
84
the sponsor’s financial strength and experience. Once this review is completed, an appraisal memorandum is prepared for credit approval purposes. As part of the appraisal process, a risk matrix is generated, which identifies each of the project risks, mitigating factors and residual risks associated with the project. The appraisal memorandum analyzes the risk matrix and establishes the viability of the project. After credit approval, a letter of intent is issued to the borrower, which outlines the principal financial terms of the proposed facility, sponsor obligations, conditions precedent to disbursement, undertakings from and covenants on the borrower. After completion of all formalities by the borrower, a loan agreement is entered into with the borrower.
In addition to the above, in the case of structured project finance in areas such as infrastructure, oil, gas and petrochemicals, as a part of the due diligence process, we appoint consultants, wherever considered necessary, to advise the lenders, including technical advisors, business analysts, legal counsel and insurance consultants. These consultants are typically internationally recognized and experienced in their respective fields. Risk mitigating factors in these financings include creation of debt service reserves and channeling project revenues through a trust and retention account.
ICICI Bank’s projectstrength. Project finance loans are generally fully secured, and have full recourse to the borrower. In most cases, ICICI Bank has a security interest and first lien on all the fixed assets. Security interests typically include property, plant and equipment as well as other tangible assets of the borrower, both present and future. ICICI Bank’s borrowerscash flows are required to maintain comprehensive insurance on their assets where ICICI Bank is recognized as payee in the event of loss. In some cases, ICICI Bankrouted through an escrow account. We may also takes additional credit comforts such as corporate or personal guarantees from one or more sponsors of the project or a pledge of the sponsors’ equity holding in the project company. In certain industry segments, ICICI Bank also takestake security interest in relevant project contracts such as concession agreements, off-take agreements and construction contracts as part of the security package.
ICICI Bank generally disburses funds after the entire project funding is committed and vital contractual arrangements have been entered into. Funds are disbursed in tranches to pay for approved project costs as the project progresses. When we appoint technical and market consultants, they are required to monitor the project’s
progress and certify all disbursements. We also require the borrower to submit periodic reportsbased on project implementation, including orders for machinery and equipment as well as expenses incurred.progress. Project completion is contingentconsidered upon satisfactory operationcommencement of operations of the project for a certain minimum period and, in certain cases, the establishment of debt service reserves.project. We continue to monitor the credit exposure until our loans are fully repaid. We have adopted a more cautious and selective approach to project financing in recent years.
Assessment of Corporate Finance Exposures (Term loans/fixed maturity loans)
As part of the corporate loan approval procedures, ICICI Bank carries out a detailed analysis of funding requirements, including normal capital expenses, long-term working capital requirements, and temporary imbalances in liquidity.acquisition finance. ICICI Bank’s funding of long-term core working capital requirements is assessed on the basis among other things, of the borrower’s present and proposed level of inventory and receivables. In case of corporate loans for other funding requirements, we undertake a detailed review of those requirementsthe underlying transaction and an analysis of cash flows. A substantial portion of ICICI Bank’s corporate finance loans are secured by a lien over appropriate assets of the borrower. Corporate finance loans are generally secured by a first charge on fixed assets, which normally consists of property, plant and equipment. We may also take as security a pledge of financial assets, such as marketable securities, and obtain corporate guarantees and personal guarantees wherever appropriate. In certain cases, the terms of financing include covenants relating to sponsors’ shareholding in the borrower and restrictions on the sponsors’ ability to sell all or part of their shareholding.
The focus of ICICI Bank’s structured corporate finance products is on cash flow-based financing. We have a set of distinct approval procedures to evaluate and mitigate the risks associated with such products. These procedures include:
Our analysis enables us to identify risks in these transactions. To mitigate risks, we use various credit enhancement techniques, such as collateralization, cash collateralization, creation of escrow accounts and debt service reserves. Rating review of these exposures is done based on asset quality review framework of the Bank. The Credit Monitoring Group jointly monitors these exposures along with the business and Risk Management Group.
Corporate finance loans can be secured by fixed assets (which normally consists of property, plant and equipment), pledge of financial assets (such as marketable securities or at times non-marketable securities) and we may obtain contractual credit enhancements such as corporate guarantees or personal guarantees from the sponsors wherever appropriate. In certain cases, the terms of financing include covenants relating to sponsors’ shareholding in the borrower and restrictions on the sponsors’ ability to sell all or part of their shareholding. We also have a monitoring frameworkprovide unsecured loans to enable continuous review of the performance of such transactions.higher rated, well-established corporate borrowers.
With respect to financing forof cross-border corporate mergers and acquisitions, we carry out detailed due diligence on the acquirer as well as the target’s business profile. The key areas covered
We emphasize environmental and social risk assessment for new project and corporate financing proposals subject to certain criteria. These proposals are reviewed under a social and environmental management framework that integrates analysis of the environmental and social risk assessment into the overall credit appraisal process. We are also in the appraisal process include:of incorporating environmental, social and governance and climate risk aspects as part of the credit evaluation process. Borrower level environmental, social and governance scores from external agencies are considered during the evaluation of a proposal. We have developed sector-specific environmental, social and governance checklists for borrower-level evaluation and a framework for assessment of climate-related physical and transition risk that a borrower could be exposed to in certain sectors. The Bank has also developed a Framework for Sustainable Financing, which provides guidance on eligibility criteria for Sustainable/Sustainability Linked Lending, guidance on assessment of facilities, monitoring & reporting of such facilities. As part of our Internal Capital Adequacy Assessment Process (“ICAAP”), we have carried out stress testing to address risks emanating from climate change on the critical infrastructure resources that support Bank’s operations. Further, the Bank considers stress testing for climate risk as part of scenario based stress testing under ICAAP. The same incorporates the impact of physical risk as well as transition risk on the borrowers.
Assessment of Working Capital Finance Exposures
85
We carry out a detailed analysis of borrowers’ working capital requirements. Credit limits are established in accordance with the credit approval authorization approved by the Bank’s Board of Directors. Once credit limits are approved, we may calculate the amounts that can be lent on the basis of review of monthly stock statements provided by the
borrower and the margins stipulated. Quarterly information statements are also obtained from borrowers to monitor the performance on a regular basis. Monthly cash flow statements are obtained where considered necessary. Any irregularity in the conduct of the account is reported to the appropriate authority on a regular basis. Credit limits are reviewed on a periodic basis.
Working capital facilities are primarilygenerally secured by inventories, receivables and other current assets. Additionally, in certain cases, thesewe obtain contractual credit facilities are secured byenhancements such as personal guarantees of directors,or corporate guarantees from sponsors, or subordinated security interests in the tangible assets of the borrower including plant and machinery and covered by personal guarantees of the promoters.machinery.
Assessment of Retail Loans
The sourcingorigination and approval of retail credit exposures are segregated to achieveensure independence. The Credit Risk Management Group, Credit and Policy Group and credit teams are assigned complementary roles to facilitate effective credit risk management for retail loans.
The Credit and Policy Group is responsible for preparing credit policies/policies and operating policies. The Credit Risk Management Group oversees the credit risk issues for retail assets including the review of all credit policies and operating policies proposed for approval by the Board or forums authorized by the Board. The Credit Risk Management Group isThese groups are involved in portfolio monitoring of all retail assets and in suggesting and implementing policy changes. Independent units within retail banking, focus onThe Data Science and Analytics Group is responsible for devising customer-segment specific strategies, policy formulation, portfolio tracking and monitoring, analytics, score card development and database management. The credit team which is independent from the business unit oversees the underwriting function and is organized geographically to support the retail sales and service structure.
Our customers for retail loans are primarily middle and high-income, salaried and self-employed individuals. Except for personal loans and credit cards, ICICI Bank requires a contribution from the borrower and its loans are secured by the asset financed.
The Bank’s credit officers evaluate credit proposals on the basis of operating policies approved by the Committee of Executive Directors. The criteria vary across product segments but typically include factors such as the borrower’s income, the loan-to-value ratio and demographic parameters. External agencies such as field investigation agencies facilitate a comprehensive due diligence process including visits to offices and homes in the case of loans made to retail borrowers. In making its credit decisions, ICICIborrowers whenever required. The Bank also draws upon a centralized database on delinquent loans and reports from the credit bureaubureaus to review the borrower’s profile. Except for personal loans and credit cards, the Bank generally requires a contribution from the borrower and its loans are secured by the asset financed. For mortgage loans and used vehicle loans, a valuation agency or an in-house technical team carries out the technical valuations. InFor certain products, the case of credit cards, in order to limit the scope of individual discretion, ICICI Bank has implemented a credit-scoring, program that assigns a credit score to each applicant based on certain demographic and credit bureau variables. The credit score thenwhich forms one of the criteria for loan evaluation. For loans against gold ornaments
As part of digital credit lending, ICICI Bank has scaled up offerings to bank customers over a period of time. As part of its strategy, the Bank uses multi-factor credit filters by using data-sets to mitigate risk. The portfolio build-up strategy is based on utilizing the pre-approved customer database for origination of key retail asset products wherein major incremental origination is from existing liability customer relationships.
The Bank undertakes portfolio buyouts of various retail assets products. The portfolio is selected by applying selection filters like tenure, size, loan to value ratio and gold coins, emphasis is given on ownershiplocation, and authenticity (puritymeeting regulatory requirements with regard to minimum holding period and weight) of the jewelry for which an external appraiser is appointedminimum retention requirement by the Bank. Normsseller. The buyouts are in the form of direct assignment or by way of investment in pass through certificates.
The Bank has established centralized operations to manage operational risk in the back-office processes of its retail assets business and also has decentralized operations to improve turnaround time for customers. A separate team under the Credit and Policy Group undertakes review and audits of credit quality and processes across different products. The Bank has a debt services management group independent of business group to manage debt recovery. The group operates under the guidelines of a standardized recovery process.
86
Assessment Procedures for Small Enterprises Loans and Business Banking
The Bank finances small enterprises, which include individual entities and financing dealers and vendors of companies. Small enterprise credit also includes financing extended directly to small enterprises as well as lending based on parameterized product-based credit facilities, which involves a cluster-based approach wherein a lending program is implemented for a homogenous group of individuals/business entities, which comply with respect tocertain laid-down parameterized norms. Further, programs can also be made for diverse group of individuals/business entities/ industries having common target market norms and go-no-go parameters as approved by the loan-to-value ratio have been laid down.Committee of Executive Directors. The risk assessment of such a cluster involves the identification of appropriate credit norms for the target market, the use of scoring models for enterprises that satisfy these norms and a comprehensive appraisal of those enterprises, which are awarded a minimum required score in the scoring model.
ICICI Bank has lending programs for business banking customers, based on various financial and non-financial parameters and target market norms. The program criteria are approved by the Committee of Executive Directors and individual credit proposals are assessed by the credit team based on these approved criteria. The Committee of Executive Directors of ICICI Bank reviews the portfolio on a periodic basis. The renewal of programs is approved by the Committee of Executive Directors.
We have established centralized operationsFor large ticket size loans (maximum up to manage operating risk in the various back-office processes of our retail loan business exceptRs. 400 million), an in-house developed statistical scoring model is being used for a few operations, which are decentralized to improve turnaround time for customers. A separate team under the Credit and Policy Group undertakes review and audits of credit quality and processes across different products. The Bank also has a debt services management group structured along various product lines and geographical locations, to manage debt recovery. The group operates under the guidelines of a standardized recovery process. A Financial Crime Prevention Group has been established as a dedicated and independent group, handling the fraud prevention, detection, investigation, monitoring, reporting and awareness creation functions.
Assessment Procedures for Small Enterprises Loans
ICICI Bank finances small enterprises, which include individual cases and financing dealers and vendors of companies by implementing structures to enhance the base credit quality of the vendor/dealer. Small enterprise credit also includes financing extended directly to small enterprises as well as financing extended on a cluster-
based approach in which credit is extended to small enterprises that have a homogeneous profile, such as apparel manufacturers and manufacturers of pharmaceuticals. The risk assessment of such a cluster involves the identificationmajority of appropriate credit normscases in small and medium enterprises programs. The underwriting process integrates various digital tools like bank statement analyzer, automatic fetching of bureau reports and enhanced business rule engine to generate probability of default scores for target market, the use of scoring models for enterprises that satisfy these norms and a comprehensive appraisal of those enterprises which are awarded a minimum required score in the scoring model.score-based analysis. A detailed appraisal is performed based on the financial as well as non-financial parameters to identifyassess the funding needscreditworthiness of the enterprise in all the cases. TheA similar approach is being followed for lending to borrowers in mid-corporate group also finances small businesses based on analysis of the business and financials. The assessment includesfor a scoring model with a minimum score requirement before appraisal of these enterprises is conducted.maximum limit up to Rs. 500 million.
ICICIThe Bank also finances small and medium enterprises, dealers and vendors linked to theselarge and medium entities by implementing structures to enhance the base credit quality of the vendor or dealer. The process involves an analysis of the base credit quality of the vendor or dealer pool and an analysis of the linkages that exist between the vendor or dealer and the company. The approval of limits to dealers and vendors takes place manually as well as digitally.
The risk management policy also includes setting up of portfolio control norms, continuous monitoring renewal norms as well as stringent review and exit triggers to be followed while financing such clusters or communities.
Assessment Procedures for Rural and Agricultural Loans
The rural and agricultural portfolio consists of loans to retail customersindividuals and non-individuals engaged in the rural sector through programsagriculture and directrelated activities. These loans are extended to corporations, small & medium enterprisesmeet crop production and intermediaries linked to these entities. The programs offered include lending to farmers for crop cultivationmaintenance, consumption, asset purchase and other allied agricultural activities (in the formincome generating requirements of Kisan credit cards and agricultural term loans), farm equipment financing (for purchase of equipment such as tractors and harvesters), lending to self-help groups, loans against gold ornaments and gold coins, commodity based funding and rural business enterprise credit. We have adopted specific risk assessment methodologies for each of these segments.borrowers.
The sales and approvalcredit decision-making functions are segregated to achieve independence in retail loan assessment procedures.segregated. The Credit and Policy Group is responsible for preparing credit policies/operating policies. The Credit Risk Management Group oversees the credit risk and portfolio monitoring related issues foralong with the review of credit/operating policies and changes thereto pertaining to retail agricultural assets including the review of all credit policies and operating policies proposed for approval by the Board of Directors or forums authorized by the Board. The Credit Risk Management Group monitors portfolio trends and suggests and implements policy changes.competent authorities. The credit team which is independent from the business unit, oversees the underwriting function and is organized geographically in line with the rural sales and service structure.
We useRural and agriculture credit also includes financing extended on a cluster-based approach for certain segments, wherein a lending program is implemented forto borrowers with a homogeneous groupprofile. The risk assessment of individuals or business entities that comply with certain laid down parameterized norms. To be eligible for funding under these programs, the borrowers need to meet the stipulatedsuch cluster includes identification
87
of appropriate credit norms, the use of scoring models for enterprises and obtain a minimum score on the scoring model wherever applicable. We have incorporated control norms, borrower approval norms and review triggers in all the programs.
For corporations, borrower risk is evaluated by analyzing the industry risk, the borrower’s market position, financial performance, cash flow adequacy and the quality of management. The credit risk of intermediaries (including vendors, dealers, harvester & transporter, seed organizers, micro finance institutions) and retail customers is evaluated by analyzing the base credit quality of such borrowers or the pool of borrowers and also the linkages between the borrowers and the companies to which they are supplying their produce.stipulating suitable collateral norms.
For loans against gold ornaments and gold coins, the credit norms focus on establishing ownership and authenticity (purity and weight) of the jewelry for which anunderlying jewellery with the help of Bank appointed external appraiser is appointed by us.appraisers. Norms with respect to loan-to-value ratio have been laid down.down in accordance with regulatory guidelines.
Commodity based financing caters toFor loans against pledge of agricultural commodities, the needs of farmers, aggregators & processors, where the facility is based on collateral of the commodity pledged in favor of the Bank and stored in designated warehouses. The credit norms focus on the quality, quantity and price volatility of the underlying commodity. A dedicated group evaluates, the quantity and quality of the commodity at the time of funding, directly or through the agencies appointed by it at the time of funding and also undertakes periodic checks post funding. ICICI Bank also has a centralized system for dailydisbursements checks. Norms with respect to price monitoring of the prices of the commodities funded by it and raising a margin call in case of a shortfall in margins due to decline in the prices. Various norms like initial margins and the price caps for various commoditiesloan-to-value ratio have been set to reduce the risk arising out of price volatility of the underlying commodities.laid down.
See also “Risk Factors—Risks Relating to Our Business—Entry into new businesses or rapid growth in existing loan portfolios may expose us to increased risks that may adversely affect our business”.
Risk Monitoring and Portfolio Review
We ensure effective monitoring ofmonitor credit facilities through a risk-based asset review framework under which the frequency of asset review is higher for cases with higher outstandingexposure balances and/or lower credit ratings. For corporate, small and medium enterprises, and agri-business related borrowers, the Credit MonitoringLending Services Operations Group verifies adherence to the terms of the credit approval prior to the commitment and disbursement of credit facilities. These borrower accounts are generally reviewed at least once a year.disbursement/limit set up.
The Credit Monitoring Group/Operation Groups monitors complianceGroup jointly with the termsbusiness and conditions for credit facilities priorRisk Management Group monitors corporate and business banking borrower accounts to disbursement. It also reviewsidentify triggers on the completenessbasis of documentation, creation of securityaccount conduct and insurance policies for assets financed.behavior. These triggers are highlighted to risk and business teams and are included in the appraisal and portfolio review process, which helps to take timely action on the exposures.
An analysis of our portfolio composition based on our internal ratingratings is carried out and is submitted to the Risk Committee of the Board on a quarterly basis as part of the risk dashboard. This facilitates the identification and analysis of trends in the portfolio credit risk.
The Credit Committee of the Bank, apart from approving proposals, regularly reviews the credit quality of the portfolio and various sub-portfolios. A summary of the reviews carried out by the Credit Committee is submitted to the Board for its information.
QuantitativeThe Bank’s Enterprise Risk Management framework defines benchmark vintage curves as delinquency triggers for key retail products. Actual delinquencies for these products are monitored against these benchmark vintage curves, to enable analysis and Qualitative Disclosures About directed collection strategies as well as review of origination norms, where required. As part of the Enterprise Risk Management framework, a threshold on incremental origination for customers with low bureau score has also been stipulated for retail portfolio.
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, credit spreads and other asset prices. Our exposure to market risk is a function of our trading and asset-liability management activities and our role as a financial intermediary in customer-related transactions. These risks are mitigated by the limits stipulated in the Investment Policy (which includes the Derivatives Policy) and Asset Liability Management Policy and Derivatives Policy, which are approved and reviewed by the Board of Directors.
88
Market Risk Management Procedures
Market risk policies include the Investment Policy, the Asset Liability Management Policy and the Derivative Policy. The policies are approved by the Board of Directors. The Asset Liability Management Policy stipulates liquidity and interest rate risk limits at an aggregate level and the Asset Liability Management Committee reviews adherence to limits and determines the strategy in light of the current and expected environment. The Investment Policy addresses issues related to investments in various treasury products.products and includes the Derivatives Policy which is formulated in line with the comprehensive guidelines issued by Reserve Bank of India on derivatives for banks. The policies are designed to ensure that operations in the securities and foreign exchange and derivatives areas are conducted in accordance with sound and acceptable business practices and are as per current regulatory guidelines, laws governing transactions in financial securities and the financial environment. The policies contain the limit structures that govern transactions in financial instruments. The Board has authorized the Asset Liability Management Committee and Committee of Executive Directors (Borrowing, Treasury and Investment Operations) to grant certain approvals related to treasury activities, within the broad parameters laid down by policies approved by the Board.
The Asset Liability Management Committee, comprising managing director,the Managing Director and Chief Executive Officer, wholetime directors and senior executives, meets periodically and reviews the positions of trading groups, interest rate and liquidity gap positions, on the banking book, sets deposit and benchmark lending rates, reviews the pricing methodologies for various categories of advances, reviews the valuation methodologies for various treasury products, the business profile and its impact on asset liability management and determines the asset liability management strategy, as deemed fit, taking into consideration the current and expected business environment. The Asset Liability Management Policy provides guidelines to manage liquidity risk and interest rate risk in the banking book.
The Market Risk Management Group is responsible for the identification, assessment and measurement of market risk. Risk limits including position limits and stop loss limits are reported on a daily basis by the Treasury Control and Securities Services Group and reviewed periodically. Foreign exchange risk is monitored through the net overnight open foreign exchange limit. Interest rate risk in banking book is measured through the use of re-pricing gap/ duration analysis. Interest rate risk is further monitored through interest rate risk limits approved by the Board of Directors.
Interest Rate Risk
Our core business is deposit taking, borrowing and lending in both Indian Rupeesrupees and foreign currencies as permitted by the Reserve Bank of India. These activities expose us to interest rate risk.
Our balance sheet consists of Indian Rupeerupee and foreign currency assets and liabilities, with a predominantly higher proportion of Rupee-denominatedrupee-denominated assets and liabilities. Thus, movements in Indian interest rates are our main source of interest rate risk.
Interest rate risk is measured through earnings at risk from an earnings perspective and through duration of equity from an economic value perspective. Further, exposure to fluctuations in interest rates is also measured by way of gap analysis, providing a static view of the maturity and re-pricing characteristics of balance sheet positions. An interest rate sensitivity gap report is prepared by classifying all rate sensitive assets and rate sensitive liabilities into various time period categories according to contracted/behavioral maturities or anticipated re-pricing date. The difference in the amount of rate sensitive assets and rate sensitive liabilities maturing or being re-priced in any time period category, gives an indication of the extent of exposure to the risk of potential changes in the margins on new or re-priced assets and liabilities. We monitor interest rate risk through the above measures on a bi-monthlyfortnightly basis. The duration of equitygap analysis and interest rate sensitivity gap statements for standalone Bank are submitted to the Reserve Bank of India on a monthly basis. TheseAdditionally, the interest rate risk limitsgap statements for overseas branches are approved bysubmitted to the Board of Directors.host regulator based on applicable guidelines. We also monitor Greekssensitivities of our interest rate options.options portfolio.
ICICI Bank’s primary source of funding is deposits and, to a smaller extent, borrowings. In the rupee market, most of our deposit taking is at fixed rates of interestinterest. We accept deposits for
89
fixed periods, except for savings account deposits and current account deposits, which do not have any specified maturity and can be withdrawn on demand. Current account deposits in the domestic operations are non-interest bearing. The Reserve Bank of India has deregulated interest rates on saving account deposits from October 25, 2011. The rate of interest on savings account deposits currently offered by ICICI Bank is 4%. WeOur borrowings are usually borrow for a fixed period, with a one-time repayment on maturity, with somecertain borrowings qualifying as capital instruments having European call/putcall options attached to them, exercisable by us only on specified dates, attachedsubject to them. However,regulatory approvals. On the asset side, we have a mix of floating and fixed interest rate assets. Our term loans are generally repaid gradually, with principal repayments being made over the life of the loan.
As required by the Reserve Bank of India guidelines effective July 1, 2010, ICICI Bank priced its loans with reference to a base rate, called the ICICI Bank Base Rate till March 31, 2016. The Asset Liability Management Committee set the ICICI Bank Base Rate based on ICICI Bank’s current cost of funds, likely changes in the Bank’s cost of funds, market rates, interest rate outlook and other systemic factors. Pricing for new rupee floating rate proposals and renewal of rupee facilities till March 31, 2016 were linked to the ICICI Bank Base Rate and comprise the ICICI Bank Base Rate, transaction-specific spread and other charges. The Reserve Bank of India also stipulated that a bank’s lending rates for rupee loans cannot be lower than its base rate, except for certain categories of loans as may be specified by the Reserve Bank of India from time to time.
Based on the revised guidelines of the Reserve Bank of India, all rupee loans sanctioned and credit limits renewed with effect from April 1, 2016 are priced with reference to a new internal benchmark to be called Marginal Cost of funds based Lending rate. Banks are required to publish Marginal Cost of funds based Lending rate for various tenures such as overnight, one month, three months, six months and one year. Marginal Cost of funds based Lending rate includes marginal cost of funds, negative carry on cash reserve ratio and operations cost and tenure premium/discount for various tenures. The Asset Liability Management Committee sets the ICICI Bank Marginal Cost of funds based Lending rate. As required by the Reserve Bank of India guidelines, the Bank publishes the ICICI Bank Marginal Cost of funds based Lending rate for various tenures on a monthly basis. Pricing for floating rate approvals and renewal of rupee facilities are linked to the ICICI Bank Marginal Cost of funds based Lending rate and comprise the ICICI Bank Marginal Cost of funds based Lending rate and spread. The Reserve Bank of India has also stipulated that a bank’s lending rates for rupee loans cannot be lower than its Marginal Cost of funds based Lending rate, except for certain exemptions. As prescribed in the Reserve Bank of India guidelines, existing borrowers will also have the option to move to the Marginal Cost of funds based Lending rate linked loan at mutually acceptable terms. Any change in the Marginal cost of funds based lending rate is generally passed on to borrowers under various facilities at different periodicity, of up to one year. All loans approved before April 1, 2016, and where the borrowers choose not to migrate to the Marginal Cost of funds based Lending rate system, would continue to be based on the earlier benchmark rate regimes.
Pursuant to regulatory reserve requirements, we maintain a large part of our assets in government of India securities and in interest-free balances with the Reserve Bank of India, which are funded mainly by deposits and borrowings. This exposes us to the risk of differential movement in the yield earned on statutory reserves and the related funding cost.
We useAlmost all the duration of our government securities portfolio as a key variable for interest rate risk management. We increase or decrease the duration of our government securities portfolio to increase or decrease our interest rate risk exposure. In addition, we also use interest rate derivatives to manage asset and
liability positions. We are an active participant in the interest rate swap market and are one of the largest counterparties in India.
Almost alllong tenor foreign currency loans in the overseas branches of the Bank are floating rate loans. These loans are generally funded with foreign currency borrowings and deposits in our overseas branches. We generally convert allthe long tenor foreign currency borrowings into floating rate dollar liabilities through the use of interest rate and currency swaps with leading international banks. Our overseas subsidiaries in the UK and Canada have fixed rate retail term deposits and fixed/floating rate wholesale borrowings as their funding sources.sources; with the UK subsidiary additionally having floating rate savings deposits and non-interest bearing current deposits. They also have fixed and floating rate assets. Interest rate risk is generally managed by increasing/decreasing the duration of investments and government securities portfolio and/or by entering into interest rate derivatives whenever required. We are an active participant in the interest rate swap market and are one of the largest swap counterparties in India. For risks related to the transition from LIBOR, see “Risk Factors—Risks that arise as a result of our presence in a highly regulated sector—The transition from LIBOR to other alternative reference rates may adversely affect our income and also bring about the vagaries that such alternative reference rates may have”.
As a part of the transition from LIBOR to alternate risk-free rates, the Bank has a cross-functional working group to monitor the developments internationally, and to oversee the LIBOR transition. The working group addresses matters primarily pertaining to exposure and impact assessment, contracts remediation, system upgrades, valuation and accounting implications and conduct and reputational risks.
As part of the transition plan for legacy on-balance sheet items, the Bank has amended documentation in order to transition away from LIBOR to alternate risk free rates. With respect to off balance-sheet transactions through derivatives, the Bank has adopted the International Swaps and Derivatives Association 2020 IBOR Fallbacks Protocol and has transitioned contracts with certain counterparties actively. Derivative exposures linked to INR MIFOR (which is dependent on LIBOR), were transitioned with all counterparties to alternate benchmark Modified MIFOR. The Bank has actively engaged with its customers to inform them about the transition and the options available for smooth transition. The Bank has published frequently asked questions on its website and has set up a centralized desk to handle client queries. At June 30, 2023, the Bank completed the contract remediation for most of the loans and also transitioned affected derivative contracts successfully.
The Bank has upgraded its systems to manage the transition. The progress with respect to the transition both on internal status as well as external developments is updated to the Bank’s Asset Liability Committee and to the Risk Committee of the Board on a periodic basis. The Board of Directors is also briefed about the LIBOR transition program periodically. See also “Risk Factors—Risks that arise as a result of our presence in a highly regulated sector—The transition from LIBOR to other alternative reference rates may adversely affect our income and also bring about the vagaries that such alternative reference rates may have”.
90
For a discussion of our vulnerability to interest rate risk, see “Risk Factors—Risks Relating to Our Business—Our banking and trading activities are 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, the quality of our loan portfolio and our financial performance” and“Risk Factors—Risks Relating to Our Business—Our inability to effectively manage credit, market and liquidity risk and inaccuracy of our valuation models and accounting estimates may have an adverse effect on our earnings, capitalization, credit ratings and cost of fundsfunds”.”.
The following table sets forth, at the date indicated, our asset-liability gap position.
At March 31, 2017(1) | ||||||||||||||||
Less than or equal to one year | Greater than one year and up to five years | Greater than five years | Total | |||||||||||||
(in millions) | ||||||||||||||||
Loans, net | Rs. | 4,259,920 | Rs. | 832,446 | Rs. | 60,807 | Rs. | 5,153,173 | ||||||||
Investments | 447,768 | 668,272 | 1,928,977 | 3,045,017 | ||||||||||||
Other assets(2) | 489,375 | 141,382 | 940,514 | 1,571,271 | ||||||||||||
Total assets | 5,197,063 | 1,642,101 | 2,930,298 | 9,769,462 | ||||||||||||
Stockholders’ equity and preference share capital | - | - | 1,046,320 | 1,046,320 | ||||||||||||
Borrowings | 882,226 | 684,176 | 316,465 | 1,882,868 | ||||||||||||
Deposits | 2,648,635 | 2,284,582 | 192,656 | 5,125,873 | ||||||||||||
Other liabilities | 3,635 | - | 1,801,732 | 1,805,366 | ||||||||||||
Total liabilities | 3,534,495 | 2,968,759 | 3,357,173 | 9,860,427 | ||||||||||||
Total gap before risk management positions | 1,662,567 | (1,326,658 | ) | (426,875 | ) | (90,965 | ) | |||||||||
Off-balance sheet positions(3) | (500,385 | ) | 436,660 | 80,826 | 17,100 | |||||||||||
Total gap after risk management positions | Rs. | 1,162,182 | Rs. | (889,998 | ) | Rs. | (346,049 | ) | Rs. | (73,865 | ) |
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 March 31, 2017 | ||||||||||||
Fixed rate loans | Variable rate loans | Total | ||||||||||
(in millions) | ||||||||||||
Loans | Rs. | 1,023,970 | Rs. | 2,711,068 | Rs. | 3,735,038 |
72
The following table sets forth, using the balance sheet at year-end fiscal 2017 as the base, one possible prediction of the impact of adverse changes in interest rates on net interest income for fiscal 2018, assuming a parallel shift in the yield curve at year-end fiscal 2017.
At March 31, 2017 | ||||||||||||||||
Change in interest rates (in basis points) | ||||||||||||||||
(100) | (50) | 50 | 100 | |||||||||||||
(in millions) | ||||||||||||||||
Rupee portfolio | Rs. | (8,408 | ) | Rs. | (4,204 | ) | Rs. | 4,204 | Rs. | 8,408 | ||||||
Foreign currency portfolio | (677 | ) | (339 | ) | 339 | 677 | ||||||||||
Total | Rs. | (9,085 | ) | Rs. | (4,542 | ) | Rs. | 4,542 | Rs. | 9,085 |
Based on our asset and liability position at year-end fiscal 2017, the sensitivity model shows that net interest income from the banking book for fiscal 2018 would rise by Rs. 9.1 billion if interest rates increased by 100 basis points. Conversely, the sensitivity model shows that if interest rates decreased by 100 basis points, net interest income for fiscal 2018 would fall by an equivalent amount of Rs. 9.1 billion.
Based on our asset and liability position at year-end fiscal 2016, the sensitivity model showed that net interest income from the banking book for fiscal 2017 would rise by Rs. 9.9 billion if interest rates increased by 100 basis points. Conversely, the sensitivity model showed that if interest rates decreased by 100 basis points, net interest income for fiscal 2017 would fall by an equivalent amount of Rs. 9.9 billion.
Sensitivity analysis, which is based upon 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)
The following table sets forth, using the fixed income portfolio at year-end fiscal 2017 as the base, one possible prediction of the impact of changes in interest rates on the value of our fixed income held-for-trading portfolio, assuming a parallel shift in interest rate curve.
At March 31, 2017 | ||||||||||||||||||||
Change in interest rates (in basis points) | ||||||||||||||||||||
Portfolio Size | (100) | (50) | 50 | 100 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Indian government securities | Rs. | 65,143 | Rs. | 2,780 | Rs. | 1,390 | Rs. | (1,390 | ) | Rs. | (2,780 | ) | ||||||||
Corporate debt securities | 135,561 | 2,692 | 1,346 | (1,346 | ) | (2,692 | ) | |||||||||||||
Total | Rs. | 200,704 | Rs. | 5,472 | Rs. | 2,741 | Rs. | (2,741 | ) | Rs. | (5,472 | ) | ||||||||
At March 31, 2017 | ||||||||||||||||||||
Change in interest rates (in basis points) | ||||||||||||||||||||
Portfolio Size | (100) | (50) | 50 | 100 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Foreign government securities | Rs. | 18,460 | Rs. | 129 | Rs. | 65 | Rs. | (65 | ) | Rs. | (129 | ) | ||||||||
At year-end fiscal 2017, the total value of our fixed income trading portfolio, including foreign government securities was Rs. 219.2 billion. The sensitivity model shows that if interest rates increase by 100 basis points, the value of this portfolio would fall by Rs. 5.6 billion. Conversely, if interest rates fall by 100 basis points, the value of this portfolio would rise by Rs. 5.6 billion. At year-end fiscal 2016, the total value of our fixed income trading portfolio was Rs. 308.4 billion. The sensitivity model showed that if interest rates increased by 100 basis points, the value of this portfolio would fall by Rs. 7.5 billion. Conversely, if interest rates fell by 100 basis points the value of this portfolio would rise by Rs. 7.5 billion.
The total outstanding notional principal amount of our trading interest rate derivatives portfolio increased from Rs. 4,279.4 billion at year-end fiscal 2016 to Rs. 5,723.5 billion at year-end fiscal 2017. The sensitivity model shows that if interest rates increase by 100 basis points, the value of this portfolio would rise by Rs. 0.1
billion. The total outstanding notional principal amount of our trading currency derivatives (such as futures, options and cross currency interest rate swaps) increased from Rs. 939.4 billion at year-end fiscal 2016 to Rs. 961.9 billion at year-end fiscal 2017. The sensitivity model showed that if interest rates increased by 100 basis points, the value of this portfolio would rise by Rs. 1.5 billion. The total outstanding notional principal amount of our trading foreign exchange portfolio increased from Rs. 3,220.9 billion at year-end fiscal 2016 to Rs. 4,166.8 billion at year-end fiscal 2017. The sensitivity model showed that if interest rates increased by 100 basis points, the value of this portfolio would fall by Rs. 37 million.
Equity Risk
We assume equity risk both as part of our investment book and our trading book. At year-end fiscal 2017,2023, we had a total equity investment portfolio (excluding investment in affiliates) of Rs. 108.2193.8 billion, primarily comprising Rs. 24.142.8 billion of investments by ICICI Bank and Rs. 82.9105.8 billion of investments by our insurance subsidiaries. Additionally, ICICI Securities and ICICI Securities Primary Dealershipsubsidiary. The Bank also have a small portfolio ofacquires equity derivatives. The equity investments of ICICI Bank include the equity portfolio of its proprietary trading group amounting to Rs. 3.5 billion and other equity investments amounting to Rs. 20.6 billion. These other equity investments are acquired primarily from loan conversion and it also includes investment in unlisted equity which are long-term in nature. We also invest in private equity andalternate investment funds/ venture capital funds, primarily those managed by our subsidiary ICICI Venture Funds Management Company.Venture. These funds primarily invest in equity and equity linked and non-convertible instruments. Our investments throughin these funds are similar in nature to our other equity investments and are subject to the same risks. In addition, they are also subject to risks in the form of changes in regulation and taxation policies applicable to such equity funds. ICICI Securities and ICICI Securities Primary Dealership also have a small portfolio of equity derivatives. For further information on our trading and available-for-sale investments, see “—“—Overview of Our Products and Services—Investment Banking—Treasury”.
The risk in the equity portfolio of the proprietary trading group, which manages the equity trading book of ICICI Bank, is controlled through aposition limits, value-at-risk approach and stop loss limits, as stipulated in the Investment Policy. The portfolio includes investments in listed equities, equity mutual funds and infrastructure and real estate investment trusts, as well as application money paid for new offerings of such investments. Value-at-risk measures the statistical risk of loss from a trading position, given a specified confidence level and a defined time horizon.
ICICI Bank computes value-at-risk using historical simulation model for limit monitoring purposes. The value-at-risk is calculated using the previous one-year market data at a 99% confidence level and a holding period of one day.
The following table sets forth the high, low, average and period-end value-at-risk for fiscal 2017.
High | Low | Average | At March 31, 2017 | |||||||||||||
Rs. in million | ||||||||||||||||
Value-at-risk | 141.3 | 13.2 | 44.9 | 103.8 |
We monitor the effectiveness of the value-at-risk model by regularly back-testing its performance. Statistically, we would expect tohorizon, see losses in excess of value-at-risk only 1% of the time over a one-year period. During fiscal 2017, hypothetical loss exceeded the value-at-risk estimates for one day. An analysis of this outlier revealed that the loss occurred on the day when actual movement in the stocks for the day was more than the scenario used to compute value-at-risk for the day.
The following table sets forth a comparison of the hypothetical daily profit/(loss), computed on the assumption of no intra-day trading, and value-at-risk calculated using the historical simulation model during fiscal 2017.
Average | On March 31, 2017 | |||||||
Rs. in million | ||||||||
Hypothetical daily profit/(loss) | 3.2 | 68.0 | ||||||
Value-at-risk | 44.9 | 103.8 |
The high and low hypothetical daily profit/(loss) during fiscal 2017 was Rs. 111.4 million and Rs. (60.9) million respectively.
While value-at-risk is an important tool for measuring market risk under normal market conditions, it has inherent limitations that should be taken into account, including its inability to accurately predict future losses when extreme events are affecting the markets, because it is based on the assumption that historical market data is indicative of future market performance. Moreover, different value-at-risk calculation methods use different
assumptions and hence may produce different results, and computing value-at-risk at the close of the business day would exclude intra-day risk. There is also a general possibility that the value-at-risk model may not fully capture all the risks present in the portfolio.“—Selected Statistical Information”.
Exchange Rate Risk
We offer instruments like foreign exchange forwards, options, swaps forwards, and currency optionscombinations thereof to clients, which are primarily banks and corporate customers. We use cross currency swaps, forwards, and options to hedge against risks arising out of these transactions and for foreign currency loans that are originated in currencies different from the currencies of borrowings supporting them. Some of these transactions may not meet the hedge accounting requirements and are subject to mark-to-market accounting. Trading activities in the foreign currency markets expose us to exchange rate risks. This risk is mitigated by setting counterparty limits, stipulating daily, quarterlyforeign exchange overnight and intra-day position limits, greek limits for options, daily/quarterly/yearly cumulative stop-loss limits and engaging in exception reporting.
The Bank offers foreign currency-rupee options for hedging foreign currency exposures including hedging of balance sheet exposures to the users which include corporate clients and other inter-bank counterparties. All the options positions are maintained within the limits specified in the Investment Policy. The trading activities in the foreign currency markets expose us to exchange rate risks. The foreign exchange rate risk is monitored through the net overnight open position limit approved by the board.
Assuming 1% increase/decrease in each of the foreign currencies against the respective base currency, our exchange rate sensitivity comes to Rs. 29 million at year-end fiscal 2017 compared to Rs. 12 million at year-end fiscal 2016. The above numbers are without any netting benefit across base currencies. We also monitor Greeks of our currency options.
Derivative Instruments Risk
We offer instruments like swaps, forwards, and currency options to clients, which are primarily banks and corporate customers. We use cross currency swaps, forwards, and options to hedge against risks arising out of these transactions and for foreign currency loans that are originated in currencies different from the currencies of borrowings supporting them. Some of these transactions may not meet the accounting requirements for hedging transaction and are subject to mark-to-market. Trading activities in the foreign currency markets expose us to exchange rate risks. This risk is mitigated by setting counterparty limits, stipulating daily, quarterly cumulative stop-loss limits and engaging in exception reporting.
The Bank offers various derivative products, including forwards, options, swaps and combinations thereof in foreign currency-Rupee optionsexchange and interest rates to clients for hedging foreign currency exposures including hedgingtheir risk management purposes. Profits or losses on account of balance sheet exposures for users such as corporate clients and othermarket movements on these transactions are borne by the clients. For the transactions, which are not covered in the inter-bank counterparties. Allmarket, the optionsBank runs open positions are maintained within the limits specifiedprescribed in theits Investment Policy. The trading activitiesderivative transactions are subject to counterparty risk to the extent particular obligors are unable to make payment on contracts when due.
91
In view of the margin rules for non-centrally cleared derivative transactions issued by the Basel Committee on Banking Supervision, guidelines issued by the Reserve Bank of India and guidelines issued by overseas regulators, certain derivative transactions are subject to margining and collateral exchange in accordance with a Credit Support Annex. Reserve Bank of India has permitted the foreignBank to post and collect margin for permitted derivative contracts with covered entities outside India. The Bank has also implemented International Swaps and Derivatives Association prescribed Standardized Initial Margin Model for estimating the initial margin requirements for some of the non-centrally cleared derivatives. The requirements are currently applicable for the overseas branches. The Bank settles certain derivative transactions through qualified central counterparties such as Clearing Corporation of India Limited and London Clearing House Limited and posts collateral in line with the margin regulations stipulated by qualified central counterparties.
The Bank also enters into interest rate and currency markets expose us to exchangederivative transactions for the purpose of hedging interest rate risks. Theand foreign exchange rate risk is monitored through the net overnight open position limit approved by the board.and also engages in trading of derivative instruments on its own account.
Credit Spread Risk
Credit spread risk arises out of investments in fixed income securities. Hence, volatility in the level of credit spreads would impact the value of these portfolios held by the Bank. We closely monitor our portfolio and risk is monitored by setting investment limits, rating-wise limits, single issuer limit, maturity limits and stipulating daily and cumulative stop-loss limits.
The following table sets forth, using our held-for-trading portfolio at year-end fiscal 2017 as the base, one possible prediction of the impact of changes in credit spreads on the value of the trading portfolio, assuming a parallel shift in credit spreads.
At March 31, 2017 | ||||||||||||||||||||
Change in credit spread (in basis points) | ||||||||||||||||||||
Portfolio Size | (100) | (50) | 50 | 100 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Corporate debt securities | Rs. | 135,561 | Rs. | 2,692 | Rs. | 1,346 | Rs. | (1,346 | ) | Rs. | (2,692 | ) | ||||||||
At year-end fiscal 2017, our held-for-trading portfolio (excluding government securities) was Rs. 135.6 billion. The sensitivity model shows that if credit spreads increase by 100 basis points, the value of this portfolio would fall by Rs. 2.7 billion. Conversely, if credit spreads fall by 100 basis points, the value of this portfolio
would rise by Rs. 2.7 billion. At year-end fiscal 2016, our held-for-trading portfolio (excluding government securities) was Rs. 143.5 billion. The sensitivity model showed that if credit spreads increased by 100 basis points, the value of this portfolio would fall by Rs. 1.5 billion. Conversely, if credit spreads fall by 100 basis points, the value of this portfolio would rise by Rs. 1.5 billion.
Liquidity Risk
Liquidity risk is the current and prospective risk arising out of an inability to meet financial commitments as they fall due, through available cash flows or through the sale of assets at fair market value. 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 ensure that the Bank is always in a position to efficiently meet both expected and unexpected current and future cash flow and collateral needs without negatively affecting either the Bank’s daily operations or financial conditions.
We manage liquidity risk in accordance with our Asset Liability Management Policy. This policy is framed as per the currentbased on applicable regulatory guidelines and is approved by the Board of Directors. The Asset Liability Management Policy is reviewed periodically to incorporate changes as required by regulatory stipulation or to realign the policy with changes in the economic landscape. The Asset Liability Management Committee of the Bank formulates and reviews strategies and provides guidance for management of liquidity risk within the framework laid out in the Asset Liability Management Policy. The Asset Liability Management Committee comprises managing director, wholetime directors and senior executives. The Risk Committee of the Board a Board Committee, has oversight of the Asset Liability Management Committee.
The Bank uses various tools for the measurement of liquidity risk including the statement of structural liquidity, dynamic liquidity cash flow statements, liquidity ratios and stress testing through scenario analysis. The statement of structural liquidity is used as a standard tool for measuring and managing net funding requirements and the assessment of a surplus or shortfall of funds in various maturity buckets in the future. The cash flows pertaining to various assets, liabilities and off-balance sheet items are placed in different time buckets based on their contractual or behavioral maturity. The statement of structural liquidity of rupee currency for domestic operations, and statement of structural liquidity of all currencies together for international operations of the Bank (country-wise and in aggregate) are prepared on daily basis. The statement of structural liquidity of foreign currency for domestic operations, consolidated statement for domestic operations and for the Bank as a whole are prepared on fortnightly basis. The utilization against gap limits laid down for each bucket is reviewed by the Bank’s Asset Liability Management Committee of the Bank.Committee.
We also prepareperiodically present to the Asset Liability Management Committee the dynamic liquidity cash flow statements, which in addition to scheduled cash flows, also considerconsiders the liquidity requirements pertaining to incremental business and the funding thereof. The dynamic liquidity cash flow statements are prepared in close coordination with the business groups, and cash flow projections based on the statements are periodically presented to the Asset Liability Management Committee. As a part of the stock and flow approach, we monitor various liquidity ratios, and limits areas laid down for these ratios in the Asset Liability Management Policy. We also monitor liquidity coverage ratio which has been applicable from January 1, 2015.
The Bank has diverse sources of liquidity to allow for flexibility in meeting funding requirements. For the domestic operations, this includes current accounts and savings deposits payable on demand form a significant partand
92
retail term deposits. These deposits, are augmented by wholesale deposits, issuance of Certificate of Deposits, borrowings and through the issuance of bonds and subordinated debt from time to time. Loan maturities and sale of investments also provide liquidity. The Bank holds unencumbered, high quality liquid assets and has certain mitigating measures to protect against stress conditions.
For domestic operations, the Bank also has 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. To limit the reliance on such volatile funding, the Asset Liability Management Policy stipulates limits for borrowing and lending in the inter-bank market.
For our overseas branches, the Bank also has a well-defined borrowing program. In order to maximize borrowings at a reasonable cost through its branches, liquidity in different markets and currencies is targeted. The wholesale borrowings are in the form of bond issuances, syndicated loans from banks, money market borrowings, interbank bilateral loans and deposits, including structured deposits. The Bank also raises refinance from other banks against the buyers’ credit and other trade assets. Those loans that meet the Export Credit
Agencies’ criteria are refinanced as per the agreements entered into with these agencies. The Bank also mobilizes retail deposits, in accordance with the regulatory framework in place in the respective host country.
The Bank maintains prudential levels of liquid assets in the form of cash, balances with the central bank and government securities, money market and other fixed income securities. Currently, asAs stipulated by the regulator, banks in India are required to maintain statutory liquidity ratiosratio at a level of 20.5% effective January 7, 201718.0% of their net demand and time liabilities in India and cash reserve ratiosratio at a level of 4.0%4.5% of their net demand and time liabilities in India.India, each as of March 31, 2023 . The Bank generally holds additional securities over and above the stipulated level. Further, banksstatutory liquidity ratio requirement.
Banks in India wereare required to maintain a liquidity coverage ratio at a minimum of 70.0% for the calendar year 2016. Further effective January 1, 2017, the liquidity coverage ratio requirement increased to 80.0% for the calendar year 2017 and will further increase in100.0% on a phased manner to 100.0% from January 1, 2019. As per Reserve Bank of India Guidelines, effective January 1, 2016, liquidity coverage ratio is applicable to Indian banks on astandalone as well as consolidated basis. During fiscal 2017,2023, the Bank maintained a liquidity coverage ratio above the stipulated level. Further, weThe liquidity coverage ratio requirement is met by investments in high quality liquid assets. It primarily includes government securities, in excess of mandatory statutory liquidity ratio and better-rated corporate bonds. High quality liquid assets also includes specified portion of mandatory statutory liquidity ratio requirement held in the form of government securities under the "facility to avail liquidity for liquidity coverage ratio” and “marginal standing facility” as specified by the Reserve Bank of India from time to time.
At March 31, 2023, the entire statutory liquidity ratio requirement of 18.00% of net demand and time liabilities in India, 16.00% for securities eligible for the “facility to avail liquidity for liquidity coverage ratio”, and 2.00% for securities eligible for the marginal standing facility was counted towards the high quality liquid assets under the liquidity coverage ratio. On April 18, 2022, the Reserve Bank of India revised the “facility to avail liquidity for liquidity coverage ratio” within the mandatory statutory liquidity ratio requirement to up to 16.0%, an increase from the previous ratio of up to 15.0% of the net demand and time liabilities.
Banks in India are also required to maintain a net stable funding ratio at a minimum of 100.0% on a standalone as well as consolidated basis. The net stable funding ratio ensures resilience over a longer-term time horizon by requiring banks to fund their activities with more stable sources of funding. During fiscal 2023, the Bank maintained net stable funding ratio above the stipulated level.
We have a boardBoard approved liquidity stress testingstress-testing framework, under which we estimate the Bank’s liquidity position under a range of stress scenarios, and consider possible measures we could take to mitigate the outflows under each scenario. These scenarios cover bank specific, market-wide and combined stress situations and have been separately designed for the domestic and international operations of the Bank. Each scenario included in the stress-testing framework covers a time horizon of 30 days. The stress-testing framework measures the impact on profit due to liquidity outflows for each scenario, considering possible measures that we could take to mitigate the stress. The impact on profits is subject to a stress tolerance limit specified by the Board of Directors. The results of liquidity stress testing are reported to the Asset Liability Management Committee on a monthly basis. During fiscal 2017,2023, the results of each of the stress scenarios were within the Board-approved limits.
The Risk Committee of the Board has approved a liquidity contingency plan, which lays down a framework for ongoing monitoring of potential liquidity contingencies and an action plan to meet such contingencies. The liquidity contingency plan lays down several liquidity indicators, which are monitored on a pre-defined (daily or weekly) basis and also defines the protocol and responsibilities of various teams in the event of a liquidity contingency.
Similar frameworks to manage liquidity risk have been established at each of the overseas banking subsidiaries of the Bank addressing the risks they run as well as incorporating host country regulatory requirements as applicable.
Our subsidiary in the United Kingdom has access to diverse sources of liquidity to allow for flexibility in meeting its funding requirements. It raises funding through wholesale and retail sources. Wholesale sources comprise issuanceIn line with local regulatory requirements, ICICI Bank UK has an Internal Liquidity Adequacy Assessment Process document, which is approved by its Board of bonds through a Medium Term Note programme, bilateral and club loans and, short term borrowings through interbank money market, bankers’ acceptances and repo channels. It also raises funding through eligible central bank facilities. In the retail segment, it offers current and savings deposits products through its branch network as well as savings deposits through its internet platform. A buffer of high quality liquid assets/central bank reserves is maintained against these deposits. Our subsidiary in Canada is funded through diversified funding sources from retail as well as wholesale sources like borrowings through securitization of insured mortgages across tenor buckets.
93
Directors. The Prudential Regulation Authority issued a new policy statement on Capital Requirements in June 2015, which was supplemented by supervisory statement on Prudential Regulation Authorities approach to supervisingInternal Liquidity Adequacy Assessment Process outlines the stress testing framework and liquidity and funding risk. The new guidelines were applicable from October 1, 2015. As per the guidelines banks were required to maintain Liquidity Coverage Ratio, as per the methodology provided in the Delegated Act issuedrisk limits. These limits are monitored by European Banking Authority in October 2014, at 80% starting October 1, 2015 as a Pillar 1 liquidity requirement. The Liquidity Coverage Ratio requirement increased to 90% from January 1, 2017 and would increase to 100% from January 1, 2018 onwards. Additionally, Prudential Regulation Authority adopted an interim Pillar 2 approach, in which it specified banks to hold high quality liquid assets for add-ons specified in the existing Individual liquidity guidance for the Bank. These add-ons are for specific risks which are not captured in Liquidity Coverage Ratio.Asset Liability Management Committee of ICICI Bank UK, PLCat least on monthly basis. ICICI Bank UK has complied with these requirements throughout fiscal 2023. It maintained Liquidity Coverage Ratioliquidity coverage ratio above the stipulated level of 100.0% during fiscal 2017.2023 and complied with Pillar 2 liquidity requirements, as stipulated to it by the Prudential Regulation Authority.
In November 2014, TheCanada, the liquidity coverage ratio guidelines from the Office of the Superintendent of Financial Institutions revised the Liquidity Adequacy Requirements to incorporate Liquidity Coverage Ratio requirements for banks in Canada. The requirements expect banks to have an adequate stock of unencumbered high quality liquid assetsensure that consists of cash or assets that can be converted into cash at little or no loss of value in private markets, to meet its liquidity needs for a 30 calendar day liquidity stress scenario. The standard requires that, absent a situation of financial stress, the value of the liquidity coverage ratio of high quality liquid assets to total net cash outflows be no lower than 100.0%, in the absence of financial stress. At March 31, 2023, ICICI Bank Canada maintained liquidity coverage ratio above the regulatory minimum of 100%. The Office
of the Superintendent of Financial Institutions expects each Canadian bank to have an internal liquidity policy articulating and defining the role of liquid assets within the bank’s overall liquidity management system and establishing minimum targets for liquid asset holdings. ICICI Bank Canada has a Liquidity Management Policy and Market Risk Management Policy, thatwhich are approved by its Board of Directors. These policies require ICICI Bank Canada to maintain a certain percentage of its customer liabilities in liquid assets and to maintain sufficient liquidity to cover net outflows in the “up to 30 days” maturity bucket. These limits are monitored at least monthly by the Asset Liability Management Committee.Committee of ICICI Bank Canada, at least on monthly basis. ICICI Bank Canada has complied with these requirementsguidelines throughout fiscal 2017.2023.
In addition, Net Cumulative Cash Flow information on a monthly basis is shared with the Office of Superintendent of Financial Institutions consisting details of maturity pattern of assets and liabilities and net cash flows.
See also “Operating and Financial Review and Prospects—Market Risk—Liquidity Risk”.
Operational Risk
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Operational risk includes legal risk but excludes strategic and reputational risks. Legal risk includes, but is not limited to, exposure to fines, penalties or punitive damages resulting from supervisory actions, as well as private settlements. For a discussion on our vulnerability to operational risk, see “Risk Factors—Risks Relating to Our Business—There is operational risk associated with the financial industry which, when realized, may have an adverse impact on our business”.
The management of operational risk is governed by the Operational Risk Management Policy approved by the Board of Directors. The Policy is applicable across the Bank including overseas branches, ensuring a clear accountability and responsibility for management and mitigation of operational risk, developing a common understanding of operational risk and assisting the business and operation groups units to improve internal controls. The Board has constituted an Operational Risk Management Committee for analysing and monitoring thereviewing risks associated with the various business activities of the Bank. The principal objective of the Committee is to mitigate operational risk within the Bank by creation and maintenance of explicit operational risk management process. The Operational Risk Management Committee reviews the risk profile of various key functions, the tools used for management of operational risk and implementation of the operational risk management policies and framework as approved by the Board. The Board has also approved a framework for approval of all new products/products and processes, which requires allthe products and processes pertaining to products or products/product variants to be assessed from an operational risk perspective by the Product and Process Approvals Committee.perspective.
Operational risk can result from a variety of factors, including failure to obtain proper internal authorizations, improperly documented transactions, failure of operational and information security procedures, computer systems, software or equipment, fraud, inadequate training and employee errors. Operational risk is sought to be mitigated by maintaining a comprehensive system of internal controls, establishing systems and procedures to monitor transactions, maintaining key back-up procedures and undertaking regular contingency planning. The key elements in the operational risk management process in the Bank are risk identification and assessment, risk measurement, risk monitoring and risk mitigation.
In each of the banking subsidiaries, local management is responsible for implementingThe Bank seeks to mitigate operational risk management framework through the operational risk management policy approved by their respective boards.maintaining a comprehensive system of internal controls, establishing systems and procedures to monitor transactions, maintaining key back-up procedures and undertaking regular contingency planning.
A brief on the management of operationalOperational controls and procedures in the various business ofat the Bank isare summarized below:below.
94
Operational Controls and Procedures in Retail and Rural Banking
Retail banking is organized into a zonal structure and each of the zones is headed by senior officials of the Bank. There are designated product, sales, credit and operations structure for customer sourcing and servicing. The branches are supported by regional/centralized processing centers and retail asset processing centers which ensure adequate operational controls.
The Bank has put in place comprehensive operating manuals detailing procedureswell-defined products, sales, credit and operations structures for the processing ofcustomer sales, evaluation, servicing and monitoring. The Bank offers retail and transaction banking products to customers through various channels such as branches, phone banking, transactions. Amendments to these manuals are implemented through circulars, which are accessible to branch employees on the intranet. The branches are complemented by the productdigital/online, business correspondents, and sales teams. Theempaneled service providers. Banking transactions relating to customer accounts are processed based on built-in system checks and authorization
procedures. Transactions over a specified limit procedures and transactions are also subjected to enhanced scrutiny to avoid potential money laundering. The adherence to the processes and guidelines by the branches are ensured through risk monitoring, concurrent audits and internal audits.
The core banking application software has multiple security features to protect the integrity of applications and data.
The Bank’s rural banking operations include meeting the financial requirements of customers in rural and semi-urban locations, primarily engaged in agriculture and allied activities. The Bank also focusesdue-diligence based on enrollment of beneficiaries under government social schemes. There are designated product, sales, credit and operations structure for the rural banking segment. The customers are offered various products by the sales and business teams and there are various processes and controls performed by independent teams such as regional and central processing centers, retail asset processing centers with well-defined process ownership. There are independent monitoring and controls on the quality of the commodities pledged and title of the land considered as collateral. Hind sighting is also carried out to check the effectiveness of the processes.
Operational Controls and Procedures in the Regional Processing Centers and Central Processing Center
certain criteria. The Bank has designated centralized and regional processing centers located at various cities across the country. These regional processingcountry as well as contact centers engage in activities like processing check clearingmultiple cities for extending banking services to customers through phone banking.
Operational Controls and inter-branch transactions, outstation check collections,Procedures for Wholesale and engageTransaction Banking
The credit risk of the Wholesale banking business is independently evaluated by the credit risk management group. The legal group reviews, the security structure and documentation aspects and the operations group conducts verification and scrutiny of the loan documents vis-à-vis terms of limit approved, monitoring important covenants of the terms of limit approved, monitoring creation of the security interest and other important aspects for the facility extended by the Bank.
Operational Controls and Procedures in back-office activities for account opening, renewal of deposits and salary transaction processing of corporations. There are currency chests located at 35 locations in various cities across India, which cater to the cash requirements of branches and ATMs.Treasury
The Bank has two centralized processing centers, one each in Mumbai and Hyderabad, processing the transactions on a nationwide basis for production & dispatch of physical deliverables like cards, check books, statements, personal identification number for cards, issuance of passwords to internet banking customers etc. Centralized processing centers have also been managing the activities like electronic payments, activation of newly opened accounts and account servicing.
Operational Controls and Procedures in Retail Asset Operations
The Bank has designated decentralized asset processing centers located at various cities across the country. These decentralized asset processing centers engage in activities of loan disbursement and regular banking activity related to retail loans with sufficient internal checks and controls.
The Bank has three central asset operation units located in Mumbai, Hyderabad and Noida. These central units support operations relating to retail asset products across the country and carry out activities like loan accounts maintenance, issuance of credit card, accounting and reconciliation, payouts and repayment management activities for all retail asset products.
Operational Controls and Procedures in Treasury
The Bank has put in place a comprehensive internal control structurecontrols with respect to its treasury operations. The control measuresoperations, which include the segregation of duties between the treasury front-office and treasury control and securities services group, automatedgroups, certain control procedures, continuous monitoring procedures through detailed reporting statements, and a well-defined code of conduct for dealers. We haveThe Bank has also set up limits in respect of treasury operations including deal-wisedeal size limits and product-wiseproduct limits. In order to mitigate the potential risk of mis-selling, risks, if any, a customer suitability and appropriateness policy has been implemented. Similarly, in order to mitigate potential contractual risks if any, negotiations for dealsover-the-counter deal execution-related conversations are recorded on a voice recording system.recorded. Some of the control measures include independence of deal validation, deal confirmation, documentation, limits monitoring, treasury accounting, settlement, reconciliation and regulatory compliance. Treasury Control and Services Group reviews theFurther, there is monitoring for unconfirmed, unsettled deals if any, on a regular basis and follows up for timely confirmation or settlement. There is a mechanism of escalation to senior management in case of delaysdelay in settlement or confirmation, beyond a time period. In addition to the above, concurrent and internal audits are also conducted independently in respect of treasury operations on a periodic basis. The control structure in treasury operations is designed to prevent errors andother potential fraud and provide early-warning signals.issues.
Operational Controls and Procedures for Corporate and Commercial Banking
Corporate banking is also organized into a zonal structure. The front office is responsible for sourcing clients and performing a credit analysis of the proposal. The credit risk is independently evaluated by the Risk
Management Group. The Bank has set-up a credit monitoring group in order to strengthen the ability to develop early warning mechanism for management and full scale monitoring across the life time of the loans. The middle office within the credit monitoring group conducts verification and scrutiny of the documents to ensure mitigation of post-approval risks. It also monitors adherence to the terms of approval by periodically publishing compliance monitoring reports. The key processes and their ownership are documented through process notes which are reviewed periodically. The back office for corporate operations is responsible for the execution of trade finance, cash management and general banking transactions based on the requests and instructions initiated through channels including branches.
Commercial banking products and services are offered through identified commercial and retail branches, which are spread across all major business centers throughout the country. The commercial branches are led by senior branch heads, who are experienced commercial bankers. The transactions initiated at the commercial branches are processed by independent and centralized operation units responsible for the execution of trade finance, cash management and general banking transactions.
Operational Controls and Procedures for Internet Banking
The Bank has put in place adequate authentication and authorization controls for transactions through online/internet banking. The internet banking infrastructure is secured through the multi-layer information security controls, including firewalls, intrusion prevention systems and network level access controls. These are supplemented by periodic penetration tests, vulnerability assessments and continuous security incident monitoring of internet banking servers. In addition to login password, transactions are required to be authorized with random grid value authentication (a grid is a set of numbers printed on the reverse side of the debit card). Additionally, one-time password authentication is required in case we identify a change in the customer’s device fingerprint. The one-time password is sent to the customer’s mobile number registered with the Bank. To add a payee for transfer of funds, the customer is required to validate a unique registration number that is sent to the customer’s mobile number registered with us. Internet transactions using credit cards require additional one-time password authentication besides other authentications present on the card. Alerts are also sent to the customer for every internet-based transactions. To create awareness among customers about phishing, vishing and other internet-related frauds, we regularly send communication to the customers.
Information technology riskTechnology
The cyber security threat landscape for banks and financial institutions globally is constantly evolving and threats such as phishing campaigns, distributed denial of service attacks (DDoS) attacks, malware, ransomware and exploitation of ATM vulnerabilities or vulnerabilities in systems provided to banks by software vendors are currently prevalent across the world.
The Bank has a governance framework for information technology and security with oversight fromby the Information Technology Strategy Committee which is a Board-level Committeecommittee chaired by an Independent Director.independent director. The security strategy at the Bank is based on the principle of defencedefense in depth and the ITInformation Technology risk framework of the Bank enunciates three lines of defencedefense with clearly defined roles and responsibilities. The Bank has dedicated units responsible for information security and financial crime prevention, which are independent of the business units. In the endeavour towards providingstriving to provide high availability and continuity of services to its customers, including high availability of customer facing ITInformation Technology systems, the Bank has a Board-approved Business Contingency Plan which includes plansContinuity Management and Disaster Recovery Policy for timely recovery of its ITInformation Technology systems in the event of any disaster or contingency.
95
To monitor the systems, the Bank has an IT Command Center (which includes Network Operation Center). This is supported by the resilience in the design and redundancy at every layer in Bank’s Information Technology infrastructure (servers, storage and network). The Bank has a Board approved Cyber Security Policy which also incorporates a cyber crisis management plan. The Bank also conducts vulnerability assessment and penetration testing periodically to mitigate the risk that may arise from security vulnerabilities.
The IT systems of the Bank are continuously monitored by dedicated teams such as the IT Command Center and the Security Operations Center. The Bank has laid down processes for change management, identifyidentity management, access management and security operations, and these processes are periodically reviewed and refined to keep them abreast of emerging risks and to ensureimplement commensurate controls to mitigate such risksrisks. The Bank has a fully equipped disaster recovery setup in place at remote location(s), which is subject to periodic disaster recovery drills. Further, stringent gating controls are put in place.followed at the time of introducing new applications.
The Bank continuously reviews and takes measures to enhance its IT resilience in terms of application architecture, network and infrastructure.
Outsourcing risk
The Board has approved an Outsourcing Policy to oversee the governance around outsourcing activities. Based on the Policy, the Board and senior management are responsible for outsourcing operations and for managing risks inherent in such outsourcing activities. The Board has constituted an Outsourcing Committee, which approves new outsourcing activities, undertakes periodic reviews and implementation of the Outsourcing Policy, and performs other functions in support of the Outsourcing Policy.
See also “Risk Factors—Risks Relating to Technology—We face security risks, including denial of service attacks, hacking, social engineering attacks targeting our colleagues and customers, malware intrusion or data corruption attempts, and identity theft that could result in the disclosure of confidential information, adversely affect our business or reputation, and create significant legal and financial exposure”.
Anti-Money Laundering Controls
The Bank has implemented Know Your Customer/Anti-Money Laundering/Combating of Financing of Terrorism guidelines in accordance with the provisions under Prevention of Money Laundering Act, 2002, rules promulgated thereunder and guidelines issued by the regulators from time to time.
Implementation of these guidelines includes the formulation of a Group Anti-moneyAnti-Money Laundering Policy withwhich establishes the approvalstandards of the BoardAnti-Money Laundering/Combating of DirectorsFinancing of Terrorism compliance and is applicable to all activities of the Bank which also covers theincluding its Strategic Business Units in India, overseas branches/branches and banking & non-banking subsidiaries;
oversight by the Audit Committee on the implementation of the Anti-Money Laundering framework; appointment of a senior level officer as the principal officerPrincipal Officer who has the day-to-day responsibility for implementation of the anti-money launderingAnti-Money Laundering framework; implementation of adequate Know Your Customer procedures based on risk categorization
96
procedures, screening of names of customers with negative lists issued by the regulators and customer risk categorization for classifying the customers as high, medium and low risk; risk-based transaction monitoring and regulatory reporting procedures through automated applications; implementing appropriate mechanisms to train employees’ and to creating customer awareness on this subject.
The Bank adopts a With an objective to identify, assess and understand the money laundering and terrorist financing risks faced and adopt effective risk mitigation measures following the risk based approach, and conducts customerthe Bank has formulated a Money Laundering/Terrorists Financing Risk Assessment Framework covering performance of Money Laundering/Terrorists Financing risk assessment with simplified due diligence for low risk, normal due diligence for medium risk and enhanced due diligence for high risk customers pursuant to the Reserve Bank of India guidelines.assessment.
The Bank also adheres to the anti-money laundering requirements as specified by the regulators of respective geographies. The Bank’s anti-money laundering framework is subject to audit by the Internal Audit Department and their observations are reported to the Audit Committee at regular intervals.
Our life insurance subsidiary has implemented Know-Your-Customer/Anti-Money Laundering/Combating of Financing of Terrorism guidelines issued according to the Prevention of Money Laundering Act, 2002 and guidelines issued by Insurance Regulatory and Development Authority of India from time to time. An Anti-Money Laundering/Combating of Financing of Terrorism Policy has been approved by the board of directors of the life insurance subsidiary. The policy is also in accordance with the Group Anti-Money-Laundering policy and includes oversight by the Audit Committee on the implementation of the anti-money laundering framework. It provides for appointment of a senior level officer as the principal officer who, has the responsibility for ensuring compliance with the obligations imposed under of the Prevention of Money Laundering Act, 2002 and the rules made thereunder.
Following the release on the internet of videos in March-April 2013 forming part of a sting operation on banks and insurance companies in India, that purported to show the Bank’s frontline branch employees engaging in conversations that would violate the Group Code of Business Conduct and Ethics and could have, if any transactions had been consummated, led to violations of anti-money laundering and know your customer norms, the Reserve Bank of India undertook investigations at ICICI Bank and over 30 other banks in India. While the Reserve Bank of India’s investigations did not reveal any prima facie evidence of money laundering, the Reserve Bank of India had imposed an aggregate penalty of Rs. 665 million (US$ 11 million) on 31 Indian banks, including Rs. 10 million (US$ 0.2 million) on ICICI Bank, for instances of violation of applicable regulations, which we have paid. A penalty of Rs. 1.4 million was also imposed on the Bank in February 2015 by the Financial Intelligence Unit, India for failure in reporting the attempted suspicious transactions to which the above sting operations pertained. The Bank had filed an appeal against the Financial Intelligence Unit, India with the Appellate Tribunal. In June 2017, the Appellate Tribunal ruled that the penalty was not sustainable. The Tribunal asked the appellant banks to be careful and report such matters in future. See also “Business—Risk Management—Anti-Money Laundering Controls”.
In July 2014, the Reserve Bank of India imposed a penalty, for violation of instructions /directions/guidelines issued by the Reserve Bank of India, on 12 Indian banks, including us, following its scrutiny of the loan and current accounts of a corporate borrower with these banks. The penalty imposed on us was Rs. 4 million.
In December 2014, the Reserve Bank of India imposed penalties on two Indian banks, including us, for non-compliance with the know your customer/anti-money laundering directions/guidelines issued by the Reserve Bank of India in respect of fraudulent opening of fictitious accounts with certain banks. The penalty imposed on us was Rs. 5 million. See also “Risk Factors—Risks Relating to Our Business—that arise as a result of our presence in a highly regulated sector—The enhanced supervisory and compliance environment in the financial sector increases the risk of regulatory action against us, whether formal or informal. Following the financial crisis, regulators are increasingly viewing us, as well as other financial institutions, as presenting a higher risk profile than in the past” and “Risk“Risk Factors—Risks Relating to Our Business—Negative publicity could damage our reputation and adversely impact our business and financial results and the priceprices of our equity shares and ADS.ADSs.” See also “Legal and Regulatory Proceedings.” See also “Supervision and Regulation — Regulations Relating to Know Your Customer and Anti-Money Laundering.””.
The Reserve Bank of India had initiated an inspection on know your customer/anti-money laundering aspects across various banks including ICICI Bank. Based on the inspection, the Reserve Bank of India sought explanations on certain matters in April 2016. ICICI Bank responded to the explanation and the reserve Bank of India has accepted the bank’s responses in the matter.Cyber Security
We have taken a comprehensive approach pertaining to cyber security and have laid down policies, standards and guidelines addressing security against cyber threats. The triad of confidentiality, integrity and availability are at the center of our comprehensive information security framework. The approach covers all aspects of prevention, detection and response. Keeping customer priorities in mind, we follow a defense in depth approach in implementing the cyber security solutions. The Bank also emphasizes customer protection aspects with adaptive authentication and awareness initiatives. We have been enabling customers to easily configure control parameters related to their cards such as limits, international access and other parameters on a self-service and real-time basis from the internet and mobile channels of the Bank. This enables customers to protect their cards from misuse. Additionally, we have devised multiple key risk indicators and dashboards to review system stability, continuity and availability and network uptime. The Bank’s Information Security Policy, Cyber Security Policy and Information Security Standards and Procedures are based on various industry standards, regulatory requirements of various jurisdictions in which the Bank operates and other inputs like internal audits and benchmarking exercises. As part of our Secure by Design philosophy, we aim to ensure that every new piece of infrastructure or application inducted is put through rigorous security testing. The Bank has a 24x7 Security Operation Centre for monitoring and surveillance of information technology systems. Considering the criticality and vitality of data protection, we have deployed a Data Leakage/Loss Prevention system with data protection rules for sensitive data exposure from the Bank’s endpoints, emails and web gateways. We also conduct and participate in cyber security drills and table top exercises to continuously fine tune our response mechanisms. See also “Risk Factors—Risks Relating to Our Business—The enhanced supervisoryTechnology—We face security risks, including denial of service attacks, hacking, social engineering attacks targeting our colleagues and compliance environmentcustomers, malware intrusion or data corruption attempts, and identity theft that could result in the financial sector increases the riskdisclosure of regulatory action, whether formalconfidential information, adversely affect our business or informal.
Following the financial crisis, regulators are increasingly viewing us, as well as other financial institutions, as presenting a higher risk profile than in the past” and “Risk Factors—Risks Relating to Our Business—Negative publicity could damage our reputation, and adversely impact our businesscreate significant legal and financial results and the price of our equity shares and ADS.exposure”.”.
The Internal Audit Group, governed by a Group Audit Charter and Internal Audit Policy approved by the Board of Directors, provides independent, objective assurance on the effectiveness of internal controls, risk management and corporate governance and suggests improvements. It helps us accomplish our objectives by evaluating and improving the effectiveness of risk management, internal controls and governance processes, through a systematic and disciplined approach. The Internal Audit Group acts as an independent entity and reports to the Audit Committee of the Board.
97
The Internal Audit Group maintains staff with sufficient knowledge, skills, experience and professional certifications. It deploys audit resources with expertise in audit execution and adequate understanding of business activities. The processes within Internal Audit Group are certified under ISO 9001-2015. Further, anAn assessment of the quality of assurance provided by the Internal Audit Group is conducted through an independent external firm once inevery three years. The processes within the Internal Audit Group are certified under ISO 9001-2015.
The Internal Audit Group has adopted a risk based audit methodology in accordance with the Reserve Bank of India guidelines. The risk-basedrisk based audit methodology is outlined in the Internal Audit Policy. An annual risk-basedrisk based audit plan is drawn up based on the risk-based audit methodology and is approved by the Audit Committee of the Board. Accordingly, the Internal Audit Group undertakes a comprehensive audit of all branches, business groups and other functions in accordance with the risk-basedrisk based audit plan. Resources required for implementing the risk based audit plan are also approved by the Audit Committee.
The Internal Audit Group also has a dedicated team responsible for information technology and information security (including cyber security) audits. The annual audit plan covers various components of information technology including applications, networks, infrastructure, information technology governance/risk management and information technology general controls. Cyber security is a key focus area for audit, and activities undertaken by the information security function are also subjected to audit.
The Reserve Bank of India requires banks to have a process of concurrent audits atof risk sensitive areas identified as per specific business groups dealing with treasury functions, branches handling large volumes,models. Centralized Processing Centres are required to cover a minimumbe under purview of 50.0%concurrent audit. The coverage of credit, depositsbranches/business areas under purview of concurrent audit and other risk exposuresscope of work to be entrusted to concurrent auditors are required to be approved by the Bank, head office functions and information technology data centers.Audit Committee. In complianceadherence with the requirements, the Internal Audit Group has formulatedput in place a strategysystematic and structured approach for concurrent audits ataudit covering a review of high risk financial transactions originated by domestic retail liability branches, throughout India. Additionally, domestic retail liability branches having high volume of high risk financial transactions are under purview of separate concurrent audit. Various other areas including treasury related functions and at select branches.trade finance transactions are also under purview of concurrent audit. Concurrent audits are also carried out at centralized and regional processing centers and at centralized operations units with a focus on areas that are identified as needing transaction testing and also to ensuretest the existence of and adherence to internal controls. The information technology data center and someSome of the head office functions are also under purview of concurrentcontinuous audit. The details of the concurrent audit coverage are outlined in the annual risk based audit plan.plan, approved by the Audit Committee.
The audit of overseas banking subsidiaries and domestic non-banking subsidiaries is carried out by a dedicated team of resident auditors attached to the respective subsidiaries. These audit teams functionally report to the Audit Committees of the respective subsidiary and to the Internal Audit Group.Group of the Bank. The audit of overseas branches and representative offices is carried out by audit teams consisting of auditors from India as well as a resident auditor based at the Singapore branch. International operations outsourced to India are audited by a team of internal auditors in India.
Legal and Regulatory Risk
We are involved in various litigations and are subject to a wide variety of banking and financial services laws and regulations in each of the jurisdictions in which we operate. We are also subject to a large number of regulatory and enforcement authorities in each of these jurisdictions. TheAny uncertainty ofas to the enforceability of the obligations of our customers and counter-parties, including the foreclosure onenforcement of collateral, creates legal risk.
Changes in laws and regulations could adversely affect us. Legal risk is higher in new areas of business where the law is often untested by the courts. We seek to minimize legal risk by using stringentour Legal Group providing legal, security or other documentation, identifying, mitigating and advising on legal risks for our transactions, products and services, assessing legal
98
compliance requirements of the various business, operations and other functions, assessing legal cases or claims against the Bank for provisioning (when case or claim assessed as probable) and reporting as part of contingent liabilities in the financial statements (when case or claim assessed as possible), employing procedures designed to ensure that transactions are properly authorized and consulting internal and external legal advisors. We are also adopting an online dispute resolution mechanism (entailing mediation, conciliation or arbitration or combination thereof administered by an independent institution) for speedy resolution of claims and disputes of certain retail assets and services as an alternative to approaching courts or tribunals. Such online dispute resolution mechanism and its continuing usage will be subject to changes in law or court decisions. See also “Risk Factors—Risks Relating to Our Business—We are involved in various litigations. Any final judgment awarding material damages against us could have a material adverse impact on our future financial performance and our stockholders’ equityequity”, “Risk Factors—Risks that arise as a result of our presence in a highly regulated sector—The enhanced supervisory and compliance environment in the financial sector increases the risk of regulatory action against us, whether formal or informal.” and “Risk Factors—Risks relating to Our Business—The regulatory environment for financial institutions is facing unprecedented change in the post-financial crisis environment“—Legal and Regulatory Proceedings”.
Risk Management Framework for International Operations
We have adopted a risk management framework for our international banking operations, including overseas branches,, ourInternational Financial Services CentreBanking Unit and Offshore Banking Unit.Unit. Under the framework, the Bank’s credit, investment, asset liability management and anti-money laundering policies apply to all the overseas branches,, ourInternational Financial Services CentreBanking Unit and Offshore Banking Unit,, with modifications to meet local regulatory or business requirements. These modifications may be made with the approval of our Board of Directors or the committees designated by the Board of Directors. The Board of Directors/Directors or a designated committee of the Board approve their respective risk management policies, based on applicable laws and regulations as well as the Bank’s corporate governance and risk management framework. Policies at the overseas banking subsidiaries are approved by Board of Directors of the respective subsidiaries and are framed in consultation with the related groups in the Bank as per the risk management framework.
The Compliance Group oversees regulatory compliance at the overseas branches,, itsInternational Financial Services CentreBanking Unit and Offshore Banking Unit.Unit. Compliance risk assessment along with the key risk indicators pertaining to our domestic and international banking operations are presented to the Risk Committee of our Board of Directors on a periodic basis. Management of regulatory compliance risk is considered as an integral component of the governance framework at the Bank and its subsidiaries along with the internal control mechanisms. We have therefore adopted an appropriate framework for compliance, by formulating the Group Compliance Policy, which is approved by the Board of Directors and is reviewed from time to time. The Group Compliance Policy outlines a framework for identification and evaluation of the significant compliance risks, on a consolidated basis, in order to assess how these risks might affect our safety and soundness.
Risk Management in KeyCertain Subsidiaries
ICICI Bank UK and Affiliates
ICICI Bank UK PLC
The key risks to which ICICI Bank UK PLC is primarily exposed to include credit risk, market risk, liquidity risk, market risk (including interest rate risk, in banking book), operational risk compliance and reputationinformation security risk.
The Board of Directors of ICICI Bank UK isPLC are responsible for oversight and control of the functioning of ICICI Bank UK PLC and approves all major policies and procedures. The Board is assisted by its sub-committees, the Audit Committee, Governance Committee, Risk Committee, Conduct Risk Committee and Credit Committee which have been constituted to facilitate focused oversight on various risks. ICICI Bank UK’sUK PLC’s risk appetite and policies approved by the Board/or the Board’s committees form the governing framework for each type of risk. Business activities are undertaken within the approved risk appetite and policy framework.
99
All credit risk related issues are governed by ICICI Bank UK’sUK PLC’s Credit Risk Management Policy. ICICI Bank UK PLC takes a two-tier approach to assessment of credit risk with therisk. The first review is carried out by the commercial officer proposing the transaction and the proposal is then reviewed independentlysecond review comprises of an independent assessment and assessedevaluation by an officer from the risk team. Credit risk is also managed at the portfolio level by monitoring the key parameters of risk concentration such as industry exposures, country exposures, internal rating category based exposures, product specific exposuresimpact of climate related risks and large exposures.
ICICI Bank UK PLC has a Board approved Internal Liquidity Adequacy Assessment process (ILAAP) document, which outlines the liquidity management process of the Bank. TheICICI Bank UK PLC. ICICI Bank UK PLC uses various tools for measurement of liquidity risk including the statement of structural liquidity, liquidity ratios and stress testing through scenario analysis. In line with its liquidity risk appetite, ICICI Bank UK PLC maintains adequate high quality liquid assets/central bank reserves to cover projected stressed outflows under various scenarios. ICICI Bank UK maintains highHigh quality liquid assets are maintained to comply with the liquidity coverage requirements stipulated by the Prudential Regulation Authority.
ICICI Bank UK PLC has board/boardBoard or Board committee approved policies for managing market risk such as its treasury policy manual and mandate, interest rate risk in the banking book management policy, valuation policy, model validation policy and independent price verification policy. For monitoring and managing market risk, it uses various risk metrics, including the duration of equity, earnings at risk,delta net interest income, delta economic value of equity, portfolio limits, price value of one basis point change in interest rate, price value of one basis point change in credit spread, stop loss limits and value at risk limits.
The management of operational risk (including fraud and conduct risks)risk) is governed by the Operational Risk Management Policy approved by the Board Risk Committee. Operational risk elements covered in the Operational Risk Management Policy include operational incident management, techniques for risk identification and measurement, monitoring through key risk indicators and risk mitigation techniques. ICICI Bank UK PLC has also implemented an outsourcing and third party risk management policy, reviewed and approved by the Board Risk Committee on an annual basis, to mitigate outsourcing and third party risks and ensure the application of a standardized approach for all outsourcing and third party arrangements.
ICICI Bank UK PLC’s Conduct Risk Appetite Framework is approved by the Board of ICICI Bank UK PLC and reviewed on an annual basis by the Board Risk Committee as part of the overall risk appetite framework of the Bank. ICICI Bank UK PLC’s Conduct Risk Appetite is closely aligned to the Financial Conduct Authority requirements and expectations. It balances the need of all stakeholders by acting as both a governor of risk and driver of current and future business strategy, with particular focus on delivering fair outcomes to the customers of ICICI Bank UK PLC. ICICI Bank UK PLC has also established a Conduct Risk Policy, which is aligned with the Conduct Risk Appetite Framework and ensures that effective governance arrangements are in place for managing and monitoring conduct risk exposure of ICICI Bank UK PLC.
ICICI Bank UK PLC has implemented an integrated approach to IT security and established information security governance through monitoring at the Information Technology and Security Committee. Additionally, periodic presentations are provided to the Board Risk Committee on cyber threat landscape and the measures like periodic vulnerability and penetration testing, Application security life cycle assessment, information security awareness programs and cyber incident management undertaken to mitigate risks. At March 31, 2023, ICICI Bank UK PLC had obtained the “Cyber Essentials” certificate and badge which demonstrates that ICICI Bank UK PLC’s information security processes and procedures meet the UK baseline standards.
100
ICICI Bank Canada
ICICI Bank Canada is primarily exposed to risks such as credit risk, market risk, (includingoperational risk, structural interest andrate risk, liquidity risks), operational risk, compliance and reputation risk. ICICI Bank Canada has developed a risk management frameworkan Enterprise Risk Management Framework designed to ensure that the risks are identified, measured and monitored effectively. The framework also requires the establishment of policies and procedures to monitor and mitigate the risks.
The Board of Directors of ICICI Bank Canada has oversight on all risks assumed by ICICI Bank Canada. The Board has established committees and assigned specific mandates to the committees for providing oversight for the various risks facing it. The policies approved by the Board create the governing framework for managing various risks faced by ICICI Bank Canada. Business activities are undertaken within this policy framework.
The Risk Committee of the Board has delegated the operational responsibility for credit risk management to the Management Credit Committee within the broad parameters and limits laid down in the Corporate &and Commercial Credit and Recovery Policy, Retail Credit Recovery Policy, and Residential Mortgage Underwriting Policy. The Management Credit Committee approves credit proposals before recommending them to Risk Committee, which manages the credit risk on a portfolio basis and reviews asset quality and portfolio quality on a monthly basis.
The Risk Committee has delegated operational responsibility for market risk management, structural interest rate risk management and liquidity risk management to the Asset Liability Committee within the broad parameters and limits laid down in the Market Risk Management Policy and Liquidity Management Policy respectively. The Asset Liability Committee reviews matters pertaining to Investment and Treasury operations and the implementation of risk mitigation measures and recommends major policy changes governing treasury activities to the Risk Committee. Asset Liability Committee reviews adherence to market risk and liquidity risk requirements of the Office of the Superintendent of Financial Institutions, (Canada’s banking regulator), internal control guidelines and limits.
The Risk Committee has delegated operational responsibility for management of operational risk to the OperationalNon-Financial Risk Committee under the Management Committee. OperationalNon-Financial Risk Committee is responsible for managing operational risks in the day-to-day operations of ICICI Bank Canada.Canada, Fraud Risk and Compliance related risk. The OperationalNon-Financial Risk Committee under the oversight of Management Committee reviews the Operational, Compliance and Fraud Risk Management implementation and operational risk profiles on a monthly basis.
ICICI Securities Primary Dealership
ICICI Securities Primary Dealership is a primary dealer and has governmentGovernment of India securities as a significant proportion of its portfolio. The Corporate Risk Management Group at ICICI Securities Primary Dealership has developed comprehensive risk management policies which seek to manage the risks generated by the activities of the organization. The Corporate Risk Management Group develops and maintains models to assess market risks which are constantly updated to capture the dynamic nature of the marketsand in this capacity,markets. The Corporate Risk Management Group also participates in the evaluation and introduction of new products and business activities.activities.
ICICI Securities Primary Dealership has an internal Risk Management and Information Technology Strategy Committeewhich is chaired by an IndependentDirector andcomprisesmembers of its Board of Directors.The Risk Management and Information Technology Strategy Committee is responsible for analyzing and monitoring the risks associated with the different business activities of ICICI Securities Primary Dealership and ensuringoverseeing adherence to the risk and investment limits set by its Board of Directors.
101
ICICI Prudential Life Insurance Company
The risk governance structure of ICICI Prudential Life Insurance Company consists of the Board, Board Risk Management Committee, Product Management Committee, Executive Risk Committee and its sub-committees. The Board, on the recommendation of the Board Risk Management Committee, has approved the risk policy which covers the identification, measurement, monitoring and control standards relating to various individual risks, namely investment (market, credit and liquidity), insurance, reputation and operational (including legal, compliance, outsourcing, customer dissonance, business continuity, information and cyber security) risks. The Board periodically reviews the potential impact of strategic risks such as changes in macro-economic factors, government policies, regulatory environment and tax regime on the business plan of the ICICI Prudential Life Insurance Company.
In addition to these risks, the life insurance industry faces sustainability risks related to environmental, social and governance issues, including climate change. The risk management framework of the ICICI Prudential Life Insurance Company seeks to identify, measure and control its exposures to all these risks within its overall risk appetite. Accordingly, sustainability risks, including climate-related risks are integrated in the risk management framework of ICICI Prudential Life Insurance Company.
The risk policy sets out the governance structure for risk management inat ICICI Prudential Life Insurance Company.
The Board Risk Management Committee, which consists of non-executive directors, formulates the risk management policy, including asset liability management, monitors all risks across various lines of business and establishes appropriate systems to mitigate such risks. The Board Risk Management Committee also defines ICICI Prudential Life Insurance Company’s risk appetite, andreview its risk profile, oversees the effective operation of the risk management system and advises the Board on key risk issues.
During the year, a Product Management Committee has been constituted as per Insurance Regulatory and Development Authority of India regulations to review and approve products/riders in line with Board approved policy on product management and pricing.
The Executive Risk Committee, which comprises senior management, is responsible for assisting the Board and the Board Risk Management Committee in their risk management duties by guiding, coordinating and ensuringoverseeing compliance with the risk management policies and, in particular, is jointly responsible along with the Product Management Committee for the approval of all new products launched by ICICI Prudential Life Insurance Company.
The risk management model of ICICI Prudential Life Insurance Company comprises a four-stage continuous cycle, namely identification and assessment, measurement, monitoring and control of risks. ICICI Prudential Life Insurance Company’s risk policy details the strategy and procedures adopted to follow the risk management cycle at the enterprise level. A risk report detailing the key risk exposures faced by ICICI Prudential Life Insurance Company and mitigation measures is placed before the Board Risk Management Committee on a quarterly basis.
ICICI Lombard General Insurance Company
ICICI Lombard General Insurance Company is principally exposed to risks arising out of the nature of business underwritten and credit risk on its total investment assets as well as the credit risk it carries on its reinsurers. In respect of business risk, ICICI Lombard General Insurance Company seeks to diversify its insurance investment assetbusiness across product classes, industry sectors and geographical regions. ICICI Lombard General Insurance Company focusesregions with focus on achieving a balance between the corporate and retail investment assetbusiness mix to achieve favorable claim ratio and risk diversification. ICICI Lombard General Insurance Company has a risk retention and reinsurance policy whereby tolerance levels are set as per the organizational risk and on a per event basis.appetite. ICICI Lombard General Insurance Company also has the ability to limit its risk exposure by way of re-insurance and co-insurance arrangements.
102
Investments of the companyICICI Lombard General Insurance Company are governed by the investment policy approved by its Board of Directors within the norms stipulated by the Insurance Regulatory and Development Authority of India. The Investment Committee oversees the implementation of this policy and reviews it periodically. Exposure to any single non-government counterparty is restricted to less than 5.0% of the total investment assets, by carrying value, without the specific approval of ICICI Lombard General Insurance Company’s investment committee. While
ICICI Lombard General Insurance Company also has a few counterparties where its total exposure exceeds 5.0% of its portfolio, such exposure does not exceed 10.0% in any case.
Controlsvarious subcommittees to monitor risks related to environmental and Procedures
We have carried out an evaluation undersocial governance, product management, operational, market, outsourcing risks and other risks. ICICI Lombard General Insurance Company continues to closely watch the supervisionevolving situation for appropriate risk mitigation and with the participation of management, including the Managing Director and Chief Executive Officer and the Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act at year-end fiscal 2017.
As a result, it has been concluded that, as of the end of the period covered by this report, the disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed in the reports we file and submit under the Securities Exchange Act is recorded, processed, summarized and reported as and when required.
However, as a result of our evaluation, we noted certain areas where our processes and controls could be improved. The Audit Committee monitors the resolution of any identified significant process and control improvement opportunities to a satisfactory conclusion. Like all financial institutions, we nevertheless believe there is room for further improvement. We are committed to continuing to implement and improve internal controls and our risk management processes, and this remains a key priority for us. We also have a process whereby business and financial officers throughout the Bank attest to the accuracy of reported financial information as well as the effectiveness of disclosure controls, procedures and processes.
There are inherent limitations to the effectiveness of any system, especially of disclosure controls and procedures, including the possibility of human error, circumvention or overriding of the controls and procedures, in a fast-changing environment or when entering new areas of business or expanding geographic reach. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
We have experienced significant growth in a fast-changing environment, and management is aware that this may pose significant challenges to the control framework. See also “Risk Factors—Risks Relating to Our Business—There is operational risk associated with the financial industries which, when realized, may have an adverse impact on our business”.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act). Our internal control system has been designed to provide reasonable assurance regarding the reliability of financial reporting and preparation and fair presentation of our published Indian GAAP consolidated financial statements and disclosures relating to U.S. GAAP net income reconciliation and stockholders’ equity reconciliation as required by U.S Securities and Exchange Commission and applicable GAAP.
Management maintains an internal control system intended to ensure that financial reporting provides reasonable assurance that transactions are executed in accordance with the authorizations of management and directors, assets are safeguarded and financial records are reliable.
Our internal controls include policies and procedures that:
All internal control systems, no matter how well-designed, have inherent limitations, and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Management assessed the effectiveness of internal control over financial reporting at year-end fiscal 2017 based on criteria set by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on the assessment, management concluded that our internal control over financial reporting was effective at year-end fiscal 2017. Effectiveness of our internal control over financial reporting at year-end fiscal 2017 has been audited by KPMG, an independent registered public accounting firm, as stated in their attestation report, which is included herein.
Change in Internal Control Over Financial Reporting
No change in our internal control over financial reporting occurred during the period covered by this annual report that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.management.
Our gross loan portfolio increased by 5.0%17.1% from Rs. 5,097.99,475.1 billion at year-end fiscal 20162022 to Rs. 5,353.211,095.0 billion at year-end fiscal 2017.2023. At year-end fiscal 2017, approximately 74.5%2023, 90.2% of our gross loans were rupee loans.
Loan Portfolio by Categories
The following table sets forth, at the dates indicated, our gross rupee and foreign currency loans by business category.
At March 31, | ||||||||||||||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | 2017 | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Consumer loans and credit card receivables(1) | Rs. | 1,181,588 | Rs. | 1,470,783 | Rs. | 1,762,154 | Rs. | 2,153,561 | Rs. | 2,446,478 | US$ | 37,725 | ||||||||||||
Rupee | 1,068,305 | 1,251,032 | 1,534,281 | 1,895,734 | 2,259,184 | 34,837 | ||||||||||||||||||
Foreign currency(2) | 113,283 | 219,751 | 227,873 | 257,827 | 187,294 | 2,888 | ||||||||||||||||||
Commercial(3) | 2,204,054 | 2,494,150 | 2,745,376 | 2,944,355 | 2,906,744 | 44,823 | ||||||||||||||||||
Rupee | 1,193,433 | 1,310,457 | 1,493,578 | 1,631,734 | 1,729,028 | 26,663 | ||||||||||||||||||
Foreign currency | 1,010,621 | 1,183,693 | 1,251,798 | 1,312,621 | 1,177,666 | 18,160 | ||||||||||||||||||
Gross loans | 3,385,642 | 3,964,933 | 4,507,530 | 5,097,916 | 5,353,222 | 82,548 | ||||||||||||||||||
Rupee | 2,261,738 | 2,561,488 | 3,027,859 | 3,527,468 | 3,988,261 | 61,500 | ||||||||||||||||||
Foreign currency | 1,123,904 | 1,403,445 | 1,479,671 | 1,570,448 | 1,364,961 | 21,048 | ||||||||||||||||||
Total gross loans | 3,385,642 | 3,964,933 | 4,507,530 | 5,097,916 | 5,353,222 | 82,548 | ||||||||||||||||||
Allowance for loan losses | (85,901 | ) | (91,515 | ) | (122,629 | ) | (160,625 | ) | (200,049 | ) | (3,085 | ) | ||||||||||||
Net loans | Rs. | 3,299,741 | Rs. | 3,873,418 | Rs. | 4,384,901 | Rs. | 4,937,291 | Rs. | 5,153,173 | US$ | 79,463 | ||||||||||||
Our gross rupee loans increased from Rs. 3,527.5 billion constituting 69.2% of our total gross loans at year-end fiscal 2016 to Rs. 3,988.3 billion constituting 74.5% of our total gross loans at year-end fiscal 2017 primarily due to an increase in consumer loans and credit card receivables. Our gross foreign currency loans decreased from Rs. 1,570.4 billion, constituting 30.8% of our total gross loans at year-end fiscal 2016 to Rs. 1,365.0 billion, constituting 25.5% of our total gross loans at year-end fiscal 2017 primarily due to repayments/prepayments of loans, including maturity of loans against Foreign Currency Non-Resident (Bank) deposits in our foreign branches and overseas subsidiaries. See also “Operating and Financial Review and Prospects—Financial Condition—Assets—Advances”.
At year-end fiscal 2017, we did not have outstanding cross-border loans (defined as loans made to borrowers outside of India) exceeding 1.0% of our assets in any country except Canada, which were between approximately 2.5% to 3.0% of our assets. We had outstanding cross-border loans to U.S. and United Kingdom borrowers amounting to between 0.5% and 1.0% of our assets.
Collateral —Completion, Perfection and Enforcement
Our loan portfolio largely consists of project and corporate finance and working capital loans to corporate borrowers, loans to retail customers, including home loans, automobile loans, commercial business loans, personal loans and credit card receivables and agricultural financing. In general, other thanOur unsecured loans primarily include personal loans, credit card receivables and some forms ofloans to higher-rated corporate and agricultural financing,borrowers. For loans which are unsecured,secured, we generally stipulate that the loans should be collateralized at the time of loan origination. However, it should be noted that obstacles within the Indian legal system can create delays in enforcing collateral.See “Riskalso “Risk Factors—Risks Relating to Our Business—If we are not able to adequately control the level of our non-performing assets inincreases and the overall quality of our loan portfolio deteriorates, our business will suffer”. In India, there are no regulations stipulating loan-to-collateral limits, except in the case of home loans and loan against gold ornaments and jewelry. The Reserve Bank of India, through a guideline has capped the loan-to-value ratio at 90% for home loans up to Rs. 3.0 million, at 80% for home loans between Rs. 3.0 million and Rs. 7.5 million and at 75% for home loans above Rs 7.5 million. Further, the Reserve Bank of India, through a guideline has capped the loan-to-value ratio at 75% for loan against gold ornaments and jewelry.jewellery.
Secured consumer loan portfolio
Secured consumer loans for the purchase of assets, such as mortgage loans and automobile loans are secured by the assets being financed (predominantly property and vehicles).
Depending on the type of borrower and the asset being financed, the borrower may also be required to contribute towards the cost of the asset. Accordingly, the security value is generally higher than the loan amount at the date of loan origination.
For other secured consumer loans, such as loans against property and property overdrafts, we generally require collateral of 125%125.0% of the loan amount at origination.
Commercial loans
The Bank generally seeksrequires collateral valued at 125% to 150% of the loan amount at origination for commercial loans. We may also extend unsecured facilities in certain circumstances. Such circumstances may include working capital limits outside consortium, short term requirements of the borrower, regulatory norms/restrictions on taking security and facilities where adequate structural comforts are available to mitigate the envisaged credit risks and retail loans such as credit cards and personal loans. We also provide unsecured loans to higher rated, well-established corporates.
103
The collateral for project and other corporate loans are usually immovable assets which are typically mortgaged in the Bank’s favor, or movable assets, which are typically hypothecated or pledged in the Bank’s favor.favor, except for projects such as road/airport and other concession based projects. These security interests must be perfected by the registration of these interests within time limits stipulated under the Companies Act with the Registrar of Companies pursuant to the provisions of the Companies Act, 2013 when borrowers are constituted as companies. Security interests upon immovable property are generally required to be registered with the relevant Sub- Registrar in terms of the Registration Act, 1908. This registration amounts to a constructive public notice to other business entities of the security interests created by such companies. Prior to creation of security interests on all assets, which are not stock-in-trade for the company, a no-objection certificate from the income tax authorities is required to create a charge on the asset.interests. We may also take security of a pledge of financial assets like marketable securities, (for which perfection of security interests by registration with the Registrar of Companies is not mandatory for companies under the Companies Act), and obtain corporate guarantees and personal guarantees and sponsors wherever appropriate. In certain cases, the terms of financing include covenants relating to sponsor shareholding in the borrower and restrictions on the sponsors’ ability to sell all or part of their shareholding. Covenants involving equity shares generally have a top-up mechanism based on price triggers. See also “Risk Factors—Risks Relating to Our Business—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”.
The Bank generally requires collateral value at 150%150.0% of the outstanding loan amounts for loans to real estate companies and lease rental discounting facilities. Our lease rental discounting facility is a loan facility offered to borrowers where the loans are granted against confirmed future lease rental payments to be received by the borrowers. Further, the Bank has also laid down limits for unsecured exposures which restrict the exposure to unsecured facilities.
For working capital facilities, the current assets of borrowers are generally taken as collateral. Each borrower is required to declare the value of current assets periodically. The borrower’s credit limit is subject to an internally approved ceiling that applies to all borrowers. We calculate a borrower’s credit limits as a certain percentage of the value of the collateral, which providesis intended to provide us with an adequate margin, should the borrower default.
Additionally, in some cases, we may take further security of a first or second charge on fixed assets, a pledge of financial assets like marketable securities, or obtain corporate guarantees and personal guarantees of sponsors wherever appropriate. We also accept post-dated checks andor cash (by way of term deposits of the Bank duly lien marked our favor) as additional comfort for the facilities provided to various entities.
Theentities.The Bank has an internal framework for updating the collateral values of commercial loans on a periodic basis. Generally, for commercial loans,In the value of moveable property held as collateral is updated annually and the value of immovable property held as collateral is updated every three years.
The Bank has a mechanism by which it tracks the creation of security and follows up in case of any delay in creation of any security interest. The delays could be due to time taken for acquisition oflending under consortium banking arrangement, a valuation report is obtained as per the asset on which security interest is to be created (or completion of formalities related thereto), obtaining of requisite consents including legal, statutory or contractual obligations to obtain such consents, obtaining of legal opinions as to title and completion of necessary procedure for perfection of security intimelines stipulated by the respective jurisdictions.
lead bank. The Bank is generally entitled, by the terms of security documents, to enforce security and appropriate the proceeds towards the borrower’s loan obligations without reference to the courts or tribunals unless a client makes a reference to such courts or tribunals to challenge such enforcement.
Separately, in India, foreclosure on As per the credit policy of the Bank, we comply with the extant regulatory guidelines with respect to collateral of property can be undertaken directly by lenders by fulfilling certain procedures and requirements (unless challenged in courts of law) or otherwise by a written petition to an Indian court or tribunal. The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, allows the 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. However, the process may be subject to delays and administrative requirements that may result, or be accompanied by, a decreasevaluation in the valuecase of the collateral. These delays can last for several years and therefore might lead to deterioration in the physical condition and market value of the collateral. In the event a corporate borrower is in financial difficulty and unable to sustain itself, it may opt for the process of voluntary winding up. In case a company becomes a sick unit, foreclosure and enforceability of collateral is stayed.
The Insolvency and Bankruptcy Code, 2016, enacted in May 2016, provides for a time-bound revival and rehabilitation mechanism to resolve stressed assets. In June 2017, the Reserve Bank of India issued directions to banks to file for resolution under the Insolvency and Bankruptcy Code with the National Company Law
Tribunal in respect of 12 large stressednon-performing accounts. With respect to other identified stressed accounts, the banks are required to finalize a resolution plan within six months, failing which banks shall be required to file for insolvency proceedings under the Insolvency and Bankruptcy Code. Given the limited experience of this framework, should one or more of these borrowers go into liquidation, the market value of the collateral may come down. See also “Overview of the Indian Financial Sector—Structural Reforms—Legislative Framework for Recovery of Debts due to Banks—Insolvency and Bankruptcy Code, 2016”.
In case of consumer installment loans, we obtain direct debit mandates or post-dated checks towards repayment on pre-specified dates. Post-dated checks, if dishonored, may entitle us on occurrence of certain events to initiate criminal proceedings against the issuer of the checks. We are also adopting online dispute resolution mechanism (entailing mediation, conciliation or arbitration or combination thereof administered by an independent institution) for speedy resolution of claims and disputes of certain retail assets and services as an alternative to approaching courts or tribunals. Such online dispute resolution mechanism and its continuing usage will be subject to changes in law or court decisions.
We recognize that our ability to realize the full value of the collateral in respect of current assets is difficult due to,affected adversely by, among other things, delays on our part in taking immediate action, delays in bankruptcy foreclosure proceedings, defects in the perfection of collateral (including due to
104
inability to obtain approvals that may be required from various persons, agencies or authorities) and fraudulent transfers by borrowers and other factors, including current legislative provisions or changes thereto and past or future judicial pronouncements. The value and time to dispose the collateral could also be impacted by policy decisions. For example, the government of India’s decision to withdraw legal tender status of higher denomination currency notes in November 2016 impacted the prices and demand in land and housing market. However, cash credit facilities are so structured that we are generally able to capture the cash flows of our customers for recovery of past due amounts. In addition, the Bank generally has a right of set-off for amounts due to us on these facilities. The Bank generally requires its working capital loan customers to submit data on their working capital position on a regular basis, 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. Our Credit Risk Management Group monitors all major sectors of the economy and specifically tracks industries in which we have credit exposures. We seek to respond to economic weakness through active portfolio management, by restricting exposure to weak sectors and increasing exposure to the segments that are growing and have been resilient. ICICI Bank’s policy is to limit its loans to any particular industry (other than retail loans) to 15.0% of its total exposure.
Pursuant to the guidelines of the Reserve Bank of India, credit exposure of banks to an individual borrower generally must not exceed 15.0% of our capital funds, unless the exposure is in respect of an infrastructure project. Capital funds comprise 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 our capital funds by an additional 5.0% (i.e. the aggregate exposure can be 20.0%) provided the additional credit exposure is on account of infrastructure financing. Our exposure to a group of companies under the same management control generally must not exceed 40.0% of our capital funds unless the exposure is in respect of an infrastructure project. The exposure to a group of companies under the same management control, including exposure to infrastructure projects, may be up to 50.0% of our capital funds. Banks may, in exceptional circumstances, with the approval of their boards, enhance the exposure by 5.0% of capital funds (i.e., the aggregate exposure can be 20.0% of capital funds for an individual borrower and the aggregate exposure can be 45.0% of capital funds for a group of companies under the same management), making appropriate disclosures in their annual reports. Exposure for funded and non-funded credit facilities is calculated as the total committed amount or the outstanding amount whichever is higher (for term loans, as the sum of undisbursed commitments and the outstanding amount). Investment exposure is considered at book value. At year-end fiscal 2017, we were in compliance with these guidelines.
In addition, the Bank has refined and strengthened its framework for managing concentration risk with respect to single borrower and group exposures with tighter limits on lower rated borrowers and group exposure limits.
At year-end fiscal 2017, our largest non-bank borrower accounted for approximately 12.1% of our capital funds. The largest group of companies under the same management control accounted for approximately 23.4% of our capital funds.
The following table sets forth, at the dates indicated, the composition of our gross advances.
At March 31, | ||||||||||||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | ||||||||||||||||||||||||||||||||||||||||
Amount | As a % | Amount | As a % | Amount | As a % | Amount | As a % | Amount | Amount | As a % | ||||||||||||||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||||||||||||||||||
Retail finance(1), (2) | Rs. | 1,290,184 | 38.1 | % | Rs. | 1,621,267 | 40.9 | % | Rs. | 1,956,857 | 43.4 | % | Rs. | 2,385,701 | 46.8 | % | Rs. | 2,689,642 | US$ | 41,475 | 50.2 | % | ||||||||||||||||||||||
Power | 200,452 | 5.9 | 237,912 | 6.0 | 260,204 | 5.8 | 283,433 | 5.6 | 311,902 | 4,810 | 5.8 | |||||||||||||||||||||||||||||||||
Services —finance | 155,201 | 4.6 | 127,735 | 3.2 | 146,879 | 3.2 | 161,303 | 3.2 | 273,163 | 4,212 | 5.1 | |||||||||||||||||||||||||||||||||
Iron/steel and products | 173,350 | 5.1 | 200,754 | 5.1 | 233,712 | 5.2 | 270,478 | 5.3 | 249,504 | 3,847 | 4.7 | |||||||||||||||||||||||||||||||||
Roads, port, telecom, urban development & other infrastructure | 227,966 | 6.7 | 271,869 | 6.9 | 260,526 | 5.8 | 285,898 | 5.6 | 239,522 | 3,693 | 4.5 | |||||||||||||||||||||||||||||||||
Services —non finance | 243,298 | 7.2 | 266,016 | 6.7 | 286,844 | 6.4 | 280,733 | 5.5 | 233,575 | 3,602 | 4.4 | |||||||||||||||||||||||||||||||||
Wholesale/retail trade | 70,752 | 2.1 | 83,757 | 2.1 | 137,036 | 3.0 | 148,575 | 2.9 | 133,313 | 2,056 | 2.5 | |||||||||||||||||||||||||||||||||
Mining | 83,086 | 2.5 | 65,455 | 1.7 | 80,037 | 1.8 | 82,896 | 1.6 | 110,157 | 1,699 | 2.1 | |||||||||||||||||||||||||||||||||
Construction | 73,443 | 2.2 | 89,316 | 2.3 | 107,610 | 2.4 | 114,625 | 2.2 | 107,309 | 1,655 | 2.0 | |||||||||||||||||||||||||||||||||
Electronics & engineering | 73,835 | 2.2 | 96,717 | 2.4 | 81,599 | 1.8 | 82,453 | 1.6 | 100,167 | 1,545 | 1.9 | |||||||||||||||||||||||||||||||||
Metal & products (excluding iron & steel) | 63,650 | 1.9 | 93,121 | 2.3 | 112,766 | 2.5 | 118,213 | 2.3 | 98,176 | 1,514 | 1.8 | |||||||||||||||||||||||||||||||||
Food & beverages | 92,257 | 2.7 | 82,020 | 2.1 | 77,592 | 1.7 | 83,094 | 1.6 | 88,356 | 1,362 | 1.7 | |||||||||||||||||||||||||||||||||
Crude petroleum/refining & petrochemicals | 95,729 | 2.8 | 127,887 | 3.2 | 140,852 | 3.1 | 104,531 | 2.1 | 86,852 | 1,339 | 1.6 | |||||||||||||||||||||||||||||||||
Cement | 72,156 | 2.1 | 79,019 | 2.0 | 92,581 | 2.1 | 85,988 | 1.7 | 76,091 | 1,173 | 1.4 | |||||||||||||||||||||||||||||||||
Chemicals and fertilizers | 43,070 | 1.3 | 38,299 | 1.0 | 31,254 | 0.7 | 44,775 | 0.9 | 55,473 | 855 | 1.0 | |||||||||||||||||||||||||||||||||
Gems & jewelry | 38,001 | 1.1 | 44,845 | 1.1 | 45,047 | 1.0 | 51,516 | 1.0 | 45,254 | 698 | 0.8 | |||||||||||||||||||||||||||||||||
Shipping | 45,257 | 1.3 | 59,459 | 1.5 | 67,480 | 1.5 | 61,660 | 1.2 | 31,562 | 487 | 0.6 | |||||||||||||||||||||||||||||||||
Textile | 29,056 | 0.9 | 30,628 | 0.8 | 26,449 | 0.6 | 32,688 | 0.6 | 29,955 | 462 | 0.6 | |||||||||||||||||||||||||||||||||
Others(3) | 314,899 | 9.3 | 348,857 | 8.8 | 362,205 | 8.0 | 419,356 | 8.3 | 393,249 | 6,064 | 7.6 | |||||||||||||||||||||||||||||||||
Gross loans | 3,385,642 | 100.0 | % | 3,964,933 | 100.0 | % | 4,507,530 | 100.0 | % | 5,097,916 | 100.0 | % | 5,353,222 | 82,548 | 100.0 | % | ||||||||||||||||||||||||||||
Allowance for loan losses | (85,901 | ) | (91,515 | ) | (122,629 | ) | (160,625 | ) | (200,049 | ) | (3,085 | ) | ||||||||||||||||||||||||||||||||
Net loans | Rs. | 3,299,741 | Rs. | 3,873,418 | Rs. | 4,384,901 | Rs. | 4,937,291 | Rs. | 5,153,173 | US$ | 79,463 | ||||||||||||||||||||||||||||||||
Our gross loan portfolio increased by 5.0% from Rs. 5,097.9 billion at year-ended fiscal 2016 to Rs. 5,352.2 billion at year-ended fiscal 2017. Retail finance increased from 46.8% of gross loans at year-end fiscal 2016 to 50.2% of gross loans at year-end fiscal 2017. Further, non-retail finance advances increased primarily due to an increase in advances to the services-finance sector by Rs. 111.9 billion, the power sector by Rs. 28.5 billion and the mining sector by Rs. 27.3 billion, offset, in part, by a decrease in advances to the services non-finance sector by Rs. 47.2 billion, the roads, ports, telecom, urban development & other infrastructure sector by Rs. 46.4 billion and the shipping sector by Rs. 30.1 billion. The net increase in advances to services-finance and power sector in fiscal 2017 was primarily to the higher rated borrowers based on the Bank’s internal ratings.
At year-end fiscal 2017, our 20 largest borrowers accounted for approximately 10.7% of our gross loan portfolio, with the largest borrower accounting for approximately 1.0% of our gross loan portfolio. The largest group of companies under the same management control accounted for approximately 3.5% of our gross loan portfolio.
Geographic Diversity
Our portfolios are geographically diversified. The state of Maharashtra accounted for the largest proportion of our domestic gross loans outstanding at year-end fiscal 2017.
Directed Lending
The Reserve Bank of India requires banks to lend to certain sectors of the economy. Such directed lending comprises priority sector lending and export credit.
Priority Sector Lending
The Reserve Bank of India guidelines on priority sector lending require banks to lend 40.0% of their adjusted net bank credit, to fund certain types of activities carried out by specified borrowers. The definition of adjusted net bank credit includes bank credit in India adjusted by bills rediscounted with the Reserve Bank of India and other approved financial institutions and certain investments and is computed with reference to the outstanding amount at corresponding date of the previous year as prescribed by the Reserve Bank of India guidelines ‘Master Direction- Priority Sector Lending - Targets and Classification’. Further, the Reserve Bank of India allowed loans extended in India against incremental foreign currency non-resident (bank)/non-resident
external deposits from July 26, 2013 and outstanding at March 7, 2014 to be excluded from adjusted net bank credit. In May 2014, the Reserve Bank of India issued guidelines allowing banks to include the outstanding investments in Rural Infrastructure Development Fund and other specified funds at corresponding date of the fiscal year to be classified as “indirect agriculture” and count towards overall priority sector target achievement. Investments at March 31 of the preceding year would be included in the adjusted net bank credit which forms the base for computation of the priority sector and sub-segment lending requirements. In fiscal 2015, the Reserve Bank of India allowed banks to issue long-term bonds for financing infrastructure and low-cost housing. The amount raised by way of these bonds is permitted to be excluded from the adjusted net bank credit for the purpose of computing priority sector lending targets.
In April 2015, the Reserve Bank of India issued revised guidelines on priority sector lending. Under the revised guidelines, the priority sectors include the agricultural sector, food and agri-based industries, small enterprises/businesses and housing finance up to certain limits. Sectors qualifying for priority sector lending have been broadened to include medium enterprises, social infrastructure and renewable energy. The overall target for priority sector lending would be 40% of the adjusted net bank credit, out of which banks are required to lend a minimum of 18.0% to the agriculture sector. Sub-targets of 8.0% for lending to small & marginal farmers and 7.5% lending target to micro-enterprises were introduced. These sub-targets were to be achieved in a phased manner by March 2017. Banks are also required to lend 10.0% of their adjusted net bank credit, to certain borrowers under the “weaker section” category. Priority sector lending achievement would be evaluated on a quarterly average basis from fiscal 2017 instead of only at the year-end. Further, in July 2015, the Reserve Bank of India has directed banks to maintain direct lending to non-corporate farmers at the banking system’s average level for the last three years, failing which banks will attract penalties for shortfall. The Reserve Bank of India has set a target of 11.7% of adjusted net bank credit for fiscal 2017. The Reserve Bank of India has also directed banks to maintain lending to borrowers who constituted the direct agriculture lending category under the earlier guidelines.
ICICI Bank is required to comply with the priority sector lending requirements prescribed by the Reserve Bank of India from time to time. The shortfall in the amount required to be lent to the priority sectors and weaker sections may be required to be deposited in funds with government sponsored Indian development banks like the National Bank for Agriculture and Rural Development, the Small Industries Development Bank of India, the National Housing Bank, the MUDRA Limited and other financial institutions as decided by the Reserve Bank of India from time to time based on the allocations made by the Reserve Bank of India. These deposits have a maturity of up to seven years and carry interest rates lower than market rates. At year-end fiscal 2017, our total investment in such funds was Rs. 241.1 billion, which was fully eligible for consideration in overall priority sector achievement.
As prescribed in the Reserve Bank of India guideline, the Bank’s priority sector lending achievement is computed on quarterly average basis for fiscal 2017 as against the year-end basis for fiscal 2016. Total priority sector lending was Rs. 1,399.4 billion constituting 39.9% (Rs. 1,311.9 billion constituting 40.8% at year-end fiscal 2016) of adjusted net bank credit against the requirement of 40.0% of adjusted net bank credit. The average lending to agriculture sector was Rs. 547.4 billion constituting 15.6% (Rs. 545.8 billion constituting 17.0% at year-end fiscal 2016) of adjusted net bank credit against the requirement of 18.0% of adjusted net bank credit. The average advance to weaker sections was Rs. 220.9 billion constituting 6.3% (Rs. 204.4 billion constituting 6.3% at year-end fiscal 2016) of adjusted net bank credit against the requirement of 10.0% of adjusted net bank credit. The average lending to small and marginal farmers was Rs. 142.2 billion constituting 4.1% (Rs. 125.5 billion constituting 3.9% at year-end fiscal 2016) of adjusted net bank credit against the requirement of 8.0% of adjusted net bank credit. The average lending to micro enterprises was Rs. 241.2 billion constituting 6.9% (Rs. 218.2 billion constituting 6.8% at year-end fiscal 2016) of adjusted net bank credit against the requirement of 7.5% of adjusted net bank credit. The average lending to non-corporate farmers was Rs. 300.9 billion constituting 8.6% (Rs. 269.3 billion constituting 5.9% at year-end fiscal 2016) of adjusted net bank credit against the requirement of 11.7% of adjusted net bank credit. See also “Supervision and Regulation—Directed Lending—Priority Sector Lending”.
The following table sets forth ICICI Bank’s average priority sector loans, classified by the type of borrower, for fiscal 2017.
for the fiscal 2017 | ||||||||||||||||
Amount | % of total priority sector lending | % of adjusted net bank credit | ||||||||||||||
(in billion, except percentages) | ||||||||||||||||
Agricultural sector(1) | Rs. | 547.4 | US$ | 8 | 39.1 | % | 15.6 | % | ||||||||
Small enterprises | 512.8 | 8 | 36.6 | 14.6 | ||||||||||||
Others including eligible residential mortgage loans less than Rs. 2.5 million | 339.2 | 5 | 24.3 | 9.7 | ||||||||||||
Total | Rs. | 1,399.4 | US$ | 21 | 100.0 | % | 39.9 | % | ||||||||
Export Credit
The Reserve Bank of India also requires banks to make loans to exporters at concessional interest rates, as part of directed lending. Export credit is provided for pre-shipment and post-shipment requirements of exporter borrowers in rupees and foreign currencies. At least 12.0% of a bank’s adjusted 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 to banks for an eligible portion of total outstanding export loans in rupees in line with the current Reserve Bank of India guidelines in India as amended from time to time. The interest income earned on export 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 March 31, 2017, ICICI Bank’s export credit was Rs. 53.6 billion, which amounted to 1.5% of the Bank’s adjusted net bank credit.
Loan Pricing
As required by the Reserve Bank of India guidelines effective July 1, 2010, ICICI Bank priced its loans with reference to a base rate, called the ICICI Bank Base Rate till March 31, 2016. The Asset Liability Management Committee set the ICICI Bank Base Rate based on ICICI Bank’s current cost of funds, likely changes in the Bank’s cost of funds, market rates, interest rate outlook and other systemic factors. Pricing for new rupee floating rate proposals and renewal of rupee facilities till March 31, 2016 was linked to the ICICI Bank Base Rate and comprised the ICICI Bank Base Rate, transaction-specific spread and other charges. The Reserve Bank of India also stipulated that a bank’s lending rates for rupee loans cannot be lower than its base rate, except for certain categories of loans as may be specified by the Reserve Bank of India from time to time. ICICI Bank has set its base rate at 9.10% per annum payable monthly, effective April 28, 2017.
Based on the revised guidelines of the Reserve Bank of India, all rupee loans sanctionedextended by Banks and credit limits renewed with effect from April 1, 2016 are required to be priced with reference to a new internal benchmark to be called marginal cost of funds based lending rate. Banks are required to publish marginal cost of funds based lending rates for various tenures such as, overnight, one month, three months, six months and one year. Marginal cost of funds based lending rate includes marginal cost of funds, negative carry on cash reserve ratio, operations cost and tenure premium/discount for various tenures. The Asset Liability Management Committee sets the ICICI Bank marginal cost of funds based lending rates. As required by the guidelines, we publish the ICICI Bank marginal cost of funds based lending ratesrate for various tenures on a monthly basis.
Pricing forThe Reserve Bank of India, through its circular dated September 4, 2019 and February 26, 2020, amended the Master Direction – Interest Rate on advances and mandated banks to link all new floating rate approvalspersonal or retail loans (e.g., housing loans or auto loans) and renewalfloating rate loans to micro, small and medium enterprises extended by banks to specified external benchmarks. The interest rate of rupee facilities areexternal benchmark linked floating rate loans shall be reset at least once in three months. For borrowers other than retail and micro, small and medium enterprises, the Bank has the option to offer floating rate loans linked to the ICICI Bankexternal benchmark or marginal cost of funds based lending rate and comprise therate. Currently, ICICI Bank marginal cost of funds based lendinglinks its external benchmark linked floating rate and spread. The Reserve Bank of India has also stipulated that a bank’s lending rates for rupee loans cannot be lower than its marginal cost of funds based lending rate, except for certain exemptions. As prescribed in the guidelines ofto the Reserve Bank of India existing borrowers will also have the option to move to the marginal cost of funds based lendingrepo rate linked loan at mutually acceptable terms. All loans approved before April 1, 2016, and where the borrowers choose not to migrate to the marginal cost of funds based lending rate system, would continue to be based on the earlier benchmark rate regimes. ICICI Bank marginal cost of funds based lending rate at May 1, 2017 was between 7.85%-8.20%.
Classification of Loanstreasury bill rates as published by Financial Benchmarks India Pvt. Ltd.
ICICI Bank classifies its assets, including those in overseas branches, as performing and non-performing in accordance with the Reserve Bank of India guidelines. Under the Reserve Bank of India guidelines, an asset is generally classified as non-performing if any amount of interest or principal remains overdue for more than 90 days, in respect of term loans. In respect of overdraft or cash credit, an asset is classified as non-performing if the account remains out of order for a period of 90 days and in respect of bills, if the account remains overdue for more than 90 days. The Reserve Bank of India guidelines also require banks to classify an asset as non-performing based on qualitative criteria such as use of loan funds by a borrower for purposes other than those stipulated at the time of loan origination, inability of a borrower to perform or comply with the terms stipulated in a restructuring scheme, assessment of a borrower’s ability to complete projects which have been funded by the Bank within certain timelines documented at the time of loan origination and certain other non-financial parameters. ICICI Home Finance Company classifies its loans and other credit facilities as per the guidelines of its regulator, the National Housing Bank. Loans made by our overseas banking subsidiaries are classified as impaired only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition on the loan (a loss event) and that loss event has an impact on the estimated future cash flows of the loan that can be reliably estimated. Under the Reserve Bank of India guidelines,non-performing assets are classified into sub-standard, doubtful and loss assets based on the criteria stipulated by the Reserve Bank of India. Loans held at the overseas branches that are identified as impaired as per host country regulations for reasons other than record of recovery but which are standard as per the extant Reserve Bank of India guidelines are identified as non-performing assets to the extent amount is outstanding in the host country. The Reserve Bank of India has separate guidelines for restructured loans.From April 1, 2015 onwards, loans that are restructured (other than due to delay up to a specified period in the infrastructure sector and non-infrastructure sector) are classified as non-performing, other than loans already restructured prior to March 31, 2015 or where the restructuring was proposed prior to April 1, 2015 and was effected subsequently within prescribed timelines. See below “—Restructured Loans”.
The classification of assets in accordance with the Reserve Bank of India guidelines is detailed below.
There are separate guidelines for classification of loans for projects under implementation which are based on the date of commencement of commercial production and date of completion of the project as originally envisaged at the time of financial closure. For infrastructure projects, a loan is classified as non-performing if it fails to commence commercial operations within two years from the documented date of commencement and for non-infrastructure projects, the loan is classified as non-performing if it fails to commence operations within 12 months from the documented date of such commencement. In April 2015, the Reserve Bank of India issued guidelines for revival of projects which have been delayed due to inadequacies of the existing project sponsors through a change in ownership of such projects. The guidelines permit banks to extend the date for commencement of commercial operations of such projects up to a further period of two years subsequent to a change in ownership of the borrowing entity being effected. This extension would be in addition to the extension of the period for completion of the projects as described above.
Our non-performing assets include loans and advances as well as credit substitutes, which are funded credit exposures. In compliance with regulations governing the presentation of financial information by banks, we report only non-performing loans and advances in our financial statements.
See also “Supervision and Regulation—Reserve Bank of India Regulations—Loan Loss Provisions and Non-Performing Assets—Asset Classification”.
Restructured Loans
The Reserve Bank of India has separate guidelines for restructured loans. Up to March 31, 2015, a fully secured standard loan (other than that classified as a commercial real estate exposure, a capital market exposure or a personal loan) could be restructured by the rescheduling of principal repayments and/or the interest element and continue to be classified as a standard loan. However, such a loan needed to be separately disclosed as a restructured loan.
From April 1, 2015 onwards, loans that are restructured (other than due to delay up to a specified period in the infrastructure sector and non-infrastructure sector) are classified as non-performing, other than loans already restructured prior to March 31, 2015 or where the restructuring was proposed prior to April 1, 2015 and was effected subsequently within certain prescribed timelines.However, loans granted for implementation of projects in the infrastructure sector and the non-infrastructure sector that are restructured due to a delay in implementation of the project (up to a specified period) enjoy forbearance in asset classification subject to the fulfillment of certain conditions stipulated by the Reserve Bank of India.
The diminution in the fair value of a restructured loan, if any, measured in present value terms, is either written off or a provision is made to the extent of the diminution involved. A restructured loan, which is classified as a standard restructured loan, is subject to higher standard asset provisioning and higher risk weight for capital adequacy purposes than non-restructured standard loans up to the period specified in the guidelines. The specified period is a period of one year from the commencement of the first payment of interest or principal whichever is later on the credit facility with the longest moratorium as per the restructuring package during which payment performance is monitored. The loan continues to be classified as restructured until it reverts to the normal level of standard asset provisions/risk weights for capital adequacy purposes, which is a period of one year after the end of the specified period. Banks are required to disclose the aggregate fund-based credit facilities of borrowers whose loans were restructured.
See also “Supervision and Regulation—Loan Loss Provisions and Non-Performing Assets—Asset Classification”.
As per the Reserve Bank of India guidelines issued in May 2013, general provisions required on standard accounts restructured after June 1, 2013 was increased to 5.0%. The general provision required on standard accounts restructured before June 1, 2013 was increased to 3.5% from March 31, 2014, 4.25% from March 31, 2015 and 5.0% from March 31, 2016.
In June 2015, the Reserve Bank of India issued guidelines on strategic debt restructuring. The guidelines provide for conversion of debt into equity which results in majority ownership of the borrower by banks. On conversion of debt into equity, banks are allowed to continue with the current asset classification for an 18-month period (stand-still benefit). On transfer of ownership to a new management, the asset can be upgraded to the standard category and refinancing of the debt is allowed without such refinancing being treated as a restructuring. However, in the event a new sponsor is not identified within the 18-month period, the bank has to revert to the earlier asset classification norm as was applicable prior to the stand-still in asset classification. In September 2015, the Reserve Bank of India allowed banks to upgrade the credit facilities to standard category even in the event of a change in ownership of the borrower outside strategic debt restructuring. Considering the change in risk profile following the change in management, banks are allowed to refinance the existing debt without treating it as restructuring subject to the bank making provisions for any diminution in fair value of the existing debt. In February 2016, the Reserve Bank of India further revised its guidelines with regard to strategic debt restructuring allowing banks to classify the asset as standard upon divesting 26.0% of the shares of the company, which is lower than the earlier requirement of 51.0%. To avoid a sudden increase in provisioning in case the strategic debt restructuring fails, the guidelines require banks to increase provisions on such accounts to up to 15.0% by the end of the 18-month stand-still period, to be made over four quarters. In November 2016, Reserve Bank of India modified certain clauses of its guidelines issued in September 2015 allowing banks to undertake a change in management of a borrower outside the strategic debt restructuring framework. The Reserve Bank of India has issued a stand-still benefit on asset classification and provisioning on the same lines as the strategic debt restructuring scheme. The stand-still benefit could be 18 months where banks decide to change ownership either through conversion of debt into equity or through invocation of pledge of shares and 12 months if the change of ownership is effected by issue of new shares by the borrower company or sale of shares by the existing promoter to an acquirer.
As an additional measure to strengthen the ability of banks to deal with large stressed assets, in June 2016 the Reserve Bank of India issued guidelines introducing the Scheme for Sustainable Structuring of Stressed Assets. Projects that have commenced commercial operations and have aggregate borrowings (including
interest) of over Rs. 5.0 billion are eligible to be structured under the scheme. The sustainable debt level should not be less than 50.0% of current funded liabilities. The scheme will be applicable where the Joint Lenders’ Forum assesses the sustainable debt and concludes based on a techno-economic viability assessment that the current sustainable debt can be serviced over its tenor at current levels of cash flows. The portion assessed as unsustainable will be converted into equity or redeemable cumulative optionally convertible preference shares or convertible debentures and may attract higher provisioning. The scheme may include allowing the current promoter to continue with majority shareholding, or bringing in a new promoter, or lenders acquiring majority shareholding through conversion of debt into equity. In November 2016, the Reserve Bank of India modified certain clauses of its June 2016 guidelines onScheme for Sustainable Structuring of Stressed Assets. The revised guidelines ease the asset classification norms for banks while requiring them to hold higher provisions on the sustainable portion of the debt that is classified as standard. Further, the revised guidelines also provide a stand-still benefit of 180 days in asset classification from the ‘reference date’ in accounts where such structuring has been undertaken and flexibility in timelines within the overall period of 180 days in terms of activities to be performed during the ‘stand-still’ period.
The Reserve Bank of India allows banks to create floating provisions (i.e., provisions which are not made in respect of specific non-performing assets or are made in excess of regulatory requirements for provisions for standard assets). The floating provisions outstanding at year-end can be used only for contingencies under extraordinary circumstances for making specific provisions against non-performing accounts after obtaining approval from the board of directors and with the prior permission of the Reserve Bank of India. Until utilization of such provisions, they can be netted off from gross non-performing assets to compute the net non-performing assets. Alternatively, floating provisions could be treated as part of Tier 2 capital within the overall ceiling of 1.25% of total risk-weighted assets.
See also“Supervision and Regulation—Loan Loss Provisions and Non-Performing Assets—Restructured Loans”.
Provisioning and Write-Offs
We make provisions in accordance with the Reserve Bank of India’s guidelines. See also “Supervision and Regulation—Reserve Bank of India Regulations—Loan Loss Provisions and Non-Performing Assets—Provisioning and Write-offs”. The Reserve Bank of India guidelines on provisioning are as described below.
|
95
Apart from the provisions mentioned above, in accounts where the Bank has initiated a change in ownership by conversion of loans into shares under the Strategic Debt Restructuring or outside the Strategic Debt Restructuring mechanism, a provision of 15.0% is required to be made by the end of the 18 months stand-still period. These provisions have to be made over a period of four quarters on the residual loan after such conversion. See also “Overview of the Indian Financial Sector - Legislative Framework for Recovery of Debts due to Banks - Joint Lenders’ Forum”.These provisions are required to cover up for the deterioration in the asset classification and the resultant provisioning on the residual loan exposures in case the banks are not be able to complete the change of management within the ‘stand-still’ period as stipulated under the Reserve Bank of India guidelines.
In April 2017, the Reserve Bank of India advised banks to maintain provisions for standard assets at rates higher than the regulatory requirement, particularly in respect of advances to stressed sectors of the economy. Banks are required to put in place a Board-approved policy, to be reviewed on a quarterly basis, for making higher provisions based on evaluation of risk and stress in various sectors. As an immediate step, such evaluation in the telecom sector was required to be completed by June 30, 2017.
In June 2017, the Reserve Bank of India issued directions to banks to file for resolution under the Insolvency and Bankruptcy Code with the National Company Law Tribunal in respect of 12 large stressed accounts. The Reserve Bank of India has also directed banks to maintain a minimum prescribed provision for these cases referred to the National Company Law Tribunal. With respect to other identified stressed accounts,
the banks are required to finalize a resolution plan within six months. In cases where a viable resolution plan is not agreed upon within six months, banks shall be required to file for insolvency proceedings under the Insolvency and Bankruptcy Code. In the event of insolvency proceedings being initiated, banks would be required to hold provisions for the entire balance outstanding in the account.
Our Policy
We provide for non-performing corporate loans in line with the Reserve Bank of India guidelines. ICICI Bank provides for non-performing consumer loans at the borrower level in accordance with provisioning policy of ICICI Bank, subject to minimum provision requirements set by the Reserve Bank of India. Loss assets and the unsecured portion of doubtful assets are fully provided for or written off. The Bank holds specific provisions against non-performing loans, general provisions against performing loans and floating provision taken over from the erstwhile Bank of Rajasthan upon amalgamation. The Bank also holds specific provisions against certain performing loans and advances in accordance with the Reserve Bank of India’s directions. For restructured loans, provisions are made in accordance with the restructuring guidelines issued by the Reserve Bank of India. These provisions are assessed at a borrower level as the difference between the fair value of the loan, both before and after restructuring. In addition, the Bank holds a general provision of 5.0% of the outstanding balance of the restructured loan. The Bank makes a provision of 15.0%, within a period of four quarters, on the residual loan amount (after conversion of loans into shares) on loans where the Bank has initiated steps for a change in management of a borrower entity by acquiring a majority equity interest in the borrower’s share capital under the Reserve Bank of India’s guidelines on strategic debt restructuring or outside the scheme of strategic debt restructuring. Similarly, if borrowers have implemented projects which are facing stress and the Bank along with other lenders have implemented the scheme for sustainable structuring of stressed assets, the Bank makes provisions as per the Reserve Bank of India guidelines for such schemes.
The Bank may create floating provisions for the year as per a Board approved policy, which is in addition to the specific and general provisions made by the Bank. The floating provision can be utilized, with the approval of the Board and the Reserve Bank of India.
The Reserve Bank of India guidelines do not specify the conditions under which assets may be written-off. The Bank has internal policies for writing-off non-performing loans against loan loss allowances. Consumer loans other than mortgage loans and certain small value unsecured commercial loans are generally charged off against allowances after pre-defined periods of delinquency. Other loans, including mortgage loans, are generally charged off against allowances when, based on a borrower-specific evaluation of the possibility of further recovery, the Bank concludes that the balance cannot be collected. The Bank evaluates whether a balance can be collected based on the realizable value of collateral, the results of the Bank’s past recovery efforts, the possibility of recovery through legal recourse and the possibility of recovery through settlement.
Impact of Economic Environment on Commercial and Consumer Loan Borrowers
From fiscal 2010, the Indian corporate sector undertook significant investments, including in the infrastructure and commodity sectors. This led to high loan growth in the banking sector, including for us. Subsequently, the Indian economy experienced challenges in terms of high inflation and consequently higher interest rates, currency depreciation and a sharp slowdown in economic growth. The corporate sector experienced a decline in sales and profit growth, an elongation of working capital cycles and a high level of receivables, including from the government, and significant challenges in project completion and cash flow generation, due to policy changes, delays in approvals like clearances on environment and land, and judicial decisions like the deallocation of coal mines. Indian corporations, especially in the infrastructure and industrial sectors, had limited ability to access capital in view of the economic scenario and volatility in global and domestic financial markets. Corporate investment activity declined. From fiscal 2014 onwards, these developments led to an increase in non-performing and restructured corporate loans in the Indian banking sector, including us, and a substantial moderation in overall loan growth, driven primarily by lower growth in credit to the corporate sector. The corporate sector continued to be impacted due to lower than anticipated cash flow generation and high leverage. The significant decline in global commodity prices in fiscal 2015 and fiscal 2016, including metals, coal and crude oil, negatively impacted borrowers in commodity-linked sectors. Capital investments in the economy remained subdued impacting corporations in investment-linked sectors like construction. Due to the lower than projected cash flows, the progress in reducing leverage in the corporate sector was slow. Further, during the three months ended December 31, 2015, against the backdrop of
continuing challenges in the corporate sector, the Reserve Bank of India articulated an objective of early and conservative recognition of stress and provisioning and held discussions with and asked a number of Indian banks, including us, to review certain loan accounts and their classification over the six months ended March 31, 2016. As a result of the challenges faced by the corporate sector and the discussions with and review by the Reserve Bank of India, the Indian banking system, including us, experienced a substantial increase in the level of additions to non-performing loans, including slippages from restructured loans into non-performing status, and provisions during the second half of fiscal 2016.
During fiscal 2017, the additions to non-performing loans, including slippages from restructured loans, continued to remain elevated as the corporate sector challenges continued due to the slowdown in economic growth, low corporate profitability and subdued investment activity. The slowdown in economic growth was primarily in the industrial and services sectors, with growth in the industrial sector moderating to 5.6% during fiscal 2017 compared to 8.8% during fiscal 2016, and in the services sector to 7.7% in fiscal 2017 compared to 9.7% in fiscal 2016. Further, during the second half of fiscal 2017, there was a reduction in the availability of cash caused by the withdrawal of high denomination currency notes by the government of India, which also impacted businesses. While several companies are working with banks to restructure and reorganize their businesses and reduce their leverage through sales of businesses and assets, the process of resolution of stressed assets remained slower than expected due to delays in decision making at the Joint Lenders’ Forum that was set up to explore options for early resolution of stress in loan accounts. Several measures were announced by the Reserve Bank of India and the government, including the introduction of the Insolvency and Bankruptcy Code, during the year to enable early resolution of assets. However, the continued challenges in the operating and recovery environment adversely impacted the pace of resolution leading to a significant increase in non-performing loans, including slippages from restructured loans, during fiscal 2017. See also “Risk Factors—Risks Relating to Our Business—If the regulators continue to impose increasingly stringent requirements regarding non-performing loans and provisioning for such loans, or if the provisions for such loans otherwise increase, our business will suffer”, “Risk Factors—Risks Relating to Our Business—If we are unable to adequately control the level of non-performing loans in our portfolio, our business will suffer”, “Business—Strategy” and“Operating and Financial Review and Prospects— Executive Summary—Business environment —Trends in fiscal 2017”.
Various factors, including a rise in unemployment, prolonged recessionary conditions, decline in household savings and income levels, our regulators’ assessment and review of our loan portfolio, a sharp and sustained rise in interest rates, developments in the global and Indian economy, movements in global commodity markets and exchange rates and global competition could cause a further increase in the level of non-performing assets on account of retail and other loans and have a material adverse impact on the quality of our loan portfolio. See also “Risk Factors—Risks Relating to Our Business—If we are unable to adequately control the level of non-performing loans in our portfolio, our business will suffer” and “Business—Strategy”.
Non-Performing Assets
The following table sets forth, at the dates indicated, our gross non-performing rupee and foreign currency customer asset portfolio by business category.
At March 31, | ||||||||||||||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | ||||||||||||||||||||
Amount | Amount | Amount | Amount | Amount | Amount | |||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||
Consumer loans & credit card receivables(1) | Rs. | 49,156 | Rs. | 32,968 | Rs. | 25,504 | Rs. | 26,757 | Rs. | 28,062 | US$ | 433 | ||||||||||||
Rupee | 48,891 | 32,701 | 25,504 | 26,756 | 28,061 | 433 | ||||||||||||||||||
Foreign currency | 265 | 267 | – | 1 | 1 | – | ||||||||||||||||||
Commercial(2) | 57,914 | 89,929 | 148,296 | 266,389 | 430,792 | 6,643 | ||||||||||||||||||
Rupee | 42,939 | 61,481 | 99,288 | 155,482 | 228,643 | 3,526 | ||||||||||||||||||
Foreign currency | 14,975 | 28,448 | 49,008 | 110,907 | 202,149 | 3,117 | ||||||||||||||||||
Leasing and related activities | 95 | 97 | 70 | 70 | 7 | – | ||||||||||||||||||
Rupee | 95 | 97 | 70 | 70 | 7 | – | ||||||||||||||||||
Foreign currency | – | – | – | – | – | – | ||||||||||||||||||
Total non-performing assets | 107,165 | 122,994 | 173,870 | 293,216 | 458,861 | 7,076 | ||||||||||||||||||
Rupee | 91,925 | 94,279 | 124,862 | 182,308 | 256,711 | 3,959 | ||||||||||||||||||
Foreign currency | 15,240 | 28,715 | 49,008 | 110,908 | 202,150 | 3,117 | ||||||||||||||||||
Gross non-performing assets(3),(4) | 107,165 | 122,994 | 173,870 | 293,216 | 458,861 | 7, 076 | ||||||||||||||||||
Provision for loan losses | (78,016 | ) | (78,366 | ) | (96,655 | ) | (145,431 | ) | (188,530 | ) | (2,907 | ) | ||||||||||||
Net non-performing assets | Rs. | 29,149 | Rs. | 44,628 | Rs. | 77,215 | Rs. | 147,785 | Rs. | 270,331 | US$ | 4,169 | ||||||||||||
Gross customer assets(3) | Rs. | 4,001,517 | Rs. | 4,615,808 | Rs. | 5,149,278 | Rs. | 5,718,339 | Rs. | 5,923,253 | US$ | 91,338 | ||||||||||||
Net customer assets | Rs. | 3,914,869 | Rs. | 4,523,471 | Rs. | 5,026,019 | Rs. | 5,556,942 | Rs. | 5,720,375 | US$ | 88,209 | ||||||||||||
Gross non-performing assets as a percentage of gross customer assets | 2.7 | % | 2.7 | % | 3.4 | % | 5.1 | % | 7.7 | % | ||||||||||||||
Net non-performing assets as a percentage of net customer assets | 0.7 | % | 1.0 | % | 1.5 | % | 2.7 | % | 4.7 | % | ||||||||||||||
The following table sets forth, for the periods indicated, the change in our gross non-performing asset portfolio(1).
Particulars | 2013 | 2014 | 2015 | 2016 | 2017 | 2017 | ||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
A. Consumer loans & credit card receivables(2),(3) | ||||||||||||||||||||||||
Non-performing assets at the beginning of the fiscal year | Rs. | 67,356 | Rs. | 49,156 | Rs. | 32,968 | Rs. | 25,504 | Rs. | 26,757 | US$ | 413 | ||||||||||||
Addition: New non-performing assets during the year | 9,927 | 12,759 | 13,030 | 16,979 | 15,940 | 246 | ||||||||||||||||||
Less: | ||||||||||||||||||||||||
Upgrade(4) | (3,995 | ) | (3,314 | ) | (4,425 | ) | (6,323 | ) | (5,337 | ) | (82 | ) | ||||||||||||
Recoveries (excluding recoveries made from upgraded accounts) | (8,793 | ) | (6,049 | ) | (7,505 | ) | (6,626 | ) | (7,192 | ) | (112 | ) | ||||||||||||
Write-offs | (15,339 | ) | (19,584 | ) | (8,564 | ) | (2,777 | ) | (2,106 | ) | (32 | ) | ||||||||||||
Non-performing assets at the end of the fiscal year | Rs. | 49,156 | Rs. | 32,968 | Rs. | 25,504 | Rs. | 26,757 | Rs. | 28,062 | US$ | 433 | ||||||||||||
B. Commercial(5) | ||||||||||||||||||||||||
Non-performing assets at the beginning of the fiscal year | Rs. | 39,673 | Rs. | 57,914 | Rs. | 89,929 | Rs. | 148,296 | Rs. | 266,389 | US$ | 4,108 | ||||||||||||
Addition: New non-performing assets during the year | 28,992 | 40,839 | 77,915 | 161,423 | 332,341 | 5,125 | ||||||||||||||||||
Less: | ||||||||||||||||||||||||
Upgrade(4) | (4,083 | ) | (1,055 | ) | (1,500 | ) | (5,181 | ) | (4,741 | ) | (73 | ) | ||||||||||||
Recoveries (excluding recoveries made from upgraded accounts) | (3,947 | ) | (5,200 | ) | (7,434 | ) | (8,727 | ) | (39,209 | ) | (605 | ) | ||||||||||||
Write-offs | (2,721 | ) | (2,569 | ) | (10,614 | ) | (29,422 | ) | (123,988 | ) | (1,912 | ) | ||||||||||||
Non-performing assets at the end of the fiscal year | Rs. | 57,914 | Rs. | 89,929 | Rs. | 148,296 | Rs. | 266,389 | Rs. | 430,792 | US$ | 6,643 | ||||||||||||
C. Leasing and related activities | ||||||||||||||||||||||||
Non-performing assets at the beginning of the fiscal year | Rs. | 95 | Rs. | 95 | Rs. | 97 | Rs. | 70 | Rs. | 70 | US$ | 1 | ||||||||||||
Addition: New non-performing assets during the year | – | 2 | – | – | – | – | ||||||||||||||||||
Less: | ||||||||||||||||||||||||
Upgrade(4) | – | – | – | – | – | – | ||||||||||||||||||
Recoveries (excluding recoveries made from upgraded accounts) | – | – | (27 | ) | – | – | – | |||||||||||||||||
Write-offs | – | – | – | – | (63 | ) | (1 | ) | ||||||||||||||||
Non-performing assets at the end of the fiscal year | Rs. | 95 | Rs. | 97 | Rs. | 70 | Rs. | 70 | Rs. | 7 | US$ | – | ||||||||||||
D. Total non-performing assets (A+B+C) | ||||||||||||||||||||||||
Non-performing assets at the beginning of the fiscal year | Rs. | 107,124 | Rs. | 107,165 | Rs. | 122,994 | Rs. | 173,870 | Rs. | 293,216 | US$ | 4,522 | ||||||||||||
Addition: New non-performing assets during the year | 38,919 | 53,600 | 90,945 | 178,402 | 348,281 | 5,371 | ||||||||||||||||||
Less: | ||||||||||||||||||||||||
Upgrade(4) | (8,078 | ) | (4,369 | ) | (5,925 | ) | (11,504 | ) | (10,078 | ) | (155 | ) | ||||||||||||
Recoveries (excluding recoveries made from upgraded accounts) | (12,740 | ) | (11,249 | ) | (14,966 | ) | (15,353 | ) | (46,401 | ) | (717 | ) | ||||||||||||
Write-offs | (18,060 | ) | (22,153 | ) | (19,178 | ) | (32,199 | ) | (126,157 | ) | (1,945 | ) | ||||||||||||
Non-performing assets at the end of the fiscal year(5) | Rs. | 107,165 | Rs. | 122,994 | Rs. | 173,870 | Rs. | 293,216 | Rs. | 458,861 | US$ | 7,076 | ||||||||||||
The following table sets forth, at the dates indicated, gross non-performing assets by borrowers’ industry or economic activity and as a percentage of total non-performing assets.
At March 31, | ||||||||||||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | ||||||||||||||||||||||||||||||||||||||||
Amount | As a percentage of non-performing assets | Amount | As a percentage of non- performing assets | Amount | As a percentage of non-performing assets | Amount | As a percentage of non-performing assets | Amount | Amount | As a percentage of non-performing assets | ||||||||||||||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||||||||||||||||||
Retail finance(1) | Rs. | 59,786 | 55.8 | % | Rs. | 42,793 | 34.8 | % | Rs. | 35,199 | 20.2 | % | Rs. | 39,669 | 13.5 | % | Rs. | 38,224 | US$ | 589 | 8.3 | % | ||||||||||||||||||||||
Iron/steel and products | 1,993 | 1.9 | 3,795 | 3.1 | 9,871 | 5.7 | 65,175 | 22.2 | 85,557 | 1,319 | 18.6 | |||||||||||||||||||||||||||||||||
Power | 91 | 0.1 | 654 | 0.5 | 667 | 0.4 | 17,512 | 6.0 | 63,969 | 986 | 13.9 | |||||||||||||||||||||||||||||||||
Cement | – | – | 300 | 0.2 | 300 | 0.2 | – | – | 53,781 | 829 | 11.7 | |||||||||||||||||||||||||||||||||
Services—non finance | 9,144 | 8.5 | 15,598 | 12.7 | 25,890 | 14.9 | 36,408 | 12.4 | 43,659 | 673 | 9.5 | |||||||||||||||||||||||||||||||||
Mining | 804 | 0.8 | 900 | 0.7 | 1,629 | 0.9 | 779 | 0.3 | 40,112 | 619 | 8.7 | |||||||||||||||||||||||||||||||||
Construction | 2,237 | 2.1 | 3,188 | 2.6 | 8,686 | 5.0 | 23,679 | 8.1 | 38,347 | 591 | 8.4 | |||||||||||||||||||||||||||||||||
Roads, ports, telecom, urban development & other infrastructure | 142 | 0.1 | 9,922 | 8.1 | 22,781 | 13.1 | 30,904 | 10.5 | 23,043 | 355 | 5.0 | |||||||||||||||||||||||||||||||||
Shipping | 376 | 0.4 | 674 | 0.5 | 15,000 | 8.6 | 19,595 | 6.7 | 14,338 | 221 | 3.1 | |||||||||||||||||||||||||||||||||
Gems & jewelry | 3,008 | 2.8 | 4,081 | 3.3 | 5,311 | 3.1 | 8,205 | 2.8 | 9,455 | 146 | 2.1 | |||||||||||||||||||||||||||||||||
Food and beverages | 4,595 | 4.3 | 7,097 | 5.8 | 6,102 | 3.5 | 6,771 | 2.3 | 8,312 | 128 | 1.8 | |||||||||||||||||||||||||||||||||
Wholesale/retail trade | 4,165 | 3.9 | 4,064 | 3.3 | 4,840 | 2.8 | 5,896 | 2.0 | 7,033 | 108 | 1.5 | |||||||||||||||||||||||||||||||||
Crude petroleum/refining and petrochemicals | 2,467 | 2.3 | 2,637 | 2.1 | 2,750 | 1.6 | 2,914 | 1.0 | 3,816 | 59 | 0.8 | |||||||||||||||||||||||||||||||||
Electronics and engineering | 3,025 | 2.8 | 3,406 | 2.8 | 8,775 | 5.0 | 3,796 | 1.3 | 3,329 | 51 | 0.7 | |||||||||||||||||||||||||||||||||
Textile | 2,646 | 2.5 | 5,078 | 4.1 | 7,204 | 4.1 | 12,059 | 4.1 | 2,913 | 45 | 0.6 | |||||||||||||||||||||||||||||||||
Chemicals & fertilizers | 1,772 | 1.7 | 1,737 | 1.4 | 1,791 | 1.0 | 2,053 | 0.7 | 1,151 | 18 | 0.3 | |||||||||||||||||||||||||||||||||
Metal & products (excluding iron & steel) | 1,336 | 1.2 | 1,350 | 1.1 | 1,719 | 1.0 | 2,102 | 0.7 | 1,081 | 17 | 0.2 | |||||||||||||||||||||||||||||||||
Services—finance | 1 | – | 569 | 0.5 | 558 | 0.3 | 523 | 0.2 | – | – | – | |||||||||||||||||||||||||||||||||
Other Industries(2) | 9,577 | 8.9 | 15,151 | 12.3 | 14,797 | 8.6 | 15,176 | 5.2 | 20,741 | 322 | 4.8 | |||||||||||||||||||||||||||||||||
Gross non-performing assets | Rs. | 107,165 | 100.0 | % | Rs. | 122,994 | 100.0 | % | Rs. | 173,870 | 100.0 | % | Rs. | 293,216 | 100.0 | % | Rs. | 458,861 | US$ | 7,076 | 100.0 | % | ||||||||||||||||||||||
Aggregate provision for loan losses | (78,016 | ) | (78,366 | ) | (96,655 | ) | (145,431 | ) | (188,530 | ) | (2,907 | ) | ||||||||||||||||||||||||||||||||
Net non-performing assets | Rs. | 29,149 | Rs. | 44,628 | Rs. | 77,215 | Rs. | 147,785 | Rs. | 270,331 | US$ | 4,169 |
See“– Classification of Loans – Impact of Economic Environment on Commercial and Consumer Loan Borrowers”.See also “Operating and Financial Review and Prospects—Executive Summary-Business environment-Trends in fiscal 2017”.
From fiscal 2010, the Indian corporate sector undertook significant investments, including in the infrastructure and commodity sectors. This led to high loan growth in the banking sector, including for us. Subsequently, the Indian economy experienced challenges in terms of high inflation and consequently higher interest rates, currency depreciation and a sharp slowdown in economic growth. The corporate sector experienced a decline in sales and profit growth, an elongation of working capital cycles and a high level of receivables, including from the government, and significant challenges in project completion and cash flow generation, due to policy changes, delays in approvals like clearances on environment and land, and judicial decisions like the deallocation of coal mines. Indian corporations, especially in the infrastructure and industrial sectors, had limited ability to access capital in view of the economic scenario and volatility in global and domestic financial markets. Corporate investment activity declined. From fiscal 2014 onwards, these developments led to an increase in non-performing and restructured corporate loans in the Indian banking sector, including us, and a substantial moderation in overall loan growth, driven primarily by lower growth in credit to the corporate sector. The corporate sector continued to be impacted due to lower than anticipated cash flow generation and high leverage. The significant decline in global commodity prices in fiscal 2015 and fiscal 2016, including metals, coal and crude oil, negatively impacted borrowers in commodity-linked sectors. Capital investments in the economy remained subdued impacting corporations in investment-linked sectors like construction. Due to the lower than projected cash flows, the progress in reducing leverage in the corporate sector was slow. Further, during the three months ended December 31, 2015, against the backdrop of continuing challenges in the corporate sector, the Reserve Bank of India articulated an objective of early and conservative recognition of stress and provisioning and held discussions with and asked a number of Indian banks, including us, to review certain loan accounts and their classification over the six months ended March 31, 2016. As a result of the challenges faced by the corporate sector and the discussions with and review by the Reserve Bank of India, the Indian banking system, including us, experienced a substantial increase in the level of additions to non-performing loans, including slippages from restructured loans, into non-performing status during the second half of fiscal 2016.
During fiscal 2017, the additions to non-performing loans, including slippages from restructured loans, and provisions remained elevated as the corporate sector challenges continued due to the slowdown in economic growth, low corporate profitability and subdued investment activity. The slowdown in economic growth was primarily in the industrial and services sectors, with growth in the industrial sector moderating to 5.6% during fiscal 2017 compared to 8.8% during fiscal 2016, and in the services sector to 7.7% in fiscal 2017 compared to 9.7% in fiscal 2016. Further, during the second half of fiscal 2017, there was a reduction in the availability of cash due to the withdrawal of high denomination currency notes by the government of India, which also impacted businesses. While several companies are working with banks to restructure and reorganize their businesses and reduce their leverage through sales of businesses and assets, the process of resolution of stressed assets remained slower than expected due to delays in decision making at the Joint Lenders’ Forum that was set up to explore options for early resolution of stress in loan accounts. Several measures were announced by the Reserve Bank of India and the government, including the introduction of the Insolvency and Bankruptcy Code, during the year to enable early resolution of assets. However, the continued challenges in the operating and recovery environment adversely impacted the pace of resolution leading to a significant increase in non-performing loans, including slippages from restructured loans, during fiscal 2017.
At year-end fiscal 2016, ICICI Bank had disclosed its fund-based exposure and outstanding non-fund based facilities internally rated below investment grade (excluding borrowers classified as non-performing or restructured) to the iron and steel, mining, power, rigs and cement sectors and promoter entities internally rated below investment grade where the underlying was partly linked to these sectors, amounting to Rs. 440.7 billion. Of the Rs. 440.7 billion, Rs. 200.5 billion classified to non-performing category during fiscal 2017. Further, in fiscal 2017, restructured standard commercial loans amounting to Rs. 48.4 billion were classified as non-performing due to failure of the borrowers to perform as per the restructured debt terms. In fiscal 2017, there was a devolvement of non-fund facilities amounting to Rs. 18.0 billion related to accounts classified as non-performing in prior periods. As a result, gross additions to non-performing commercial loans increased significantly from Rs. 161.4 billion in fiscal 2016 to Rs. 332.3 billion in fiscal 2017. During fiscal 2017, we
upgraded non-performing commercial loans amounting to Rs. 4.7 billion and made recoveries of non-performing commercial loans amounting to Rs. 39.2 billion. During fiscal 2017, commercial loans amounting to Rs. 124.0 billion were written-off. In fiscal 2017, the Bank undertook certain steps as part of its non-performing assets strategy during the year. Certain large value non-performing loans, were sold to debt aggregators such as securitization/reconstruction companies as part of the Bank’s recovery strategy and the differences between gross value of loans and the sale consideration was written-off, primarily against the allowances already held. Certain non-performing loans were written-off based on borrower-specific evaluation of the probability of recovery and collectability of the loans. This resulted in a higher level of write-off in fiscal 2017. Gross non-performing commercial loans increased from Rs. 266.4 billion at year-end fiscal 2016 to Rs. 430.8 billion at year-end fiscal 2017. There was an increase in gross non-performing assets in the cement sector by Rs. 53.8 billion, in the power sector by Rs. 46.5 billion, in the mining sector by Rs. 39.3 billion, in the iron/steel and products sector by Rs. 20.4 billion and in the construction sector by Rs. 14.7 billion.
The aggregate fund based exposure and outstanding non-fund based facilities to companies that were internally rated below investment grade in the above sectors and promoter entities decreased from Rs. 440.7 billion at year-end fiscal 2016 to Rs. 190.4 billion at year-end fiscal 2017 primarily due to classification of loans to non-performing category, net reduction in exposure and upgrade of credit ratings of loans, offset, in part, by a downgrade of credit ratings of loans. The fund based exposure and non-fund based facilities outstanding to below investment grade companies in the above sectors, amounted to Rs.190.4 billion at year-end fiscal 2017 including non-fund based facilities outstanding to companies where the fund-based facility outstanding was classified as non-performing asset in fiscal 2017. Apart from this, ICICI Bank’s non-fund based facilities outstanding to borrowers classified as non-performing was Rs. 19.3 billion at year-end fiscal 2017.
Gross additions to non-performing consumer loans were Rs. 15.9 billion in fiscal 2017 as compared to Rs. 17.0 billion in fiscal 2016. During fiscal 2017, we upgraded non-performing consumer loans of Rs. 5.3 billion as compared to Rs. 6.3 billion in fiscal 2016. During fiscal 2017, we made recoveries against non-performing consumer loans of Rs. 7.2 billion and written-off loans of Rs. 2.1 billion. Gross non-performing consumer loans increased from Rs. 26.8 billion at year-end fiscal 2016 to Rs. 28.1 billion at year-end fiscal 2017.
In November 2016, the Reserve Bank of India extended the period for recognizing a loan account as non-performing by an additional period of 60 days, where dues were payable between November 1, 2016 and December 31, 2016. The guideline was applicable to working capital accounts/crop loans and term loans up to Rs. 10 million. Further, in December 2016, this benefit was extended by another 30 days, over and above the earlier period of 60 days, in case of working capital accounts/crop loans and term loans for business purposes of up to Rs. 10 million. Accordingly, at year-end fiscal 2017, the Bank has not classified Rs. 2.23 billion of such loans in the non-performing category that otherwise would have been classified as non-performing had these extensions not occurred.
As a result of above, our gross non-performing assets increased by 56.5% from Rs. 293.2 billion at year-end fiscal 2016 to Rs. 458.9 billion at year-end fiscal 2017. Our net non-performing assets increased by 82.9% from Rs. 147.8 billion at year-end fiscal 2016 to Rs. 270.3 billion at year-end fiscal 2017. The net non-performing asset ratio increased from 2.7% at year-end fiscal 2016 to 4.7% at year-end fiscal 2017.
Restructured Loans
The following table sets forth, at the dates indicated, our gross standard restructured rupee and foreign currency loan portfolio by business category.
At March 31, | ||||||||||||||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | ||||||||||||||||||||
Amount | Amount | Amount | Amount | Amount | Amount | |||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||
Consumer loans & credit card receivables | Rs. | 388 | Rs. | 297 | Rs. | 221 | Rs. | 94 | Rs. | 168 | US$ | 3 | ||||||||||||
Rupee | 152 | 185 | 221 | 94 | 168 | 3 | ||||||||||||||||||
Foreign currency | 236 | 112 | - | - | - | - | ||||||||||||||||||
Commercial(1) | 66,919 | 133,151 | 130,566 | 98,580 | 50,687 | 781 | ||||||||||||||||||
Rupee | 47,314 | 83,258 | 86,694 | 73,972 | 35,139 | 541 | ||||||||||||||||||
Foreign currency | 19,605 | 49,893 | 43,872 | 24,608 | 15,548 | 240 | ||||||||||||||||||
Total restructured loans | 67,307 | 133,448 | 130,787 | 98,674 | 50,855 | 784 | ||||||||||||||||||
Rupee | 47,466 | 83,443 | 86,915 | 74,067 | 35,307 | 544 | ||||||||||||||||||
Foreign currency | 19,841 | 50,005 | 43,872 | 24,608 | 15,548 | 240 | ||||||||||||||||||
Gross restructured loans(2) | 67,307 | 133,448 | 130,787 | 98,674 | 50,855 | 784 | ||||||||||||||||||
Provision for loan losses | (5,294 | ) | (11,235 | ) | (9,458 | ) | (7,581 | ) | (3,012 | ) | (46 | ) | ||||||||||||
Net restructured loans | Rs. | 62,013 | Rs. | 122,213 | Rs. | 121,329 | Rs. | 91,093 | Rs. | 47,843 | US$ | 738 | ||||||||||||
Gross customer assets(2) | Rs. | 4,001,517 | Rs. | 4,615,808 | Rs. | 5,149,278 | Rs. | 5,718,339 | Rs. | 5,923,253 | US$ | 91,338 | ||||||||||||
Net customer assets | Rs. | 3,914,869 | Rs. | 4,523,471 | Rs. | 5,026,019 | Rs. | 5,556,942 | Rs. | 5,720,375 | US$ | 88,209 | ||||||||||||
Gross restructured loans as a percentage of gross customer assets | 1.7 | % | 2.9 | % | 2.5 | % | 1.7 | % | 0.9 | % | ||||||||||||||
Net restructured loans as a percentage of net customer assets | 1.6 | % | 2.7 | % | 2.4 | % | 1.6 | % | 0.8 | % | ||||||||||||||
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.
At March 31, | ||||||||||||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | ||||||||||||||||||||||||||||||||||||||||
Amount | As a percent- age of restruc- tured loans | Amount | As a percent- age of restruc- tured loans | Amount | As a percent-age of restruc- tured loans | Amount | As a percent- age of restruc- tured loans | Amount | Amount | As a percent- age of restruc- tured loans | ||||||||||||||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||||||||||||||||||
Construction | Rs. | 5,453 | 8.1 | % | Rs. | 19,168 | 14.4 | % | Rs. | 34,718 | 26.5 | % | Rs. | 34,470 | 34.9 | % | Rs. | 18,893 | US$ | 291 | 37.2 | % | ||||||||||||||||||||||
Roads, port, telecom, urban development & other infrastructure | 16,282 | 24.2 | 24,214 | 18.1 | 13,580 | 10.4 | 15,090 | 15.3 | 8,271 | 128 | 16.3 | |||||||||||||||||||||||||||||||||
Power | 3,828 | 5.7 | 7,879 | 5.9 | 13,378 | 10.2 | 2,080 | 2.1 | 1,296 | 20 | 2.5 | |||||||||||||||||||||||||||||||||
Drugs and pharmaceuticals | 6,993 | 10.4 | 12,574 | 9.4 | 12,364 | 9.5 | 4,708 | 4.8 | 3,680 | 57 | 7.2 | |||||||||||||||||||||||||||||||||
Services-non finance | 8,632 | 12.8 | 15,930 | 11.9 | 10,515 | 8.0 | 2,747 | 2.8 | 89 | 1 | 0.2 | |||||||||||||||||||||||||||||||||
Iron/steel & products | 1,913 | 2.8 | 11,072 | 8.3 | 9,006 | 6.9 | 9,517 | 9.6 | 1,570 | 24 | 3.1 | |||||||||||||||||||||||||||||||||
Electronics & engineering | 3,642 | 5.4 | 6,364 | 4.8 | 8,351 | 6.4 | 7,735 | 7.8 | 3,191 | 49 | 6.3 | |||||||||||||||||||||||||||||||||
Chemicals & fertilizers | 6,261 | 9.3 | 7,196 | 5.4 | 7,737 | 5.9 | 634 | 0.6 | 367 | 6 | 0.7 | |||||||||||||||||||||||||||||||||
Services-finance | 5,595 | 8.3 | 4,967 | 3.7 | 5,054 | 3.9 | 2,239 | 2.3 | - | - | - | |||||||||||||||||||||||||||||||||
Mining | – | – | – | – | 3,502 | 2.7 | 3,936 | 4.0 | - | - | - | |||||||||||||||||||||||||||||||||
Shipping | 881 | 1.3 | 9,688 | 7.3 | 2,270 | 1.7 | 3,033 | 3.1 | 2,799 | 43 | 5.5 | |||||||||||||||||||||||||||||||||
Textiles | 1,510 | 2.2 | 4,435 | 3.3 | 1,845 | 1.4 | 196 | 0.2 | 218 | 3 | 0.4 | |||||||||||||||||||||||||||||||||
Food & beverages | 720 | 1.1 | 1,898 | 1.4 | 1,494 | 1.1 | 2,519 | 2.6 | 886 | 14 | 1.7 | |||||||||||||||||||||||||||||||||
Wholesale/retail trade | 1,588 | 2.4 | 1,716 | 1.3 | 1,269 | 1.0 | – | – | – | – | – | |||||||||||||||||||||||||||||||||
Metal & products (excluding iron & steel) | – | – | 217 | 0.2 | 251 | 0.2 | – | – | – | – | – | |||||||||||||||||||||||||||||||||
Retail finance | 388 | 0.6 | 297 | 0.2 | 221 | 0.2 | 94 | 0.1 | 168 | 3 | 0.3 | |||||||||||||||||||||||||||||||||
Manufacturing products (excluding metals) | 3,004 | 4.5 | 76 | 0.1 | 202 | 0.2 | 235 | 0.2 | 384 | 6 | 0.8 | |||||||||||||||||||||||||||||||||
Cement | 320 | 0.5 | – | – | – | – | – | – | – | – | – | |||||||||||||||||||||||||||||||||
Automobile (including trucks) | – | – | – | – | – | – | – | – | 1,187 | 18 | 2.3 | |||||||||||||||||||||||||||||||||
Crude petroleum/ refining & petrochemicals | – | – | – | – | – | – | 8,114 | 8.2 | 7,856 | 121 | 15.4 | |||||||||||||||||||||||||||||||||
Others | 297 | 0.4 | 5,757 | 4.3 | 5,030 | 3.8 | 1,327 | 1.3 | 1 | 0 | 0.0 | |||||||||||||||||||||||||||||||||
Gross restructured loans | Rs. | 67,307 | 100.0 | % | Rs. | 133,448 | 100 | % | Rs. | 130,787 | 100 | % | Rs. | 98,674 | 100 | % | Rs. | 50,855 | US$ | 784 | 100 | % | ||||||||||||||||||||||
Aggregate provision for loan losses | (5,294 | ) | (11,235 | ) | (9,458 | ) | (7,581 | ) | (3,012 | ) | (46 | ) | ||||||||||||||||||||||||||||||||
Net restructured loans | Rs. | 62,013 | Rs. | 122,213 | Rs. | 121,329 | Rs. | 91,093 | Rs. | 47,843 | US$ | 738 |
During fiscal 2017, we restructured loans of borrowers classified as standard, as well as made additional disbursements to borrowers whose loans had been restructured in prior years, aggregating Rs. 6.9 billion, as compared to Rs. 33.0 billion during fiscal 2016. Further, during fiscal 2017, restructured standard loans amounting to Rs. 48.4 billion were classified as non-performing due to failure of borrowers to perform as per restructured debt terms, compared to Rs. 53.0 billion during fiscal 2016.Restructured loans amounting to Rs. 6.3 billion were repaid in fiscal 2017 as compared to Rs. 12.1 billion in fiscal 2016. The gross outstanding standard restructured loans decreased by 48.5% from Rs. 98.7 billion at year-end fiscal 2016 to Rs. 50.9 billion at year-end fiscal 2017 and the net outstanding restructured loans decreased by 47.9% from Rs. 91.1 billion at year-end fiscal 2016 to Rs. 47.8 billion at year-end fiscal 2017.
Further, at year-end fiscal 2017, ICICI Bank’s outstanding non-fund based facilities to borrowers whose loans were classified as restructured were Rs. 16.9 billion.
In fiscal 2017, we sold commercial loans made to 35 borrowers with aggregate book value (net of provision) of Rs. 37.1 billion to asset reconstruction companies. In fiscal 2016, we sold commercial loans made to seven borrowers with aggregate book value (net of provision) of Rs. 6.7 billion to asset reconstruction companies. See also “—Classification of Loans—Non-Performing Asset Strategy”.
The net standard restructured loans, as a percentage of net customer assets decreased from 1.6% at year-end fiscal 2016 to 0.8% at year-end fiscal 2017. The outstanding provision on restructured loans (including the provision for funded interest) decreased from Rs. 7.6 billion at year-end fiscal 2016 to Rs. 3.0 billion at year-end fiscal 2017.See also“Operating and Financial Review and Prospects—Provisions for Non-Performing Assets and Restructured Loans”.
The aggregate gross non-performing assets and gross standard restructured loans increased by Rs. 117.8 billion, or 30.1%, from Rs. 391.9 billion at year-end fiscal 2016 to Rs. 509.7 billion at year-end fiscal 2017. The aggregate net non-performing assets and net restructured loans increased by Rs. 79.3 billion, or 33.2%, from Rs. 238.9 billion at year-end fiscal 2016 to Rs. 318.2 billion at year-end fiscal 2017.
In fiscal 2016, the Reserve Bank of India issued guidelines on strategic debt restructuring and change in management, which provide for a stand-still period during which the loan continues to be classified as standard even if the default in payment of interest or principal would otherwise have required the loan to be classified as non-performing. At year-end fiscal 2017, we had implemented strategic debt restructuring in respect of standard loans aggregating Rs. 52.4 billion, including loans amounting to Rs. 16.6 billion classified as restructured. In addition, strategic debt restructuring had been invoked and was pending implementation for standard loans of Rs. 12.1 billion at year-end fiscal 2017, including loans amounting to Rs. 6.6 billion classified as restructured.
Further, in fiscal 2015, the Reserve Bank of India had issued guidelines permitting banks to refinance long-term project loans to infrastructure and other core industries at periodic intervals without such refinancing being considered as restructuring. The amount of loans for which this refinancing scheme had been implemented was Rs. 48.9 billion at year-end fiscal 2017, out of which Rs. 26.8 billion was classified as standard. See also “Supervision and Regulation—Regulations Relating to Advancing Loans”.
Apart from the strategic debt restructuring scheme, the Reserve Bank of India has issued guidelines with respect to loans to borrowers, whose ownership is undergoing change outside the strategic debt restructuring framework. The Reserve Bank of India guidelines allow the stand-still benefit in line with strategic debt restructuring scheme. ICICI Bank had initiated the process of change of ownership outside strategic debt restructuring for a borrower with gross loans outstanding of about Rs. 51.1 billion at year-end fiscal 2017.
During fiscal 2017, the Reserve Bank of India has introduced the scheme for sustainable structuring of stressed assets (S4A) and issued guidelines which seek to strengthen banks’ ability to undertake resolution of large borrower accounts that are facing financial difficulties on account of delays in completing large projects. The scheme aims at enabling lenders to initiate deep financial restructuring, subject to fulfillment of certain conditions, for sustainable revival of projects. The scheme envisages bifurcation of the current dues of a borrower into sustainable debt and other than sustainable debt as per an independent study of the viability of the borrower’s operations. The scheme also envisages that the asset classification of the borrower as on a ‘reference date’ (date in which the lenders jointly decide to invoke the scheme) will continue for a period of 180 days (stand-still period). At year-end fiscal 2017, ICICI Bank implemented the sustainable structuring of stressed assets scheme in two standard borrower accounts with an aggregate balance outstanding of about Rs. 2.9 billion,
comprising Rs. 1.6 billion of sustainable debt and Rs. 1.4 billion of unsustainable debt. See also “Supervision and Regulation—Regulations Relating to Advancing Loans”.
Non-Performing Asset Strategy
In respect of unviable non-performing assets, where companies have lost financial viability, we adopt an aggressive approach aimed at out-of-court settlements, enforcing collateral and driving consolidation. Our focus is on time value of recovery and a pragmatic approach towards settlements. The collateral against our loan assets is the critical factor towards the success of our recovery efforts. In certain accounts where the value of collateral against our loan has been eroded we undertake charge offs against loan loss allowances held. However, we continue to pursue recovery efforts in these accounts, either jointly along with other lenders or individually through legal recourse and settlements. In addition, we focus on proactive management of accounts under supervision. Our strategy constitutes a proactive approach towards identification, aimed at early stage solutions to incipient problems.
Our strategy for resolution of non-performing assets includes sales of financial assets to asset reconstruction companies in exchange for receipt of securities in the form of pass-through instruments issued by asset reconstruction companies, wherein payments to holders of the securities are based on the actual realized cash flows from the transferred assets. Under Indian GAAP, these instruments are valued at the net asset values as declared by the asset reconstruction companies in accordance with the Reserve Bank of India guidelines. Under U.S. GAAP, the assets we sell in exchange for security receipts are not accounted for as sales either because transfers do not qualify for sale accounting under FASB ASC Topic 860, “Transfers and servicing”, or transfers were impacted by FASB ASC Subtopic 810-10, “Consolidation – overall”, whereby, because the Bank is the ‘primary beneficiary’ of certain of these funds/trusts, it is required under U.S. GAAP to consolidate these entities. These assets are considered restructured assets under U.S. GAAP. See also “Supervision and Regulation—Reserve Bank of India Regulations—Regulations relating to Sale of Assets to Asset Reconstruction Companies”. We sold net non-performing assets to asset reconstruction companies amounting to Rs. 0.1 billion in fiscal 2013, Rs. 1.5 billion in fiscal 2014, Rs. 3.3 billion in fiscal 2015, Rs. 6.7 billion in fiscal 2016 and Rs. 37.1 billion in fiscal 2017. At year-end fiscal 2017, we had an outstanding net investment of Rs. 32.9 billion in security receipts issued by asset reconstruction companies in relation to sales of our non-performing assets. We are also permitted to sell financial assets, classified as standard assets that are overdue for more than 60 days to asset reconstruction companies in terms of the Reserve Bank of India guidelines. We sold financial assets classified as standard amounting to Rs. 3.2 billion in fiscal 2016 and Rs. 5.8 billion in fiscal 2017.
As part of strategy for resolution of stressed assets, the Bank along with other lenders undertakes strategic debt restructuring in terms of the Reserve Bank of India guidelines. In terms of these guidelines the Bank, along with other lenders, takes steps for change in management in certain accounts by acquiring a majority ownership of these borrowers through conversion of debt into equity with forbearance in asset classification for a pre-defined period of 18 months (stand-still benefit). A failure to arrive at a resolution at the end of the stand-still period would result in such loans being classified as non-performing. Apart from strategic debt restructuring, the Bank also undertakes steps to change the management outside the Strategic Debt Restructuring framework under the Reserve Bank of India’s guidelines. In large borrower accounts that are facing financial difficulties on account of delays in completing large projects, the Bank takes measures along with other lenders in the banking arrangement for deep financial restructuring under the scheme for sustainable structuring of stressed assets introduced by the Reserve Bank of India. These measures are expected to assist in sustainable revival of the projects by bifurcating the existing loans of these borrowers into sustainable debt and other than sustainable debt based on independent studies of viability of the borrowers’ operations.
In May 2016, the Insolvency and Bankruptcy Code was enacted which provides for a time-bound revival and rehabilitation of stressed assets. Further, in June 2017, an ordinance was promulgated by the government, which empowers the Reserve Bank of India to intervene and advise banks on resolution of stressed assets. Subsequently, the Reserve Bank of India issued directions to banks to file for resolution under the Insolvency and Bankruptcy Code with the National Company Law Tribunal in respect of 12 large stressed accounts. The Reserve Bank of India has also directed banks to make a provision for these cases to the extent of 50.0% of the secured portion and 100.0% of the unsecured portion of the outstanding loans or the provision required as per the existing guidelines of the Reserve Bank of India, whichever is higher. These provisions are required to be spread proportionately from the three months ended September 30, 2017 to the three months ended March 31, 2018. With respect to other identified stressed accounts, the banks are required to finalize a resolution plan within six months. In cases where a viable resolution plan is not agreed upon within six months, banks shall be required to file for insolvency proceedings under the Insolvency and Bankruptcy Code. Banks will be required to make 100.0% provision on the loans in which the liquidation order is passed by the National Company Law Tribunal. At year-end fiscal 2017, the Bank had fund-based exposure of about Rs. 69.0 billion on these borrowers with provision coverage of about 36.0%. Banks are in discussion and in the process of recommending these cases to the National Company Law Tribunal.
We monitor migration of the credit ratings of our borrowers to enable us to take proactive remedial measures to prevent loans from becoming non-performing. We review the industry outlook and analyze the impact of changes in the regulatory and fiscal environment. Our periodic review system helps us to monitor the health of accounts and to take prompt remedial measures. We generally stipulate that corporate loans should be collateralized at the date of the loan’s origination. 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 may also take as security a pledge of financial assets, including marketable securities, and obtain corporate guarantees and personal guarantees wherever appropriate. In certain cases, the terms of financing include covenants relating to sponsors’ shareholding in the borrower and restrictions on the sponsors’ ability to sell all or part of their shareholding. Covenants involving equity shares have top-up mechanism based on price triggers. We maintain the non-performing assets on our books for as long as the enforcement process is ongoing. Accordingly, a non-performing 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 that for U.S. banks under similar circumstances. See also “—Loan portfolio—Collateral—Completion, Perfection and Enforcement”.
Secured loans to retail customers are secured by first and exclusive liens 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. In respect of our retail loans, we adopt a standardized collection process to ensure prompt action for follow-up on overdue loans and recovery of defaulted amounts.
Provision for Loan Losses
The following table sets forth, at the periods indicated, the change in the provisions for our non-performing asset portfolio.(1)
At March 31, | ||||||||||||||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | 2017 | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
A. Consumer loans & credit card receivables(2),(3) | ||||||||||||||||||||||||
Aggregate provision for loan losses at the beginning of the year | Rs. | 56,928 | Rs. | 42,642 | Rs. | 25,587 | Rs. | 16,752 | Rs. | 16,052 | US$ | 248 | ||||||||||||
Add: Provision made during the year | 7,630 | 7,015 | 4,580 | 6,097 | 7,110 | 109 | ||||||||||||||||||
Less: Provision utilized for write-off | (15,339 | ) | (19,584 | ) | (8,609 | ) | (2,778 | ) | (2,106 | ) | (33 | ) | ||||||||||||
Less: Write-back of excess provision | (6,577 | ) | (4,486 | ) | (4,806 | ) | (4,019 | ) | (3,847 | ) | (59 | ) | ||||||||||||
Aggregate provision for loan losses at the end of the year | Rs. | 42,642 | Rs. | 25,587 | Rs. | 16,752 | Rs. | 16,052 | Rs. | 17,209 | US$ | 265 | ||||||||||||
B. Commercial(4) | ||||||||||||||||||||||||
Aggregate provision for loan losses at the beginning of the year | Rs. | 22,852 | Rs. | 35,279 | Rs. | 52,682 | Rs. | 79,833 | Rs. | 129,309 | US$ | 1,994 | ||||||||||||
Add: Provision made during the year | 16,658 | 21,977 | 38,278 | 81,046 | 163,996 | 2,529 | ||||||||||||||||||
Less: Provision utilized for write-off | (1,996 | ) | (2,454 | ) | (9,107 | ) | (26,866 | ) | (114,415 | ) | (1,764 | ) | ||||||||||||
Less: Write-back of excess provision | (2,235 | ) | (2,120 | ) | (2,020 | ) | (4,704 | ) | (7,576 | ) | (117 | ) | ||||||||||||
Aggregate provision for loan losses at the end of the year | Rs. | 35,279 | Rs. | 52,682 | Rs. | 79,833 | Rs. | 129,309 | Rs. | 171,314 | US$ | 2,642 | ||||||||||||
C. Leasing and related activities | ||||||||||||||||||||||||
Aggregate provision for loan losses at the beginning of the year | Rs. | 95 | Rs. | 95 | Rs. | 97 | Rs. | 70 | Rs. | 70 | US$ | 1 | ||||||||||||
Add: Provision made during the year | – | 2 | – | – | – | – | ||||||||||||||||||
Less: Provision utilized for write-off | – | – | – | – | (63 | ) | (1 | ) | ||||||||||||||||
Less: Write-back of excess provision | – | – | (27 | ) | – | – | – | |||||||||||||||||
Aggregate provision for loan losses at the end of the year | Rs. | 95 | Rs. | 97 | Rs. | 70 | Rs. | 70 | Rs. | 7 | US$ | – | ||||||||||||
D. Total provision (A+B+C) | ||||||||||||||||||||||||
Aggregate provision for loan losses at the beginning of the year | Rs. | 79,875 | Rs. | 78,016 | Rs. | 78,366 | Rs. | 96,655 | Rs. | 145,431 | US$ | 2,243 | ||||||||||||
Add: Provision made during the year | 24,288 | 28,994 | 42,858 | 87,143 | 171,106 | 2,638 | ||||||||||||||||||
Less: Provision utilized for write-off | (17,335 | ) | (22,038 | ) | (17,716 | ) | (29,644 | ) | (116,584 | ) | (1,798 | ) | ||||||||||||
Less: Write-back of excess provision | (8,812 | ) | (6,606 | ) | (6,853 | ) | (8,723 | ) | (11,423 | ) | (176 | ) | ||||||||||||
Aggregate provision for loan losses at the end of the year | Rs. | 78,016 | Rs. | 78,366 | Rs. | 96,655 | Rs. | 145,431 | Rs. | 188,530 | US$ | 2,907 | ||||||||||||
As discussed in “— Classification of Loans—Restructured Loans” and “—Non-Performing Assets”, there has been a significantly higher increase in additions to non-performing loans across industrial sectors in fiscal 2016 and 2017. This has resulted in higher provisions in fiscal 2016 and fiscal 2017. The provisions, net of write-back of excess provisions, increased from Rs. 78.4 billion in fiscal 2016 to Rs. 159.7 billion in fiscal 2017, primarily due to higher provision on commercial loans.
ICICI Bank had disclosed its fund-based exposure and outstanding non-fund based facilities internally rated below investment grade (excluding borrowers classified as non-performing or restructured) at year-end fiscal 2016 to the iron and steel, mining, power, rigs and cement sectors and promoter entities internally rated below investment grade where the underlying asset was partly linked to these sectors. In view of the uncertainties relating to these sectors and the time that it might take to resolve the Bank’s exposure to these sectors, the Bank had made a collective contingency and related reserve in fiscal 2016 amounting to Rs. 36.0 billion towards these exposures to these sectors. This reserve was over and above the provisions required for non-performing and restructured loans as per the Reserve Bank of India guidelines but, as a prudent matter, is permitted under the Reserve Bank of India guidelines and Indian GAAP. During fiscal 2017, ICICI Bank allocated the full amount of the collective contingency and related reserve towards the provisions for loans and fixed assets acquired in partial satisfaction of loans.
Potential problem loans
When management has doubts as to a borrower’s ability to comply with loans’ repayment terms, the Bank considers these loans as potential problem loans. At year-end fiscal 2017, the Bank had Rs. 267.6 billion in potential problem loans, which were not classified as non-performing or restructured assets. Potential problem loans at year-end fiscal 2017 included below investment grade loans to power, mining and iron & steel and certain promoter entities where the underlying is partly linked to these sectors. We closely monitor these loans and the borrowers of these loans for compliance with the loan repayment terms. We also similarly monitor past-due loans and below-investment grade loans, as discussed in Schedule 18B of the consolidated financial statements.
Subsidiaries, Associates and Joint Ventures
The following table sets forth certain information relating to our subsidiaries, and joint ventures and consolidated entities at year-end fiscal 2017.2023.
Name | Year of formation | Activity | Ownership interest | Total income(1) | Net worth(2) | Total assets(3) | ||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||
ICICI Venture Funds Management Company Limited | January 1988 | Private equity/ venture capital fund management | 100.00 | % | Rs. | 932 | Rs. | 2,068 | Rs. | 3,878 | ||||||||||
ICICI Securities Primary Dealership Limited | February 1993 | Securities investment, trading and underwriting | 100.00 | % | 16,271 | 9,435 | 131,704 | |||||||||||||
ICICI Prudential Asset Management Company Limited | June 1993 | Asset management company for ICICI Prudential Mutual Fund | 51.00 | % | 13,497 | 7,332 | 9,973 | |||||||||||||
ICICI Prudential Trust Limited | June 1993 | Trustee company for ICICI Prudential Mutual Fund | 50.80 | % | 6 | 13 | 15 | |||||||||||||
ICICI Securities Limited | March 1995 | Securities broking & merchant banking | 100.00 | % | 14,039 | 4,851 | 20,402 | |||||||||||||
ICICI International Limited | January 1996 | Asset management | 100.00 | % | 11 | 88 | 94 | |||||||||||||
ICICI Trusteeship Services Limited | April 1999 | Trusteeship services | 100.00 | % | 1 | 6 | 6 | |||||||||||||
ICICI Home Finance Company Limited | May 1999 | Housing finance | 100.00 | % | 10,528 | 16,072 | 94,274 | |||||||||||||
ICICI Investment Management Company Limited | March 2000 | Asset management | 100.00 | % | 25 | 109 | 110 | |||||||||||||
ICICI Securities Holdings Inc. | June 2000 | Holding company | 100.00 | % | 0.4 | 127 | 128 | |||||||||||||
ICICI Securities Inc. | June 2000 | Securities broking | 100.00 | % | 164 | 136 | 208 | |||||||||||||
ICICI Prudential Life Insurance Company Limited | July 2000 | Life insurance | 54.89 | % | 380,850 | 64,080 | 1,247,425 | |||||||||||||
ICICI Lombard General Insurance Company Limited | October 2000 | General insurance | 63.31 | % | 132,189 | 44,038 | (4) | 233,509 | ||||||||||||
ICICI Bank UK PLC | February 2003 | Banking | 100.00 | % | 9,223 | 34,580 | 225,663 | |||||||||||||
ICICI Bank Canada | September 2003 | Banking | 100.00 | % | 10,627 | 30,460 | 307,601 | |||||||||||||
ICICI Prudential Pension Fund Management Company Limited(5) | April 2009 | Pension fund management | 100.00 | % | Rs. | 24 | Rs. | 270 | Rs. | 279 | ||||||||||
Name | Year of formation | Activity | Ownership interest | Total income(1) | Net worth(2) | Total assets(3) |
(in millions, except percentages) | ||||||
ICICI Venture Funds Management Company Limited | January 1988 | Private Equity/venture capital fund management | 100.00% | Rs. 886 | Rs. 2,474 | Rs. 3,017 |
ICICI Securities Primary Dealership Limited(4) | February 1993 | Securities investment, trading and underwriting | 100.00% | 13,743 | 15,822 | 344,631 |
ICICI Prudential Asset Management Company Limited(4) | June 1993 | Asset management company for ICICI Prudential Mutual Fund | 51.00% | 28,382 | 23,131 | 28,048 |
105
Name | Year of formation | Activity | Ownership interest | Total income(1) | Net worth(2) | Total assets(3) |
ICICI Prudential Trust Limited | June 1993 | Trustee company for ICICI Prudential Mutual Fund | 50.80% | 12 | 17 | 20 |
ICICI Securities Limited(4) | March 1995 | Securities broking & Merchant Banking | 74.85% | 34,223 | 28,251 | 155,365 |
ICICI International Limited | January 1996 | Asset management | 100.00% | 43 | 122 | 129 |
ICICI Trusteeship Services Limited | April 1999 | Trusteeship Services | 100.00% | 2 | 9 | 9 |
ICICI Home Finance Company Limited(4) | May 1999 | Housing Finance | 100.00% | 19,508 | 28,070 | 189,449 |
ICICI Investment Management Company Limited | March 2000 | Asset management and investment advisory | 100.00% | 124 | 187 | 238 |
ICICI Securities Holdings Inc.(4)(5) | June 2000 | Holding company | 100.00% | 3 | 133 | 134 |
ICICI Securities Inc.(4)(5) | June 2000 | Securities Broking | 100.00% | 222 | 365 | 435 |
ICICI Prudential Life Insurance Company Limited | July 2000 | Life insurance | 51.27% | 509,292 | 100,918(6) | 2,558,472 |
ICICI Bank UK PLC | February 2003 | Banking | 100.00% | 6,750 | 26,158 | 176,013 |
ICICI Bank Canada | September 2003 | Banking | 100.00% | 14,060 | 25,256 | 363,465 |
ICICI Prudential Pension Funds Management Company Limited(7) | April 2009 | Pension fund management and Points of Presence | 100.00% | 164 | 577 | 652 |
ICICI Strategic Investments Fund(8) | February 2003 | Venture capital fund | 100.00% | Rs. 9 | Rs. 119 | Rs. 153 |
106
(4) Includes share capital, share application money-pending allotment, securities premium and fair value reserve.
The following table sets forth certain information on other significant entities whose results were included in the consolidated financial statements under Indian GAAP at year-end fiscal 2017.
Name | Year of formation | Activity | Ownership interest | Total income(1) | Net worth(2) | Total assets(3) | ||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||
ICICI Strategic Investments Fund(4)
| February 2003 | Unregistered venture capital fund | 100.00 | % | Rs. | 159 | Rs. | 227 | Rs. | 273 | ||||||||||
I-Process Services (India) Private Limited(5) | April 2005 | Services related to back end operations | 19.00 | % | 3,652 | (72 | ) | 548 | ||||||||||||
NIIT Institute of Finance, Banking and Insurance Training Limited(5) | June 2006 | Education and training in banking and finance | 18.79 | % | 169 | 114 | 138 | |||||||||||||
ICICI Merchant Services Private Limited(5) | July 2009 | Merchant servicing | 19.01 | % | 2,135 | 2,915 | 5,016 | |||||||||||||
India Infradebt Limited(5) | October 2012 | Infrastructure finance | 31.00 | % | 3,347 | 4,280 | 49,394 | |||||||||||||
India Advantage Fund-III(5) | June 2005 | Venture Capital Fund | 24.10 | % | 167 | 3,782 | 4,099 | |||||||||||||
India Advantage Fund-IV(5) | August 2005 | Venture Capital Fund | 47.14 | % | Rs. | 115 | Rs. | 2,750 | Rs. | 2,787 | ||||||||||
(1) | Total income represents gross income from operations and other income of the entity. |
(2) | Net worth represents share |
(3) | Total assets represent fixed assets, advances, investments and gross current assets (including cash and bank balances) of the entity. |
(4) | Number as per respective entity Ind AS financial statements pursuant to migration to Ind AS by these entities. |
(5) | ICICI Securities Holdings Inc. and ICICI Securities Inc. are a wholly owned subsidiary of ICICI Securities Limited. |
(6) | Includes share capital, share application money-pending allotment, securities premium and fair value reserve. |
(7) | ICICI Prudential Pension Funds Management Company Limited is a wholly owned subsidiary of ICICI Prudential Life Insurance Company Limited. |
(8) | This entity has been consolidated as per Accounting Standard 21 – Consolidated Financial Statements. |
The following table sets forth certain information on our affiliates whose results were included in the consolidated financial statements under Indian GAAP at year-end fiscal 2023.
Name(1) | Year of formation | Activity | Ownership interest | Total income(2) | Net worth(3) | Total assets(4) |
(in millions, except percentages) | ||||||
ICICI Lombard General Insurance Company Limited | October 2000 | General insurance | 48.02% | Rs. 262,483 | Rs. 106,061(5) | Rs. 550,862 |
I-Process Services (India) Private Limited | April 2005 | Services related to back end operations | 19.00% | 9,576 | 471 | 1,525 |
NIIT Institute of Finance, Banking and Insurance Training Limited | June 2006 | Education and training in banking, finance and insurance | 18.79% | 193 | 161 | 245 |
ICICI Merchant Services Private Limited | July 2009 | Merchant acquiring and servicing | 19.01% | 6,617 | 6,334 | 9,509 |
India Infradebt Limited | October 2012 | Infrastructure finance | 42.33% | 16,321 | 28,063 | 193,017 |
India Advantage Fund-III | June 2005 | Venture capital fund | 24.10% | 2 | 624 | 908 |
India Advantage Fund-IV | August 2005 | Venture capital fund | 47.14% | 1 | 569 | 576 |
Arteria Technologies Private Limited | February 2007 | Software company | 19.98% | Rs. 364 | Rs. 333 | Rs. 624 |
107
These entities have been accounted for as per the equity method as prescribed by AS 23 on ‘Accounting for Investments in Associates in Consolidated Financial Statements’. |
(2) | Total income represents gross income from operations and other income of the entity. |
(3) | Net worth represents share capital/unit capital (in case of venture capital funds) and reserves and surplus of the entity. |
Note: During fiscal 2017, FINO Pay Tech Limited ceased to be a consolidating entity and accordingly have not been consolidated.
(4) | Total assets represent fixed assets, advances, investments and gross current assets (including cash and bank balances) of the entity. |
(5) | Includes share capital, share application money-pending allotment, securities premium and fair value reserve. |
At year-end fiscal 2017,2023, all of our subsidiaries and joint ventures were incorporated in India, except the following five companies:
· | ICICI Securities Holdings Inc., incorporated in the United States; |
· | ICICI Securities Inc., incorporated in the United States; |
· | ICICI Bank UK PLC, incorporated in the United Kingdom; |
· | ICICI Bank Canada, incorporated in Canada; |
· | ICICI International Limited, incorporated in Mauritius. |
ICICI Securities Holdings Inc. is a wholly owned subsidiary of ICICI Securities Limited and ICICI Securities Inc. is a wholly owned subsidiary of ICICI Securities Holdings Inc. ICICI Securities Holdings Inc. and ICICI Securities Inc. are consolidated in ICICI Securities’ Limited’s financial statements.
We continue to endeavor to be at the forefront of usage of technology in the financial services sector. We strive to use information technology as a strategic tool for our business operations, to gain competitive advantage and to improve our overall productivity and efficiency. We aim to bring in high levels of functionality to all our channels such as branches, internet banking, ATMs, mobile banking, tablet banking which involves opening bank accounts using tablets, phone banking and Facebook banking where banking facilities are provided through a social network, and at the same time continue to improve and strengthen security, infrastructure and networks. We continue to invest in technologies to provide a secure, superior, seamless and uniform service experience to customers across all channels. In order to enable organization-level coordinated efforts and enhance our focus on leveraging technology and capitalizing on opportunities in the digital space, we created a technology and digital group in the Bank, headed by a Chief Technology and Digital Officer, which integrates all the technology teams as well as the digital channels, business intelligence and analytics teams with a view to building strategic synergies across business groups. The technology and digital group is also responsible for incubating innovative projects and developing partnerships in the digital space.
Our technology initiatives are aimed at enhancing value, offering customers greater convenience and improved service levels while optimizing costs. Our focus on technology emphasizes:
Electronic and online channels to:
The application of information systems for:
We also seek to leverage our domestic technology capabilities in our international operations.
Technology Organizationorganization
OurDedicated technology and digital group has been created to provide an integrated technology and digital agendateams are responsible for the Bankimplementation and support of technology platforms and solutions used across various business groups including retail, corporate, smallfunctions. Besides the business facing technology teams, there are technology operations and medium enterprises and treasury. The group comprises a digital channels group focused on internet banking and mobile solutions, a digital partnerships group for developing partnerships with technology-driven companies, a business technology group to support core banking and other systems used by business groups, a corporate center technology group to provide technology systems used by the corporate center, markets and human resources groups, a technology infrastructure teams responsible for providing. monitoring and maintaining the technology solutions including data center and cloud infrastructure of the Bank. The Technology Management Group is a team which is responsible for the technology management groupstrategy of the Bank including implementation of enterprise architecture. Our startup engagement and investment team seeks to provideleverage innovation in the required infrastructure,startup and an innovation lab that will be prototyping, incubating and piloting strategic digital projects.technology ecosystem.
Banking Application SoftwareDigital platforms and journeys for retail customers
We use banking applications like a core banking system, loan management system,artificial intelligence and credit card management system, all of which are flexiblemachine learning based engines to develop customer profiles and scalable and allow us to serve our growing customer base. A central stand-in server ensures services all days of the week, throughout the year, to thecurate personalized offerings for them. We offer various delivery channels even if the primary systems are unavailable. Our core banking loan management and credit card management systems are flexible and scalable to serve our growing customer base. Our backup systems are strengthened to improve management and governance relating to backups.
Electronic and Online Channels
We use a combination of physical and electronic delivery channels to maximize customer choice and convenience, which has helped to differentiate our products in the marketplace. Our branch banking software is flexible and scalable and integrates seamlessly with our electronic delivery channels. At year-end fiscal 2017, wehad 13,882automated teller machines across India. Our automated teller machines have additional featuressolutions such as instant fund transfer, billaccount opening, payment solutions, home loans, automobile loans, personal loans, credit cards, term life insurance, health insurance and insurance premium payment. At year-end fiscal 2017, we had110fully automated Touch Banking branches that provide 24-hour simple and convenient electronic banking to customers. At these branches, customers can perform banking transactions like cash deposits, cash withdrawals and interact with our customer service staff through video-conferencing facilities. Our employees open new customer accounts using tablets to capture customer information digitally in order to minimize physical documents and improve efficiency in opening of new deposit accounts.
We offer a number of online banking servicesinvestment solutions to our customers for both corporatesuiting their life-stage needs through our digital channels –via our retail internet banking platform and retail products and services. Our website offers a seamless and customized experience across multiple devices. It also gives differential experience to different customer segments. Our call centers across locations at Thane and Hyderabad are operational around the clock and are equipped with multiple leading edge systems such as interactive voice response systems, automatic call distribution, computer telephony integration and voice recorders. We seek to use the latest technology in these call centers to provide an integrated customer view to the call center agents to get a complete overview of the customer’s relationship with us. The database enables customer segmentation and assists the call agent in identifying and executing cross-selling opportunities. Our banking application on Facebook allows customers to access their account details, view account statements and place service requests.
We also have innovative payment services on Twitter, through which customers can transfer funds while using Twitter.
We offer mobile banking services in India in line with our strategy to offer multi-channel access to our customers. This service has now been extended to all mobile telephone service providers across India and non-resident Indian customers in certain other countries where we have a presence. In recent years, we have enhanced our focus on mobile banking in view of the growing use of mobile phones for various applications. During fiscal 2016, we migrated our mobile banking application, iMobile Pay. Our retail internet banking platform offers users a native dashboard, semantic and personalized search options and an interface that can be personalized by them to suit their requirements and preferences. The open architecture based feature of iMobile Pay allows users to make payments using unified payments interface even if they do not have an account with us. The features ‘Pay to contact’ and ‘Scan to Pay’ continued to drive payments growth in fiscal 2023. These features have led to an enhanced frameworkincrease in adoption of iMobile Pay. We continuously seek to improve user experience on iMobile Pay to attract more customers. Other features introduced on iMobile Pay include the personal finance management solution, a unique personal finance, expense and revamped the applicationbudget management tool to make it comprehensiveengage with customers digitally and now, offers more than 165 services, which are available across all mobile platforms.help them manage their finances effectively. The offerings integratedapp also introduced a ‘One view card’, a dedicated card in the app, where customers can see all pre-approved loans and card offers in one click. There are over 400 services on the app, with a voice search that makes navigation across these services quick and convenient.
108
We use video interaction for carrying out Know Your Customer while onboarding new customers. We offer instant home loan approvals, car loan disbursements, personal loan disbursements and credit cards that are accessible entirely through our retail internet banking platform and iMobile Pay. The processing of loans is digitized, enabling instant disbursement to pre-approved customers. We also offer an instant digital credit facility, PayLater, on iMobile Pay which enables pre-approved customers to access instant credit for buying small ticket items through unified payments interface. iLens is an integrated, digital lending solution for mortgages which covers all facets of loan lifecycle starting from sales till disbursement, including property appraisal. It is a single interface for employees, third party agencies and distribution channels with the objective of providing smooth transaction experience and enhanced operational efficiency. iLens has an inbuilt customer interface “TrackMyLoan” through which the customers can track real time status of their loan application, submit documents, respond to queries and access various communications and documents like an approval letter or fees acknowledgment. Mortgage is the first retail product which went live on iLens platform and other retail products are in the process of being on-boarded. This is expected to further enable the customersBank to enjoyprovide enhanced customer experience and increase its ability to capture the option of loggingentire customer 360° ecosystem in through either their mobile pin (MPIN) or personalized username, initiate a transaction before reachingfrictionless and digital way, thereby creating value for customer and the branch through Insta Banking, purchase insurance and mutual funds, pay taxes and avail forex services. It allows customers to directly call our call center, withdraw cash from automated teller machines without using a card, tag frequent transactions as favorites and receive alerts from Google Now and Touch ID (from Apple) as an alternate authentication method for secured login. During fiscal 2017, we introduced Chatbots, an artificial intelligence enabled chat featureto perform various banking activities.Bank.
Our online remittance solution is also available as a mobile application across major platformsDigital payments and allows customers to track exchange rates and initiate remittance transactions. In the area of remittances, we have focused on products that can expedite money transfer and offer convenience to customers in remitting money to India. We have enhanced our remittance services, Money2India website and mobile application, for seamless experience and offer round the clock instant transfers.partnerships
We launchedhave continued to strengthen our e-wallet calledposition in the “Pockets”digital payments ecosystem by designing seamless journeys for customers, facilitating higher volumes and prompting recurrent transactions. Our strategy is to participate in fiscal 2015,unified payments interface, which is a mobile application allowing an individual to transact on any website or mobile application in India. The e-wallet allows for thefunds transfer system that enables real-time movement of funds, to any email ID, mobile number, friend on Facebookboth directly through our own platforms, and bank account,partner with third party players in the paymentpeer-to-peer and peer-to-merchant space.
FASTag is an electronic toll collection system in India operated by the National Highways Authority of bills andIndia through prepaid radio frequency identification tags. We are one of the booking of tickets. We have also provided solutionsleading banks in areas like urban mass rapid transit payment systems and electronic toll collection on highways andthrough FASTag. We have developed exclusive cards withnot only pioneered the convenienceusage of automatic top-up of the balance availableFASTag for transit or toll payments thus minimizing waiting timeat various national and state highway but also expanded the usage of FASTag for making such payments.
We launched electronic toll collectionsparking payments at airports, malls, hospitals and transit card solutions during fiscal 2017. We introduced transit cards for metro trains and have tied up with metro operators in Delhi, Mumbai, Hyderabad, Bengaluru and Ahmedabad. We have issued prepaid radio frequency identification tags for vehicles for electronic toll collection and have also developed a central clearing house to processtech parks across the toll payments.country.
We have launched two digital initiativespartnerships such as with Amazon Pay, a leading global ecommerce company, and MakeMyTrip, a leading Indian online travel portal, Emirates Skywards and others to simplify and speed up the assessment for new home loansoffer co-branded credit cards. We offer these credit cards to our customers as well as disbursements linkednon-ICICI Bank account holders. Amazon Pay credit cards continued to see healthy traction with over 4.0 million Amazon Pay credit cards were issued until year-end fiscal 2023. We aim to provide comprehensive solutions to the construction stagenew-to-bank customers that have been acquired through Amazon Pay credit cards. The growth in credit card transactions was driven by higher activation rate through digital onboarding of projects. The first initiative called ‘Express Home Loans’ allows online approval of home loans within eight working hours. This service is availablecustomers, including Amazon Pay credit cards, and automated and effective portfolio management.
Digital platforms and solutions for all salaried individuals, including non-ICICI Bank customers. The second initiative helps individuals taking home loans for under construction projects to get subsequent disbursements through our ‘iLoans’ mobile application.rural customers
We also launched ause imagery from observation satellites to measure an array of parameters related to the land, irrigation and crop patterns which is used in combination with demographic and financial parameters to make expeditious lending decisions for farmers. This has helped in reducing the time taken for credit assessment.
Technology in debt service management
Our Debt Servicing practice has been built on the core of leveraging on technology and advanced data analytics that enables us to reach Right Customer at the Right Time using non-intrusive channel at an optimal cost. We collect over 40% of our early defaults through Machine Learning Technology (“MLT”)
109
based risk models using contactless mobilechannel i.e. interactive voice bot, intelligent Interactive Voice Response (“IVR”) and Short Messaging Service (“SMS”) in more than 13+ languages. We have been using various digital payment solution which allows cashless payments using smartphones, thereby eliminatingthat helps in collecting over 90% of payment digitally. For our Rural portfolio we use satellite based images and data algorithms to enhance the need to carry cash or debit and credit cards. In fiscal 2016, we had launched a virtual mobile application development challenge called ‘ICICI Appathon’ tapping into the immense talent of a techno-innovative generation to bring new ideas and develop the next generation of banking applications on mobile phones. During fiscal 2017, an idea presented by a participant at the appathon was adopted, leading to the introduction of a new feature on our mobile platform, “iMobile Smartkeys”. This enables making payments using a smartphone keyboard while being on any other application or browser.collection efficiencies.
Digital platforms and journeys for business banking customers, small and medium enterprise customers, merchant ecosystem and ecommerce ecosystem
Our digital platform, InstaBIZ, is a one stop solution for all banking needs catering to small and medium enterprises, individuals, proprietors and merchants. We worked closelyhave seen an increase in the engagement level of customers on the InstaBIZ app. In line with evolving trends of shift towards open architecture, the National Payments Corporation of IndiaInstaBIZ app is interoperable and is available to both ICICI Bank customers and non-ICICI Bank customers for availing the developmentmultiple product offerings. Any customer can now open current account instantly through Know Your Customer Video (video KYC) in a seamless paperless manner which leverages our Application Programme Interfaces that auto fill the account opening form and validate the identity of the Unified Payment Interface, a payment platform which allows instant transfer of funds to any bank accountmerchant instantly using a virtual payment address and without requiring bank account details.The Unified Payment Interface has been promoted by us through various platforms. We introduce Unified Payment Interface in our mobile application and our digital wallet. We also enabled payment through the Bharat Interface for Money, a mobile application promoted by the government of India and built using the Unified Payment Interface. We enabled payments using the Unified Payment Interface for users of the Truecaller app in India. We launched a mobile application for merchants in India,‘Eazypay’Permanent Account Number/Aadhaar number. Through ‘InstaOD Plus’, which allows merchants to accept payments on mobile phones through multiple modes including credit/debit cardscustomers of any bank internetcan avail an overdraft up to Rs. 2.5 million instantly. Our customers can activate the overdraft facility into their current account instantly, while customers of other banks can do so after opening of a current account with us digitally by using Know Your Customer video. The ‘Manage and Grow your business’ section within InstaBIZ is powered by multiple banking partners for accounting, taxation, analytics and networking. Customers can use auto-reconciliation with accounting partners, which gives the customer a single click experience for all his business needs without having to manage between different platforms.
Our Trade Online platform allows customers to perform most of their trade finance and foreign exchange transactions, such as regularization of bill of entry and export bills, accessing letters of credit and fixed deposit backed bank guarantees, accessing export credit, and facilitating import and export bill collections digitally. The platform also enables clients to manage regulatory compliances. With a view to meet the working capital requirements of exporters, we have launched Insta Export Packing Credit (Insta EPC), a digital solution, which offers instant export finance to customers. The process automates the entire scrutiny cycle through integrations with various internal and external applications.
During fiscal 2023, we launched APIs for trade finance, a solution that establishes a direct communication channel by linking the customer’s enterprise resource planning (“ERP”) and the Bank’s internal systems in a secure and seamless manner. Trade APIs enable end-to-end encryption of data and real-time updates. It helps in streamlining the flow of information from the customers’ ERP to the Bank’s systems. Electronic Bank Guarantee (“eBG”) is an Application Programming Interface (“API”) based digital workflow, which eliminates physical issuance, stamping, authentication and paper intensive record maintenance of bank guarantees.
Our strategy in the merchant ecosystem space involves onboarding merchants through acquiring platforms or by providing them payment gateways and then cross-selling other financial products and services seamlessly. Our “Merchant STACK” offers an array of banking and value-added services to retailers, online businesses and large e-commerce firms. The main pillars of the Merchant STACK include a zero-balance Super Merchant Current Account which offers various benefits such as digital account opening and instant overdraft facilities based on point-of-sale transactions. Current accounts for individuals and sole proprietors can now be opened swiftly through the video KYC process. Throughout fiscal year 2023, we have continued our investment efforts in enriching the product offerings for merchants by introducing new functionalities such as e rupee redemption, voice notification of quick response (“QR”) transactions on the Instabiz app, acceptance of Rupay credit card on QR, customized settlement cycles and more. Merchants can also perform instant reconciliation by using the Connected
110
Banking services, which integrates banking with the merchants’ accounting system. The Merchant STACK also offers a digital wallet.store management feature for invoicing, inventory and collections management.
We have taken several steps to expedite transaction processing using technology. We have introduced software robotics, and are using over 500 software robots to perform over a million banking transactions every working day. This has enabledThe e-commerce ecosystem lends significant opportunities for us to significantly reduceoffer digital solutions to customers and merchants selling their goods through e-commerce websites. Our ‘Cardless Equated Monthly Instalment (“EMI”)’ facility enables our response timepre-approved customers to our customers.
Inconvert their transactions into equated monthly installments at the check-out section of the e-commerce website or mobile application. Some key solutions offered to e-commerce entities and their sellers include an initiative to promote aoverdraft facility, composite pay Application Programme Interfaces enabling payments through various channels, foreign currency fixed deposit, working capital and easy payment solutions. For customers utilizing e-commerce platforms, we offer solutions such as digital culturewallets, prepaid cards, co-branded credit cards, and a less cash economy ininstantaneous credit through the villages, we have undertaken a program to promote use of digital technology in the villages. This program encompasses digitization of transactions and commercial activities in the villages, besides providing credit facilities and market linkages. Through the ICICI Foundation for Inclusive Growth, we are also providing vocational training for livelihood generation in the villages. During fiscal 2017, we converted 100 villages into ICICI Digital Villages. We also launched a mobile application for rural customers, ‘Mera iMobile’, which allows users in rural areas to access banking services as well as information in agricultural services.Bank's PayLater solution.
High-Speed Electronic Communications InfrastructureDigital platforms and solutions for corporate and institutional customers and their ecosystems
“ICICI STACK for Corporates” offering comprehensive solutions to corporates and their ecosystem like channel partners, dealers, vendors, employees and other stakeholders, thus bringing the full range of banking services to the customer. ICICI STACK for Corporates offers customized services to companies in over 20 key industries and their entire ecosystem. Armed with the Bank’s state-of-the art digital platforms, these services can further be tailor-made for companies within an industry. The four main pillars of ‘ICICI STACK for Corporates’ are (1) digital banking solutions for corporates; (2) digital supply chain management solutions; (3) digital banking services for employees; and (4) curated services for senior client personnel. Platforms offered to corporate customers as a part of ICICI STACK for Corporates include Corporate Internet Banking, Trade Online and FX Online, and other platforms. Trade Emerge, an online platform for cross-border trade, is a one stop solution for all the trade related needs of exporters and importers. It eliminates the need for companies to coordinate with multiple touchpoints. Trade Emerge has also been integrated with Corporate Internet Banking and InstaBIZ and Trade Online to ensure that all banking and other needs of exporters and importers are fulfilled inside the ICICI ecosystem. Since the launch of Trade Emerge in fiscal 2022, the platform has witnessed an encouraging response from both ICICI and non-ICICI customers. During fiscal year 2023, we increased the scope of services being offered on Trade Emerge platform by partnering with service providers who are industry leaders. These additional services include warehousing, inland logistics, logistics documentation and regulatory information. We have also enabled instant and hassle free current account opening on Trade Emerge and have set up a dedicated phone banking team, which will help us in catering to customer needs more quickly.
Our solutions to meet the needs of customers and their ecosystems are supported by robust online channels and Application Programme Interfaces that aim to impart convenience and efficiency to our clients.
Supply chain financing is an integral part and a focus area towards deepening our coverage of the corporate ecosystem. Our wide range of supply chain and structured trade products offers a one stop solution to corporate clients and their supply chain partners helping in optimizing their working capital needs and increasing efficiencies in their ecosystem. These supply chain solutions are offered digitally through our platforms namely OneSCF, FSCM, CorpConnect and DigitalLite, wherein corporates can seamlessly manage their supply chain requirements of payments, collection, data reconciliation and customized dashboards in a convenient and paperless environment thereby bringing in efficiencies in the corporates supply chain management. Our digital approving engine assess the credit eligibility of the corporate’s dealers and vendors for credit through business rule engine, Goods and Services Tax returns, intelligent algorithm with automated bureau checks, dedupe checks.
111
We have a nationwide data communications backbone linkingstrong focus on integrating banking with corporate ERP system using API not only for financial transactions but also for non-financial transactions. Few of these are fixed deposit creation, bank reconciliations, holding collections then validating with ERP and confirming before crediting to corporate bank accounts. To give a one-stop solution for all our channelsstatutory requirements of the customer, we facilitated online payment of customs duty along with direct taxes, Goods and offices. The network is designed for extensive reachServices Tax and redundancy, which are imperative in a vast country like India.
Operations Relating to Commercial Banking for Corporate Customersvarious others tax payments.
Our corporate banking back office operations are centralized and we have a business process management solution to automate our activities in the areas of trade services and general banking operations. Through integration of the workflow system with the imaging and document management system, we have achieved substantial savings and practically eliminated the use of paper for these processes. We have a comprehensive payments solution for institutional and government customers. We have an online tendering platform, supporting multiple payment modes and covering various electronic collection and payment products. Under the new goods and services tax regime introduced in July 2017, we have been authorized to collect taxes by the government of India, which will facilitate payment of taxes by corporates directly to the government. We are also building on new technologies to simplify and expedite processes. During fiscal 2017, we executed pilot transactions in international trade finance and remittance using blockchain technology.
We upgraded our treasury-trading infrastructure to a state-of-the-arthas an internet protocol telephony based architecture. We have also enhanced our existing process of automation in the treasury business, thus reducing trading risks and enhancing market competitiveness. The iTreasury feature on our corporate internet banking platforms offers a unified, intuitive, one-view dashboard to corporates to meet their treasury requirements. We have centralized the processing systems of treasuries of all our overseas branches and banking subsidiaries. As a result, the processing of transactions as well as the applications used for deal entry are now centrally located and maintained in India.
Customer Relationship ManagementTransforming into BankTech
In fiscal 2023, we continued to progress on our journey from Bank to BankTech and invested in key technology solutions which provide us competitive edge across business and operational capabilities. From a business perspective, the priorities driving our technology focus include improving customers’ digital experiences across various touch points and enabling sales and cross-selling of products and services with data serving as the foundation for informed decision-making leading to the creation of comprehensive value propositions for customers. We constantly upgrading and strengthening the technology infrastructure with a goal to build a secure, stable and resilient technology infrastructure and improving operational efficiency. Business process optimisation through adoption of intelligent automation platforms including robotic processes have implemented aenabled efficiency across business and operational functions. These have brought about faster turnaround time besides enabling increased capacity for handling transaction volumes and customer relationship management solution forrequirements. As part of our technology strategy, we focus on creating an enterprise architecture framework across digital platforms, data and analytics, micro services-based architecture, cloud computing, cognitive intelligence and other emerging technologies. This is based on the automationfounding pillars of scalability, modularity, flexibility and agility, resilience and reliability, and creating delightful and digitally native customer service requests in allexperiences to enable sustainable profitable growth. The key retail products. The solution helps in trackingpriorities that dominate our technology requirements include our technology platforms, embedded banking, cloud adoption and timely resolution of various customer queriesdata platforms and issues. The solution has been deployed at the telephone banking call centers as well as at a large number of branches.
Data Warehousing and Data Mininganalytics.
We have a dedicated data science and analytics team that works across business areas on projects relating to business analytics, decision strategies, forecasting models, machine learning, rule engines and performance monitoring. We maintain a comprehensive enterprise wide data warehouse and employ statistical and modelling tools for customer data aggregation and data mining initiatives. We have implemented an enterprise application integration initiative across our retail and corporate products and services, to link various products, delivery and channel systems. This initiative follows from our multi-channel customer service strategy and seeks to deliver customer related information consistently across access points. It also aims to provide us with valuable information to compile a unified customer view and creates various opportunities associated with cross-selling and upselling other financial products.leading-edge analytics.
In driving an innovation and start-up mindset, we have set up an Innovation Centre to collaborate with and invest in fintech startups and co-develop products aligned with the Bank’s digital roadmap. The engagements with the startups are focused on payments, digital lending, customer experience, risk management and platforms.
Data Center and Disaster Recovery System
We have a data center at Hyderabad, which is designed to optimize energy efficiency and accommodate high server densities. We also have a disaster recovery data center at Jaipur. We are also creating additional capacity through new data centers in Mumbai. We have developed business continuity plans, which would help facilitate continuity of critical businesses in the event of a disaster. These plans are tested periodically and have been prepared in line with the guidelines issued by the Reserve Bank of
112
India and have been approved by our Board of Directors.
Cyber Security
We have taken a comprehensive approach pertaining to cyber security The Bank has also equipped itself with state-of-the-art infrastructure management systems which leverage Internet of Things based technology at its data center for optimal utilization of energy and have laid down policies, standards and guidelines for ensuring security against cyber threats. We have implemented a robust information and cyber security control framework by deploying several security controls including firewalls, intrusion prevention systems, a digital rights management solution, a data leakage prevention solution, an anti-email spoofing framework, mobile device management and an advanced behavior based anti-malware and dynamic URL
filtering solution. We have adopted a defense-in-depth approach to protect our cyber security infrastructure. We have a dedicated in-house Cyber Security Operations Centre for monitoring and handling cyber security incidents.reduction of operational costs.
We face competition in all our principal areas of business from Indian and foreign commercial banks, housing finance companies, non-banking financial companies, new differentiated banks in the private sector such as payments banks and small finance banks, non-bank entities offering retail payments and other services, mutual funds and investment banks. We are the largest private sector bank in India in terms of total assets on a consolidated basis. We seek to gain competitive advantage over our competitors by offering innovative products and services, using technology, building customer relationships and developing a team of highly motivated and skilled employees. We evaluate our competitive position separately in respect of our products and services for retail and corporate customers.
Commercial banks in India meet the short-term financial needs, or working capital requirements, of industry, trade and agriculture, provide long-term financing to sectors like infrastructure and provide retail loan products. At March 31, 2023, there were approximately 139 scheduled commercial banks in the country, with a network of approximately 1,55,063 branches serving approximately Rs. 184.3 trillion in deposit accounts. Scheduled commercial banks are banks that are listed in the second schedule of the Reserve Bank of India Act, 1934, and are further categorized as public sector banks, private sector banks and foreign banks. Scheduled commercial banks have a presence throughout India, with approximately 63.2% of bank branches located in rural or semi-urban areas of the country.
Commercial Banking Products and Services for Retail Customers
In the retail markets, competition has traditionally been from foreign and Indian commercial banks, non-banking financial companies and housing finance companies. In recent years, competition is also emerging from new types of banks that have entered the financial market such as small finance banks and payments banks and niche players like non-bank entities offering payments and remittanceother services.
The retail market is rapidly changingNon-financial companies, particularly international technology companies including large e-commerce players and internet-based service providers, are increasing their presence in the financial sector and are offering payment platforms and select services. We are currently partnering with developments in technologysome of these entities to jointly offer payment and innovations in mobilitycredit products and digitization. This has increased the focusservices. Some or all of these entities, which have substantially more resources than us and other Indian banks, on leveraging these trends to compete effectively. Banksmay eventually seek a larger share of the banking and financial services market in India, including us, are offering products and services through multiple technology-enabled channels including mobile and internet based banking services, apart from the traditional branch network. Foreign banks have the product and delivery capabilities but are likely toIndia. ICICI Bank is also undertaking various initiatives in developing a strong technology architecture like focus on limited customer segmentsplatforms and geographical locations since they have a smaller customer base than Indian commercial banks. Foreign banks had287branchesdigitization, continuous investments in India at March 31, 2017. Indian public sector banks have wide branch distribution networks but generally are relatively less strong in technologyinnovations and marketing capabilities. Private sector banks have a relatively smaller branch network but stronger technology capabilities. In addition, some specialized non-banking financial companies have increased market share in certain segmentssecurity features to be able to respond to the needs of retail banking products. customers with agility.
We seek to compete in this market through a fullcomprehensive product portfolio and effective distribution channels, which include new technological offerings,digital channels, branches agents, robustand partnerships. We seek to build a localised understanding of market requirements through analytics and develop an efficient distribution and resource allocation strategy. We offer a comprehensive suite of products and services to customers. These include savings, investment, credit processes and collection mechanisms, and experienced professionals.
Commercial banks compete to attract retail bank deposits, historically the preferred retail savings product in India. We have sought to capitalize on our corporate relationships to gain individual customer accounts through payroll management products. We pursue a multi-channel distribution strategy utilizing physical branches, business correspondents, ATMs, telephone banking call centers, mobile banking, tablet banking, the internet and social media to reach customers. Further, following a strategy focusedprotection products based on customer profilesneeds, along with convenient payment and product segmentation, we offer differentiated liability productstransaction banking services. We continuously strive to customers depending on their occupation, age and income profile. Mutual funds are another source of competitionadopt a ‘Fair to us. Mutual funds offer tax advantages and have the capacityCustomer, Fair to earn competitive returns and hence present a competitive alternative to bank deposits. Competition in lending to the retail segment has increased significantly in recent years. Commercial banks, particularly private sector banks, are significantly increasing lending to retail customers due to the limited opportunities in lending to the corporate sector, thus leading to competitive pressures. We also face competition from non-banking finance companies that are lending in segments in which banks have a presence, including home loans and vehicle loans. In recent years, the non-banking finance companies have significantly expanded their presence in the retail market, as commercial banks have slowed down lending due to the challenging operating and recovery environment.
New banks in the private sector are also competing with us. The Reserve Bank of India has granted approval to two applicants for setting up new private sector banks which began banking operations during fiscal 2016. The Reserve Bank of India has given licenses to payments banks, which includes large telecom companies and pre-paid wallet providers. Licenses have also been given to small finance banks, which include micro-finance non-banking finance companies. Six small finance banks and four payments banks have begun operations. The Reserve Bank of India has released a discussion paper on licensing of wholesale and long-term finance banks that will largely lend to infrastructure and core industries. A discussion paper on licensing of other differentiated banks such as custodian banks is also indicated. The Reserve Bank of India has released draft guidelines in May 2016 with respect to continuous licensing policy for universal banks as compared to the earlier practice of intermittently issuing licenses. The Reserve Bank of India has also indicated that it plans to
give greater access to foreign banks in the Indian market. The Reserve Bank of India released a framework for the presence of foreign banks in November 2013 and has indicated that the subsidiary route would be the preferred mode of presence for foreign banks and has proposed giving near national treatment based on the principles of reciprocity and subsidiary mode of presence.Bank’ approach across all our businesses.
Commercial Banking Products and Services for Agricultural and Rural Customers
In our commercial banking operations for agricultural and rural customers, we face competition from public sector banks that have large branch networks in rural India. Other private sector banks and non-bankingnon-
113
banking finance companies have also increased their focus on rural markets. We also face competition from specialized players such as rural-focused financial institutions and micro financemicro-finance companies. The Reserve Bank of India has issued licenses to specialized small finance banks, which have higher directed lending targets compared to banks and will compete in the rural and unorganized sectors. We seek to compete in this business based on our product strategy, capturing ecosystems, technological capabilities and having multiple channels.channels and an approach to holistically meet the financial needs of customers in this segment.
Commercial Banking Products and Services for Corporate Customers
In products and services for corporate customers, the public sector banks have an advantage considering their strong corporate relationships and long association with corporate financing. Public sector banks and certain private sector banks also have a traditional competitive advantage with respect to the government banking segment. In recent years, the corporate sector has been facing significant challenges which has led to a slowdown in lending to the sector by public sector banks. Private sector banks have, however, continued to increase their credit to corporate customers. We seek to compete in this segment based on our service and prompt turnaround time that we believe are significantly faster than public sector banks. We offer customized financial solutionsbanks, as well as the significant improvement in our funding base and funding cost in recent years which enables us to customers based on the changing macro-economic landscape.participate profitably in higher rated corporate credit. We seek to compete with the large branch networks of the public sector banks through our multi-channel distribution, approachecosystem branches and technology-driven delivery capabilities. Traditionally, foreign banks have been active in providing treasury-related products and services, trade finance, fee-based services and other short term financing products to top-tier Indian corporations.
We compete with foreign banks in cross-border trade finance based on our wider geographical reach in India relative to foreign banks and our technology-based customized trade financing solutions.solutions enabling most transactions to be undertaken digitally. We have established strong fee-based cash management services and leverage our balance sheet size, wider branch network, strong technologytechnological capabilities and our international presence to compete in treasury-related products and services.
Other new private sector banks will also compete in the corporate banking market on the basis of efficiency, service delivery and technology. However, we believe that our size, capital base, strong corporate relationships, wider geographical reach and ability to use technology to provide innovative, value-added products and services provide us with a competitive edge.
In project finance, our competitors are Indian and foreign commercial banks who have sought to expand their presence in this market. We believe that we have a competitive advantage due to our strong market reputation and expertise in risk evaluation and mitigation. We believe that our in-depth sector specific knowledge and capabilities in understanding risks and policy related issues as well as our advisory, structuring and syndication services have allowed us to gain credibility with project sponsors, overseas lenders and policy makers.
Commercial Banking Products and Services for International Customers
Our international strategy is focused on India-linked opportunities. In our international operations, we face competition from Indian public sector banks with overseas operations, foreign banks with products and services targeted at non-resident Indians and Indian businesses and other service providers such as remittance services. Foreign banks have become more competitive in providing financing to Indian businesses leveraging their strength of access to lower cost foreign currency funds. We are seeking to position ourselves as an Indian bank offering globally-benchmarked products and services focused on non-resident Indians, capturing the ecosystem of multi-national corporates and India-linked trade and funds corridors with an extensive distribution network in India, to gain competitive advantage. We seek to leverage our technology capabilities developed in our domestic businesses to offer convenience and efficient services to our international customers. We also seek to leverage our strong relationships with Indian corporations in our international business.
Insurance and Asset Management
Our insurance and asset management businesses face competition from existing dominant public sector players as well as new private sector players. We believe that our subsidiaries, ICICI Prudential Life Insurance Company ICICI Lombard General Insurance CompanyLimited and ICICI Prudential Asset Management Company Limited and our affiliate, ICICI Lombard General Insurance Company Limited, have built strong product, distribution and risk management capabilities, achieving strong market positions in their respective
businesses. We believe that the ability to leverage ICICI Bank’s retail franchise and distribution network is a key competitive advantage for our insurance and asset management subsidiaries.
114
At year-end fiscal 2017,2023, we had 107,971157,799 employees, including sales executives, employees on fixed term contracts and interns, compared to 97,132interns. Of these, ICICI Bank employed 129,020 employees at year-end fiscal 2016 and 90,4862023. Of our 157,799 employees at year-end fiscal 2015. Of these, 82,841 employees were employed by ICICI Bank at year-end fiscal 2017, an increase from 74,096 at year-end fiscal 2016. Of our 107,971 employees at year-end fiscal 2017, approximately 49,2772023, 89,197 were professionally qualified, holding degrees in management, accountancy, engineering, law, computer science, economics or banking.
We dedicate a significant amount of senior management time toin ensuring that employees remain highly motivated and are aligned to the organization’s core employee proposition. Employee compensation is linked to performance of the Bank and we encourage the involvement of our employees in the overall performance and profitability of the Bank. Performance appraisal and talent managementsuccession planning systems have been instrumental in assisting management in career development and succession planning.development. Management believes that it has good working relationships with its employees.
ICICI Bank has an employee stock option scheme to encourage and retain high-performing employees. Pursuant to the employee stock option scheme, up to 10.0% of the aggregate of our issued equity shares at the time of grant of the stock options can be allocated under the employee stock option scheme. The stock options entitle eligible employees to apply for equity shares. Pursuant to SEBI (Share Based Employee Benefits) Regulations, 2014, options are granted by the Board Governance, Remuneration & Nomination Committee (BGRNC) and noted by the Board.
The eligibility of each employee is determined based on an evaluation including the employee’s work performance and potential. ICICI Bank pays performance linked retention pay to its frontlinefront-line employees and junior management and performance bonus to its middle and senior management. Performance linked retention pay aims to reward front linefront-line and junior managers mainly on the basis of skill maturity attained through experience and continuity in role which is a key differentiator for customer services. ICICI Bank also pays variable pay to sales officers and relationship manager in wealth management roles while ensuring that such pay-outs are in accordance with the compensation-related guidelines of the Reserve Bank of India. The Bank ensuresuses a higher proportion of variable pay at senior levels and lower variable pay at front-line staff and junior management levels. The quantum of bonus for an employee does not exceed a certain percentage of the total fixed pay in a year. Within this percentage, if the bonus exceeds a predefined percentage of the fixed pay,limit, a part of the bonus is deferred and paid over a period. Senior managers and employees in senior management are also given employee stock options as variable pay. The deferred portion of variable pay pertaining to the assessment year or previous years (as defined in the policy) is subject to malus, under which ICICIthe Bank would preventprevents vesting of all, part or partnone of the unvested variable pay in the event of an enquiry determining gross negligence, breach of integrity orassessed divergence in the Bank’s provisioning for non-performing assets exceeding the prescribed threshold, in the event of a reasonable evidence of deterioration in financial performance.performance, in the event of gross misconduct and/or in the event of other acts as mentioned in the policy. In such cases (other than assessed divergence), variable pay already paid out is subjectmay also be subjected to claw-back arrangements.claw back arrangements, as applicable. See also “Management—Compensation and Benefits to Directors and Officers—Employee Stock Option Scheme”.
ICICI Bank has training centers, where various training programs designed to meet the changing skill requirements of its employees are conducted. These training programs include orientation sessions for new employees and management development programs for mid-level and senior executives. The training centers regularly offer courses conducted by faculty, both national and international, drawn from industry, academia and ICICI Bank’s own organization. Training programs are also conducted for developing functional as well as managerial skills. Products and operations training are also conducted through web-based training modules. ICICI Bank has focused on providing blended learning solutions to the employees. Digital and behavioral learning interventions have been introduced along with functional trainings (including on risk and compliance) for various business groups in retail, wholesale, transaction banking and others. These programs are customized and presented after detailed need analysis based on role, vintage and functions. The Bank has worked for creating a structure where every role under each business unit has suitable learning programs.
In addition to basic compensation, employees of ICICI Bank are eligible to receive loans from ICICI Bank at subsidized rates and to participate in its provident fund and other employee benefit plans. The provident fund,See also “Management—Compensation and Benefits to which both ICICI BankDirectors and its employees contribute a defined amount, is a savings scheme, required by government regulation, under which ICICI Bank at present is required to pay to employees a minimum annual return as specified from time to time, which was specified at 8.65% for fiscal 2017. If such return is not generated internally by the fund, ICICI Bank is liable for the difference. ICICI Bank has also set up a superannuation fund to which it contributes defined amounts. The employees have been given an option to opt out of the superannuation fund and in such cases the defined amounts are paid as part of monthly salary. In addition, ICICI Bank contributes specified amounts to a gratuity fund set up pursuant to Indian statutory requirements.Officers—Employee Stock Option Scheme”.
The following table sets forth, at the dates indicated, the number of employees in ICICI Bank and its consolidated subsidiaries and other consolidated entities.
At March 31, | ||||||||||||||||||||||||
2015 | 2016 | 2017 | ||||||||||||||||||||||
Number | % of total | Number | % of total | Number | % of total | |||||||||||||||||||
ICICI Bank Limited | 67,857 | 75.0 | 74,096 | 76.3 | 82,841 | 76.7 | ||||||||||||||||||
ICICI Prudential Life Insurance Company Limited | 10,909 | 12.1 | 10,706 | 11.0 | 12,437 | 11.5 | ||||||||||||||||||
ICICI Lombard General Insurance Company Limited | 5,829 | 6.4 | 6,427 | 6.6 | 6,460 | 6.0 | ||||||||||||||||||
ICICI Home Finance Company Limited(2) | 528 | 0.6 | 515 | 0.5 | 287 | 0.3 | ||||||||||||||||||
ICICI Prudential Asset Management Company Limited | 1,006 | 1.1 | 1,184 | 1.2 | 1,476 | 1.4 | ||||||||||||||||||
ICICI Securities Limited | 3,815 | 4.2 | 3,676 | 3.8 | 3,925 | 3.6 | ||||||||||||||||||
ICICI Securities Primary Dealership Limited | 76 | 0.1 | 77 | 0.1 | 76 | 0.1 | ||||||||||||||||||
Others | 466 | 0.5 | 451 | 0.5 | 469 | 0.4 | ||||||||||||||||||
Total number of employees(1) | 90,486 | 100.0 | 97,132 | 100.0 | 107,971 | 100.0 | ||||||||||||||||||
Our existing registered office is located at ICICI Bank Tower, Near Chakli Circle, Old Padra Road, Vadodara 390 007, Gujarat, India. Our corporate headquarters are located at ICICI Bank Towers, Bandra-Kurla Complex, Mumbai 400 051, Maharashtra, India. The Board of Directors at their Meeting held on
115
May 9, 2020 approved the shifting of registered office to its corporate headquarters. The Shareholders at the Annual General Meeting held on August 14, 2020 also approved the shifting of registered office of the Bank.
ICICI Bank had a principaldomestic branch network consisting of 4,8505,900 branches, 16,650 ATMs and 13,882 ATMscash recycler machines at March 31, 20172023 compared to 4,4505,418 branches, 16,609 ATMs and 13,766 ATMscash recycler machines at March 31, 2016.2022. These facilities are located throughout India. In addition to branches, extension counters and ATMs, ICICI Bank has 4554 controlling or administrative offices, including our registered office at Vadodara and our corporate headquarters at Mumbai, 66 processing centers and 3546 currency chests. We have branches in Bahrain, Dubai International Financial Centre, Hong Kong, Qatar Financial Centre, Singapore, Sri Lanka, the United States, South Africa, China and representative offices in the United Arab Emirates, Bangladesh, Indonesia, and Malaysia.
We also provide residential facilities to employees.employees in India. At March 31, 2017,2023, we owned 709488 apartments for providing residential facilities to our employees.
Legal and Regulatory Proceedings
We are involved in various litigations and are subject to a wide variety of banking and financial services laws and regulations in each of the jurisdictions in which we operate. We are also subject to a large number of regulatory and enforcement authorities in each of these jurisdictions. We are involved in a number of legal proceedings and regulatory relationships in the ordinary course of our business. However, we are not a party to any proceedings and no proceedings are known by us to be contemplated by governmental authorities or third parties,business, some of which if adversely determined, may have a material adverse effectresulted in penalties imposed on our financial condition or results of operations.
The following penalties were imposed and paid by us in the past:past.
The following matters have been settled under settlement regulations with the Securities and Exchange Board of India:
· | In September |
Subsequently, Securities Exchange Board of India filed an appeal with the Supreme Court of India against the order passed by the Securities Appellate Tribunal against the appeal filed by ICICI Bank whereby the monetary penalty imposed on the Bank was modified to a warning. Separately, the Bank also filed an appeal with the Supreme Court of India against the Securities Appellate Tribunal order. These matters were heard by the Supreme Court of India wherein the Supreme Court directed an interim stay on the operation of the orders passed by the Securities Appellate Tribunal. The Bank and former Compliance Officer subsequently filed counter affidavits before the Supreme Court of India. To bring closure to the matter, the former Compliance Officer and the Bank filed the settlement application with Securities and Exchange Board of India under Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018 pursuant to which former Compliance Officer and the Bank has paid the settlement amount of Rs 3.1 million and Rs 5.5 million, respectively, to Securities and Exchange Board of India. The Supreme Court subsequently disposed off all the appeals in view of the settlement between the parties. Further, in May 2022, Securities and Exchange Board of India communicated to the Bank that in view of the order of the Supreme Court, the matter stands settled in respect of the appeals as mentioned in the said order.
116
The Bank also adheres to the anti-money laundering requirements as specified by the regulators of respective geographies. The Bank’s anti-money laundering framework is subject to audit by the Internal Audit Department and their observations are reported to the Audit Committee at regular intervals.
· | In 2017, the Bank received three notices from Unique Identification Authority of India for non-compliance of certain requirements of guidelines under Aadhaar (Authentication) Regulations, 2016. The Bank has responded to these notices and is awaiting further communication from Unique Identification Authority of India in this regard. |
· |
See also“Risk Factors—Risks RelatingThe observations made by the Office of the Comptroller of the Currency are restricted only to our Business—We are involved in various litigations. Any final judgment awarding material damages against us couldthe New York Branch of ICICI Bank Limited which constitutes 0.61% of ICICI Bank’s total assets at June 30, 2022 and the Bank believes that the consent order will not have a material adverse impacteffect on our future financial performanceits business, nor does the consent order restrict any of the New York Branch’s existing activities, apart from requiring the corrective actions as specified under the consent order. The Bank’s New York Branch is committed to taking all necessary and our stockholders’ equity”and“Risk Factors—Risks Relatingappropriate steps to our Business—The regulatory environment for financial institutions is facing unprecedented change inaddress the post-financial crisis environment”aspects identified and implement the corrective actions as approved by the Office of the Comptroller of the Currency.
.Contingent tax liability
At year-end fiscal 2017,2023, our contingent tax liability was assessed at an aggregate of Rs. 51.082.5 billion (March 31, 2022: Rs. 84.8 billion), mainly pertaining to income tax, service tax, goods and services tax and sales tax/value added tax demands by the governmentGovernment of India’s tax authorities for past years. We have appealed against each of these tax demands. The tax related inquiries are not included in contingent liabilities as we believe that such proceedings are likely to be dropped by the tax authorities or will not be upheld by judicial authorities. Based on consultation with counsel and favorable decisions in our own and other similar cases as set out below, management believes that the tax authorities are not likely to be able to substantiate their tax assessments and, accordingly, we have not provided for these tax demands at year-end fiscal 2017.2023. Disputed tax issues that are classified as remote are not disclosed as contingent liabilities by us.
Of the contingent tax liability of Rs. 51.0 billion:82.5 billion (March 31, 2022: Rs. 84.8 billion):
Rs. |
· Rs. |
· | Rs. |
117
in the Group’s own cases and other similar cases, which had allowed the deduction of mark-to-market losses from business income; · Rs. 5.3 billion (March 31, 2022: Rs. 5.2 billion) related to disallowance of provision for operating expense by the tax authorities treating it as contingent in nature. We have relied on favorable opinion from counsel and past decisions by the appellate authorities in other similar cases; · Rs. 5.1 billion (March 31, 2022: Rs. 6.0 billion) related to the disallowance of interest paid on perpetual bonds as the tax authorities do not deem these as borrowings and therefore the interest paid on these bonds has not been allowed as a deduction. We have relied on a favorable opinion from legal counsel and past decision by the appellate authorities in the Group’s own case; |
· Rs. · Rs. 3.6 billion (March 31, 2022: Rs. 3.6 billion) related to the disallowance of written-off amounts for credit cards for claiming bad debt write-offs. It was disallowed on the ground that the credit card business is neither a banking business nor pertaining to money lending and hence did not fulfill conditions for claim of bad debt write-off. We have relied on a favorable opinion from counsel and · Rs. 3.4 billion (March 31, 2022: Rs. 3.4 billion) relates to interest on non-performing assets de-recognized as per the Reserve Bank of India guidelines after 90 days. Interest income is assessed to tax on the ground that tax provisions have 180 days limit as against 90 days followed by the Bank. We have relied on favorable opinion from counsel and past decisions by the appellate authorities in our own and other similar cases; |
· | Rs. |
Rs. · Rs. 2.1 billion (March 31, 2022: Rs. 2.0 billion) relates to |
118
· Rs. 1.5 billion (March 31, 2022: Rs. 1.5 billion) relates to service tax and interest on interchange fees received by us as an issuing bank. We have relied on favorable opinion from counsel; · Rs. 1.1 billion (March 31, 2022: Rs. 1.1 billion) pertaining to ICICI Strategic Investment Fund relates to retention of contribution received by the fund, being treated as income received towards the services rendered by the fund to its contributors. We have relied on favorable opinion from counsel. |
☐ | Rs. 1.2 billion (March 31, 2022: Rs. 1.3 billion) pertained to sales tax/value added tax demand. The matters mainly relate to procedural issues like submission of statutory forms and adhoc additions in turnover. We have relied on favorable opinions from the counsels and decisions in |
Based on judicial precedents in our own and other cases, and upon consultation with the tax counsel, management believeswe believe that it is more likely than not that our tax position will be sustained. Accordingly,sustained and accordingly, no provision has been made in the accounts.
The above contingent liability doesliabilities do not include Rs. 53.134.9 billion (March 31, 2022: Rs. 36.2 billion), considered as remote. Of the total disputed tax demands classified as remote, Rs. 45.930.5 billion (March 31, 2022: Rs. 30.8 billion) pertained mainly pertains to the deduction of bad debts, broken period interest and levy of penalties which are covered by favorable Supreme Court of India decisions in own/other cases and Rs. 2.33.6 billion pertains(March 31, 2022: Rs. 4.5 billion) pertained to short credit of taxes paid.error requiring rectification by tax authorities. Therefore, they arewere not required to be disclosed as contingent liability. The balance of Rs. 4.9 billion pertains to disputed tax liability of our life insurance subsidiary primarily due to non-allowance of set-off of brought forward business loss by the assessing officer against the shareholders’ income, which has been considered as income from other sources by the tax authorities. The same is considered as remote on the basis of favorable income tax appellate decisions in our life insurance subsidiary’s own case. The consequence of inquiries initiated by the tax authorities are not quantified, as we believe that such proceedings are likely to be dropped by the tax authorities or will not be upheld by judicial authorities.
Litigation
A number of litigations and claims against ICICI Bank and its directors are pending in various forums. The claims on ICICI Bank mainly arise in connection with civil cases involving allegations of service deficiencies, property or labor disputes, fraudulent transactions, economic offences and other cases filed in the normal course of business. We are also subject to counterclaims arising in connection with our enforcement of contracts and loans. A provision is created where an unfavorable outcome is deemed probable and in respect of which a reliable estimate can be made. In view of the inherent unpredictability of litigation and for cases where the claim amount sought is substantial, the actual cost of resolving litigations may be substantially different from the provision held.
We held a total provision of Rs. 311.2794 million at year-end fiscal 20172023 for 401677 cases with claims totaling to approximately Rs. 1,146.7 million,1.7 billion, where an unfavorable outcome was deemed probable and in respect of which a reliable estimate could be made.
For cases where an unfavorable outcome is deemed to be reasonably possible but not probable, the amount of claims is included in contingent liabilities. At year-end fiscal 2017,2023, such claims amounted to a total of Rs. 623.9 million3.0 billion relating to 11045 cases. It was not possible to estimate the possible loss or range of possible losses for these cases due to the nature of the cases and other external factors. For cases where the possibility of an unfavorable outcome is deemed remote, we have not made a provision, nor have we included the amount of the claims in these cases in contingent liabilities.
In some instances, civil litigants have named our directors as co-defendants in lawsuitslegal proceedings against ICICI Bank. There were 235357 such cases at year-end fiscal 2017.
2023. Management believes, based on consultation with counsel, that the claims and counterclaims filed against us in the above legal proceedings that are assessed as remote are frivolous and untenable and their ultimate resolution will not have a material adverse effect on our results of operations, financial condition or liquidity. Based on a
119
review of other litigations with legal counsel,by Legal Group, management also believes that the outcome of such other matters will also not have a material adverse effect on our financial position, results of operations or cash flows.
At year-end fiscal 2017,2023, there were 63113 ongoing litigations (including those where the likelihood of our incurring liability is assessed as “probable”, “possible” and “remote”), each involving a claim of Rs. 10 million or more against us, with an aggregate amount of approximately Rs. 39.3771.8 billion (to the extent quantifiable and including amounts claimed jointly and severally from us and other parties). The following are litigations where the amounts claimed are Rs. 1.0 billion or higher:
For proceedings filed |
due from Esslon Synthetics Limited. In May 2001, the guarantor filedformer Managing Director and Chief Executive Officer relating to her termination, see “Risk Factors—Risks that arise as a counterclaim for an amountresult of Rs. 1.0 billion against us and other lenders who had extended financial assistance to Esslon Synthetics on the grounds that he had been coerced by officersour presence in a highly regulated sector —The board of the lenders into signing an agreement between LML Limited, Esslon Synthetics and the lenders on account of which he suffered, among other things, loss of business. Esslon Synthetics Limited filed an application to amend the counterclaim in January 2004. We have filed our reply to the application for amendment. The guarantor has also filed an interim application on the grounds that certain documents have not been exhibited, to which we have filed our reply stating that the required documents are neither relevant nor necessary for adjudicating the dispute between the parties. In the meantime, the Industrial Development Bank of India has challenged the order of the Debt Recovery Tribunal, Delhi, whereby the Debt Recovery Tribunal allowed LML Limited to be included in the list of parties. The Debt Recovery Appellate Tribunal, Delhi has passed an interim stay order against the Debt Recovery Tribunal proceedings. In the liquidation proceeding before the High Court at Allahabad, the official liquidator attached to the Allahabad High Court sold the assets of Esslon Synthetics for Rs. 61 million in November 2002. We have filed our claim with the official liquidator attached to the Allahabad High Court for our dues. The official liquidator has informed us that the claimdirectors of the Bank has, been allowedpursuant to an independent enquiry, taken action against the former Managing Director and thatCEO. In the amount payable toevent the Bank is Rs. 12 million. We have filed an affidavit before the official liquidator for disbursementfound by any of the amountenquiries in the matter by government and the official liquidator has released Rs. 9 millionregulatory agencies to have violated applicable laws or regulations, the Bank and the balance amount will be disbursed after finalization of amounts due to the employees of Esslon Synthetics by the company court. Further, the guarantor has filed an insolvency proceeding before the insolvency court which is currently being opposed by the lenders including ICICI Bank. The matter is pending.
In addition, we have experienced rapid international expansion into banking in multiple jurisdictions which exposes us to a new variety of regulatory and business challenges and risks, including cross-cultural risk, and which increased the complexity of our risks in a number of areas including currency risks, interest rate risks, compliance risk, regulatory risk, reputational risk and operational risk. As a result of this rapid growth and increased complexity, we or our employees may becould become subject to legal and regulatory investigationssanctions that may materially and adversely affect our results of operations or enforcement proceedings in multiple jurisdictions in a variety of contexts. Despite our best efforts at regulatory compliancefinancial condition and internal controls, we, or our employees, may from time to time, and as is common in the financial services industry, be the subject of confidential examinations or investigations that might, or might not, lead to proceedings against us or our employees. In any such situation it would be our policy to conduct an internal investigation, co-operate with the regulatory authorities and, where appropriate, suspend or discipline employees, including terminating their services.reputation.”
We cannot predict the timing or form of any future regulatory or law enforcement initiatives, which we note are increasingly common for international banks, but we would expect to co-operate with any such regulatory investigation or proceeding.
American Depository Receipt Fees and Payments
Fees and Charges Payable by Holders of our ADSs
The fees and charges payable by holders of our ADSs include the following:
i) | a fee not in excess of US$ 0.05 per ADS is charged for each issuance of ADSs including issuances resulting from distributions of shares, share dividends, share splits, bonuses and rights distributions; |
ii) | a fee not in excess of US$ 0.05 per ADS is charged for each surrender of ADSs in exchange for the underlying deposited securities; |
iii) | a fee for the distribution of the deposited securities pursuant to the deposit agreement, such fee being an amount equal to the fee for the execution and delivery of ADSs referred to in item (i) above which would have been charged as a result of the deposit of such securities, but which securities were instead distributed by the depositary, Deutsche Bank Trust Company Americas, to ADR holders. |
Additionally, under the terms of our deposit agreement, the depositary is entitled to charge each registered holder the following:
i) | taxes and other governmental charges incurred by the depositary or the custodian on any ADS or an equity share underlying an ADS including any applicable penalties thereon; |
ii) | transfer or registration fees for the registration or transfer of deposited securities on any applicable register in connection with the deposit or withdrawal of deposited securities, including those of a central depository for securities (where applicable); |
iii) | any cable, telex, facsimile transmission and delivery expenses incurred by the depositary; and |
iv) | customary expenses incurred by the depositary in the conversion of foreign currency, including, without limitation, expenses incurred on behalf of registered holders in connection with |
120
compliance with foreign exchange control restrictions and other applicable regulatory requirements, together with all expenses, transfer and registration fees, taxes, duties, governmental or other charges payable by the depositary.
In the case of cash distributions, fees, if applicable, are generally deducted from the cash being distributed. Other fees may be collected from holders of ADSs in a manner determined by the depositary with respect to ADSs registered in the name of investors (whether certificated or in book-entry form) and ADSs held in brokerage and custodian accounts (via DTC). In the case of distributions other than cash (i.e., stock dividends, etc.), the depositary charges the applicable ADS record date holder concurrently with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or in book-entry form), the depositary sends invoices to the applicable record date ADS holders.
If any tax or other governmental charge is payable by the holders and/or beneficial owners of ADSs to the depositary, the depositary, the custodian or the Bank may withhold or deduct from any distributions made in respect of deposited securities and may sell for the account of the holder and/or beneficial owner any or all of the deposited securities and apply such distributions and sale proceeds in payment of such taxes (including applicable interest and penalties) or charges, with the holder and the beneficial owner thereof remaining fully liable for any deficiency.
Fees and Other Payments Made by the Depositary
In fiscal 2012, the BankMarch 2020, we agreed to an amendment to an agreement previously entered into an agreement with the Depositary,depositary, Deutsche Bank Trust Company Americas under whichin fiscal 2018. Under this amended agreement, the Depositary shall reimbursedepositary pays certain amounts to us and waives fees and expenses for services provided in exchange for the Deutsche Bank Trust Company Americas acting as the depositary for the ADR program. We may use these payments to cover annual expenses incurred by the Bank towards investor relations or other expenses directly related to the ongoing maintenance of the American Depository ReceiptADR program. There are limits on theThe amount of expenses for which the depository will reimburse the Bank, but the amount of reimbursement availablepayment to the Bankus is not necessarily tied to the amount of fees the depository collects from investors. UnderADR holders, with certain circumstances, includingexceptions. In the removal of Deutsche Bank Trust Company Americas as Depositary or termination of the American Depository Receipt program,three months ended June 30, 2023, we are required to repay to Deutsche Bank Trust Company Americas amounts reimbursed in prior periods. During fiscal 2017, the Bank claimed and received a reimbursement of US$325,000 from the Depositary towards expenses already incurred 4 million relating to the American Depositary Receipt Program.ADR program.
120121
Selected Consolidated Financial and Operating DataSELECTED STATISTICAL INFORMATION
The following discussion and tables are based oninformation should be read together with our audited consolidated financial statements and accompanying notes prepared in accordance with Indian GAAP. For a reconciliation of net income and stockholders’ equity to U.S. GAAP, a description of significant differences between Indian GAAP and U.S. GAAP and certain additional information required under U.S. GAAP, see notes 20 and 21 to our consolidated financial statements included in this annual report.report as well as “Management Discussion and Analysis of Financial Condition and Results of Operations”.
Average Balance Sheet
The average balances are the sum of daily average balances outstanding. The yield on average interest-earning assets is the ratio of interest earned to average interest-earning assets. The cost of average interest-bearing liabilities is the ratio of interest expended to average interest-bearing liabilities. The average balances of advances include non-performing advances and are net of allowance for loan losses. We have re-calculated tax-exempt income on a tax-equivalent basis. Other interest income has been bifurcated into rupee and foreign currency amounts in order to facilitate the explanation of movements of rupee and foreign currency spreads and margins. The rupee portion of other interest income primarily includes interest on income tax refunds and income from swaps. The foreign currency portion of other interest income primarily includes income from interest rate swaps in foreign currencies. These interest rate swaps are not part of our trading portfolio and are undertaken by us to manage the market risk arising from our assets and liabilities.
The following table sets forth, for the periods indicated, the average balances of the assets and liabilities, which contribute to the major components of interest earned, interest expended and net interest income.
Year ended March 31, | ||||||||||||||||||||||||||||||||||||
2021 | 2022 | 2023 | ||||||||||||||||||||||||||||||||||
Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/ cost | ||||||||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||
Advances: | ||||||||||||||||||||||||||||||||||||
Rupee | Rs. | 6,064,280 | Rs. | 573,393 | 9.46 | % | Rs. | 7,343,983 | Rs. | 649,387 | 8.84 | % | Rs. | 9,059,681 | Rs. | 844,091 | 9.32 | % | ||||||||||||||||||
Foreign currency | 1,098,730 | 29,226 | 2.66 | 975,114 | 19,482 | 2.00 | 957,139 | 35,201 | 3.68 | |||||||||||||||||||||||||||
Total advances | 7,163,010 | 602,619 | 8.41 | 8,319,097 | 668,869 | 8.04 | 10,016,820 | 879,292 | 8.78 | |||||||||||||||||||||||||||
Investments: | ||||||||||||||||||||||||||||||||||||
Investments in Government securities: | ||||||||||||||||||||||||||||||||||||
Rupee | 2,761,476 | 177,497 | 6.43 | 2,925,123 | 184,713 | 6.31 | 3,591,054 | 238,048 | 6.63 | |||||||||||||||||||||||||||
Foreign currency | 48,668 | 310 | 0.64 | 41,872 | 235 | 0.56 | 45,689 | 729 | 1.60 | |||||||||||||||||||||||||||
Total investment in Government securities: | 2,810,144 | 177,807 | 6.33 | 2,966,995 | 184,948 | 6.23 | 3,636,743 | 238,777 | 6.57 | |||||||||||||||||||||||||||
Other investments | ||||||||||||||||||||||||||||||||||||
Rupee | 865,396 | 53,021 | 6.13 | 633,746 | 33,384 | 5.27 | 632,296 | 37,070 | 5.86 | |||||||||||||||||||||||||||
Foreign currency | 131,189 | 1,846 | 1.41 | 165,134 | 1,591 | 0.96 | 109,413 | 3,237 | 2.96 | |||||||||||||||||||||||||||
122
Year ended March 31, | ||||||||||||||||||||||||||||||||||||
2021 | 2022 | 2023 | ||||||||||||||||||||||||||||||||||
Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/ cost | ||||||||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||||||||||
Total other investments | 996,585 | 54,867 | 5.51 | 798,880 | 34,975 | 4.38 | 741,709 | 40,307 | 5.43 | |||||||||||||||||||||||||||
Total investments: | ||||||||||||||||||||||||||||||||||||
Rupee | 3,626,872 | 230,518 | 6.36 | 3,558,869 | 218,097 | 6.13 | 4,223,350 | 275,118 | 6.51 | |||||||||||||||||||||||||||
Foreign currency | 179,857 | 2,156 | 1.20 | 207,006 | 1,826 | 0.88 | 155,102 | 3,966 | 2.56 | |||||||||||||||||||||||||||
Total investments | 3,806,729 | 232,674 | 6.11 | 3,765,875 | 219,923 | 5.84 | 4,378,452 | 279,084 | 6.37 | |||||||||||||||||||||||||||
Other interest-earning assets: | ||||||||||||||||||||||||||||||||||||
Lending with the Reserve Bank of India | ||||||||||||||||||||||||||||||||||||
Rupee | 448,570 | 15,470 | 3.45 | 398,765 | 14,858 | 3.73 | 140,278 | 6,486 | 4.62 | |||||||||||||||||||||||||||
Foreign currency | .. | .. | .. | .. | .. | .. | .. | .. | .. | |||||||||||||||||||||||||||
Total lending with the Reserve Bank of India: | 448,570 | 15,470 | 3.45 | 398,765 | 14,858 | 3.73 | 140,278 | 6,486 | 4.62 | |||||||||||||||||||||||||||
Repo lending | ||||||||||||||||||||||||||||||||||||
Rupee | 47,523 | 1,195 | 2.51 | 49,439 | 1,635 | 3.31 | 72,448 | 4,022 | 5.55 | |||||||||||||||||||||||||||
Foreign currency | .. | .. | .. | .. | .. | .. | .. | .. | .. | |||||||||||||||||||||||||||
Total repo lending | 47,523 | 1,195 | 2.51 | 49,439 | 1,635 | 3.31 | 72,448 | 4,022 | 5.55 | |||||||||||||||||||||||||||
Deposits in other banks: | ||||||||||||||||||||||||||||||||||||
Rupee | 36,691 | 2,381 | 6.49 | 42,636 | 2,522 | 5.92 | 56,179 | 3,676 | 6.54 | |||||||||||||||||||||||||||
Foreign currency | 180,174 | 347 | 0.19 | 269,470 | 418 | 0.16 | 254,380 | 7,667 | 3.01 | |||||||||||||||||||||||||||
Total deposits in other banks | 216,865 | 2,728 | 1.26 | 312,106 | 2,940 | 0.94 | 310,559 | 11,343 | 3.65 | |||||||||||||||||||||||||||
Other assets: | ||||||||||||||||||||||||||||||||||||
Rupee | 529,797 | 12,264 | 2.31 | 661,740 | 10,220 | 1.54 | 724,431 | 7,887 | 1.09 | |||||||||||||||||||||||||||
Foreign currency | 213,271 | 536 | 0.25 | 236,568 | 380 | 0.16 | 216,547 | 4,802 | 2.22 | |||||||||||||||||||||||||||
Total other assets | 743,068 | 12,800 | 1.72 | 898,308 | 10,600 | 1.18 | 940,978 | 12,689 | 1.35 |
123
Year ended March 31, | ||||||||||||||||||||||||||||||||||||
2021 | 2022 | 2023 | ||||||||||||||||||||||||||||||||||
Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/ cost | ||||||||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||||||||||
Total other interest-earning assets: | ||||||||||||||||||||||||||||||||||||
Rupee | 1,062,581 | 31,310 | 2.95 | 1,152,580 | 29,235 | 2.54 | 993,336 | 22,071 | 2.22 | |||||||||||||||||||||||||||
Foreign currency | 393,445 | 883 | 0.22 | 506,038 | 798 | 0.16 | 470,927 | 12,469 | 2.65 | |||||||||||||||||||||||||||
Total other interest-earning assets | 1,456,026 | 32,193 | 2.21 | 1,658,618 | 30,033 | 1.81 | 1,464,263 | 34,540 | 2.36 | |||||||||||||||||||||||||||
Other interest income: | ||||||||||||||||||||||||||||||||||||
Rupee | 20,606 | 32,441 | 16,892 | |||||||||||||||||||||||||||||||||
Foreign currency | 3,570 | 2,849 | 894 | |||||||||||||||||||||||||||||||||
Total other interest income | 24,176 | 35,290 | 17,786 | |||||||||||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||||||||||||||
Rupee | 10,753,733 | 855,827 | 7.96 | 12,055,432 | 929,160 | 7.71 | 14,276,367 | 1,158,172 | 8.11 | |||||||||||||||||||||||||||
Foreign currency | 1,672,032 | 35,835 | 2.14 | 1,688,158 | 24,955 | 1.48 | 1,583,168 | 52,530 | 3.32 | |||||||||||||||||||||||||||
Total interest-earning assets | 12,425,765 | 891,662 | 7.18 | 13,743,590 | 954,115 | 6.94 | 15,859,535 | 1,210,702 | 7.63 | |||||||||||||||||||||||||||
Fixed assets | 106,100 | 103,407 | 108,042 | |||||||||||||||||||||||||||||||||
Other assets | 2,044,392 | 2,097,041 | 2,260,812 | |||||||||||||||||||||||||||||||||
Total non-earning assets | 2,150,492 | 2,200,448 | 2,368,854 | |||||||||||||||||||||||||||||||||
Total assets | Rs. | 14,576,257 | Rs. | 891,662 | Rs. | 15,944,038 | Rs. | 954,115 | Rs. | 18,228,389 | Rs. | 1,210,702 | ||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||||||
Savings account deposits: | ||||||||||||||||||||||||||||||||||||
Rupee | Rs. | 2,452,568 | Rs. | 77,687 | 3.17 | Rs. | 3,028,734 | Rs. | 95,390 | 3.15 | Rs. | 3,430,647 | Rs. | 108,593 | 3.17 | |||||||||||||||||||||
Foreign currency | 98,475 | 803 | 0.82 | 80,149 | 321 | 0.40 | 61,367 | 705 | 1.15 | |||||||||||||||||||||||||||
Total savings account deposits | 2,551,043 | 78,490 | 3.08 | 3,108,883 | 95,711 | 3.08 | 3,492,014 | 109,298 | 3.13 | |||||||||||||||||||||||||||
Time deposits: | ||||||||||||||||||||||||||||||||||||
Rupee | 4,530,836 | 250,515 | 5.53 | 5,094,105 | 236,169 | 4.64 | 5,735,631 | 277,636 | 4.84 |
124
Year ended March 31, | ||||||||||||||||||||||||||||||||||||
2021 | 2022 | 2023 | ||||||||||||||||||||||||||||||||||
Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/ cost | ||||||||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||||||||||
Foreign currency | 377,247 | 8,190 | 2.17 | 290,939 | 4,252 | 1.46 | 309,445 | 7,831 | 2.53 | |||||||||||||||||||||||||||
Total time deposits | 4,908,083 | 258,705 | 5.27 | 5,385,044 | 240,421 | 4.46 | 6,045,076 | 285,467 | 4.72 | |||||||||||||||||||||||||||
Other demand deposits: | ||||||||||||||||||||||||||||||||||||
Rupee | 812,042 | 1,055,999 | 1,210,898 | |||||||||||||||||||||||||||||||||
Foreign currency | 112,869 | 156,310 | 165,247 | |||||||||||||||||||||||||||||||||
Total other demand deposits | 924,911 | 1,212,309 | 1,376,145 | |||||||||||||||||||||||||||||||||
Total deposits: | ||||||||||||||||||||||||||||||||||||
Rupee | 7,795,446 | 328,202 | 4.21 | 9,178,838 | 331,559 | 3.61 | 10,377,176 | 386,229 | 3.72 | |||||||||||||||||||||||||||
Foreign currency | 588,591 | 8,993 | 1.53 | 527,398 | 4,573 | 0.87 | 536,059 | 8,536 | 1.59 | |||||||||||||||||||||||||||
Total deposits | 8,384,037 | 337,196 | 4.02 | 9,706,236 | 336,132 | 3.46 | 10,913,235 | 394,765 | 3.62 | |||||||||||||||||||||||||||
Long term borrowings: | ||||||||||||||||||||||||||||||||||||
Rupee | 685,178 | 53,862 | 7.86 | 723,083 | 53,294 | 7.37 | 985,134 | 70,306 | 7.14 | |||||||||||||||||||||||||||
Foreign currency | 544,123 | 15,899 | 2.92 | 389,810 | 9,678 | 2.48 | 309,409 | 10,848 | 3.51 | |||||||||||||||||||||||||||
Total long term borrowings | 1,229,301 | 69,761 | 5.67 | 1,112,893 | 62,972 | 5.66 | 1,294,543 | 81,154 | 6.27 | |||||||||||||||||||||||||||
Short-term borrowings: | ||||||||||||||||||||||||||||||||||||
Borrowings under liquidity adjustment facility with the Reserve Bank of India | ||||||||||||||||||||||||||||||||||||
Rupee: | 103,528 | 4,497 | 4.34 | 720 | 30 | 4.17 | 1,488 | 84 | 5.65 | |||||||||||||||||||||||||||
Foreign currency | .. | .. | .. | .. | .. | .. | .. | .. | .. | |||||||||||||||||||||||||||
Total borrowings under liquidity adjustment facility with the Reserve Bank of India: | 103,528 | 4,497 | 4.34 | 720 | 30 | 4.17 | 1,488 | 84 | 5.65 | |||||||||||||||||||||||||||
Repo borrowings: | ||||||||||||||||||||||||||||||||||||
Rupee | 358,938 | 10,845 | 3.02 | 204,643 | 6,815 | 3.33 | 272,735 | 15,017 | 5.51 |
125
Year ended March 31, | ||||||||||||||||||||||||||||||||||||
2021 | 2022 | 2023 | ||||||||||||||||||||||||||||||||||
Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/ cost | ||||||||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||||||||||
Foreign currency | 7,264 | 189 | 2.60 | 5,676 | 167 | 2.94 | 6,996 | 258 | 3.69 | |||||||||||||||||||||||||||
Total repo borrowings | 366,202 | 11,034 | 3.01 | 210,319 | 6,982 | 3.32 | 279,731 | 15,275 | 5.46 | |||||||||||||||||||||||||||
Other short term borrowings | ||||||||||||||||||||||||||||||||||||
Rupee | 49,208 | 3,259 | 6.62 | 101,520 | 4,904 | 4.83 | 128,586 | 8,266 | 6.43 | |||||||||||||||||||||||||||
Foreign currency | 128,681 | 841 | 0.65 | 102,347 | 646 | 0.63 | 233,886 | 5,890 | 2.52 | |||||||||||||||||||||||||||
Total other short term borrowings | 177,889 | 4,100 | 2.30 | 203,867 | 5,550 | 2.72 | 362,472 | 14,156 | 3.91 | |||||||||||||||||||||||||||
Short term borrowings: | ||||||||||||||||||||||||||||||||||||
Rupee | 511,674 | 18,601 | 3.64 | 306,883 | 11,749 | 3.83 | 402,809 | 23,367 | 5.80 | |||||||||||||||||||||||||||
Foreign currency | 135,945 | 1,030 | 0.76 | 108,023 | 813 | 0.75 | 240,882 | 6,148 | 2.55 | |||||||||||||||||||||||||||
Total short term borrowings | 647,619 | 19,631 | 3.03 | 414,906 | 12,562 | 3.03 | 643,691 | 29,515 | 4.59 | |||||||||||||||||||||||||||
Total borrowings: | ||||||||||||||||||||||||||||||||||||
Rupee | 1,196,852 | 72,463 | 6.05 | 1,029,966 | 65,043 | 6.32 | 1,387,943 | 93,673 | 6.75 | |||||||||||||||||||||||||||
Foreign currency | 680,068 | 16,929 | 2.49 | 497,833 | 10,491 | 2.11 | 550,291 | 16,996 | 3.09 | |||||||||||||||||||||||||||
Total borrowings | 1,876,920 | 89,392 | 4.76 | 1,527,799 | 75,534 | 4.94 | 1,938,234 | 110,669 | 5.71 | |||||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||
Rupee | 8,992,298 | 400,665 | 4.46 | 10,208,804 | 396,602 | 3.88 | 11,765,119 | 479,902 | 4.08 | |||||||||||||||||||||||||||
Foreign currency | 1,268,659 | 25,922 | 2.04 | 1,025,231 | 15,064 | 1.47 | 1,086,350 | 25,532 | 2.35 | |||||||||||||||||||||||||||
Total interest-bearing liabilities | 10,260,957 | 426,588 | 4.16 | 11,234,035 | 411,666 | 3.66 | 12,851,469 | 505,434 | 3.93 | |||||||||||||||||||||||||||
Other liabilities | 2,880,817 | 3,041,905 | 3,400,782 | |||||||||||||||||||||||||||||||||
Total liabilities | 13,141,774 | 426,588 | 14,275,940 | 411,666 | 16,252,251 | 505,434 | ||||||||||||||||||||||||||||||
Stockholders’ equity | 1,434,483 | 1,668,098 | 1,976,138 | |||||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | Rs. | 14,576,257 | Rs. | 426,588 | Rs. | 15,944,038 | Rs. | 411,666 | Rs. | 18,228,389 | Rs. | 505,434 |
126
(1) | Previous period figures have been re-grouped/re-classified where necessary to conform to current period classification. |
Analysis of Changes in Interest Earned and Interest Expended: 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 selectedthe purpose of this table, changes which are due to both volume and rate have been allocated solely to volume.
Fiscal 2022 vs. Fiscal 2021 | Fiscal 2023 vs. Fiscal 2022 | |||||||||||||||||||||||
Increase (decrease) due to | Increase (decrease) due to | |||||||||||||||||||||||
Net change | Change in average volume | Change in average rate | Net change | Change in average volume | Change in average rate | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Interest earned: | ||||||||||||||||||||||||
Advances: | ||||||||||||||||||||||||
Rupee | Rs. | 75,994 | Rs. | 113,157 | Rs. | (37,163 | ) | Rs. | 194,704 | Rs. | 159,852 | Rs. | 34,852 | |||||||||||
Foreign currency | (9,744 | ) | (2,470 | ) | (7,274 | ) | 15,719 | (661 | ) | 16,380 | ||||||||||||||
Total advances | 66,250 | 110,687 | (44,437 | ) | 210,423 | 159,191 | 51,232 | |||||||||||||||||
Investment: | ||||||||||||||||||||||||
Investment in Government securities: | ||||||||||||||||||||||||
Rupee | 7,216 | 10,334 | (3,118 | ) | 53,335 | 44,144 | 9,191 | |||||||||||||||||
Foreign currency | (75 | ) | (38 | ) | (37 | ) | 494 | 61 | 433 | |||||||||||||||
Total investment in Government securities | 7,141 | 10,296 | (3,155 | ) | 53,829 | 44,205 | 9,624 | |||||||||||||||||
Other investments: | ||||||||||||||||||||||||
Rupee | (19,637 | ) | (12,203 | ) | (7,434 | ) | 3,686 | (85 | ) | 3,771 | ||||||||||||||
Foreign currency | (255 | ) | 327 | (582 | ) | 1,646 | (1,649 | ) | 3,295 | |||||||||||||||
Total other investments | (19,892 | ) | (11,876 | ) | (8,016 | ) | 5,332 | (1,734 | ) | 7,066 | ||||||||||||||
Total investments: | ||||||||||||||||||||||||
Rupee | (12,421 | ) | (4,167 | ) | (8,254 | ) | 57,021 | 43,286 | 13,735 | |||||||||||||||
Foreign currency | (330 | ) | 239 | (569 | ) | 2,140 | (1,327 | ) | 3,467 | |||||||||||||||
Total investments | (12,751 | ) | (3,928 | ) | (8,823 | ) | 59,161 | 41,959 | 17,202 | |||||||||||||||
Other interest-earning assets: | ||||||||||||||||||||||||
Lending with the Reserve Bank of India: | ||||||||||||||||||||||||
Rupee | (612 | ) | (1,856 | ) | 1,244 | (8,372 | ) | (11,952 | ) | 3,580 | ||||||||||||||
Foreign currency | .. | .. | .. | .. | .. | .. | ||||||||||||||||||
Total lending with the Reserve Bank of India | (612 | ) | (1,856 | ) | 1,244 | (8,372 | ) | (11,952 | ) | 3,580 |
127
Fiscal 2022 vs. Fiscal 2021 | Fiscal 2023 vs. Fiscal 2022 | |||||||||||||||||||||||
Increase (decrease) due to | Increase (decrease) due to | |||||||||||||||||||||||
Net change | Change in average volume | Change in average rate | Net change | Change in average volume | Change in average rate | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Repo lending: | ||||||||||||||||||||||||
Rupee | 440 | 63 | 377 | 2,387 | 1,277 | 1,110 | ||||||||||||||||||
Foreign currency | .. | .. | .. | .. | .. | .. | ||||||||||||||||||
Total repo lending | 440 | 63 | 377 | 2,387 | 1,277 | 1,110 | ||||||||||||||||||
Deposits in other banks: | ||||||||||||||||||||||||
Rupee | 141 | 352 | (211 | ) | 1,154 | 886 | 268 | |||||||||||||||||
Foreign currency | 71 | 139 | (68 | ) | 7,249 | (455 | ) | 7,704 | ||||||||||||||||
Total deposits in other banks | 212 | 491 | (279 | ) | 8,403 | 431 | 7,972 | |||||||||||||||||
Other assets: | ||||||||||||||||||||||||
Rupee | (2,044 | ) | 2,038 | (4,082 | ) | (2,333 | ) | 683 | (3,016 | ) | ||||||||||||||
Foreign currency | (156 | ) | 37 | (193 | ) | 4,422 | (444 | ) | 4,866 | |||||||||||||||
Total other assets | (2,200 | ) | 2,075 | (4,275 | ) | 2,089 | 239 | 1,850 | ||||||||||||||||
Other interest-earning assets: | ||||||||||||||||||||||||
Rupee | (2,075 | ) | 2,283 | (4,358 | ) | (7,164 | ) | (3,538 | ) | (3,626 | ) | |||||||||||||
Foreign currency | (85 | ) | 178 | (263 | ) | 11,671 | (930 | ) | 12,601 | |||||||||||||||
Total other interest earning assets | (2,160 | ) | 2,461 | (4,621 | ) | 4,507 | (4,468 | ) | 8,975 | |||||||||||||||
Other interest income: | ||||||||||||||||||||||||
Rupee | 11,835 | .. | 11,835 | (15,549 | ) | .. | (15,549 | ) | ||||||||||||||||
Foreign currency | (721 | ) | .. | (721 | ) | (1,955 | ) | .. | (1,955 | ) | ||||||||||||||
Other interest income | 11,114 | .. | 11,114 | (17,504 | ) | .. | (17,504 | ) | ||||||||||||||||
Total interest earned: | ||||||||||||||||||||||||
Rupee | 73,333 | 111,273 | (37,940 | ) | 229,012 | 199,600 | 29,412 | |||||||||||||||||
Foreign currency | (10,880 | ) | (2,053 | ) | (8,827 | ) | 27,575 | (2,918 | ) | 30,493 | ||||||||||||||
Total interest earned | 62,453 | 109,220 | (46,767 | ) | 256,587 | 196,682 | 59,905 | |||||||||||||||||
Interest expense: | ||||||||||||||||||||||||
Savings account deposits: | ||||||||||||||||||||||||
Rupee | 17,703 | 18,146 | (443 | ) | 13,203 | 12,722 | 481 | |||||||||||||||||
Foreign currency | (482 | ) | (73 | ) | (409 | ) | 384 | (216 | ) | 600 | ||||||||||||||
Total savings account deposits | 17,221 | 18,073 | (852 | ) | 13,587 | 12,506 | 1,081 | |||||||||||||||||
Time deposits: | ||||||||||||||||||||||||
Rupee | (14,346 | ) | 26,114 | (40,460 | ) | 41,467 | 31,053 | 10,414 | ||||||||||||||||
Foreign currency | (3,938 | ) | (1,261 | ) | (2,677 | ) | 3,579 | 468 | 3,111 | |||||||||||||||
Total time deposits | (18,284 | ) | 24,853 | (43,137 | ) | 45,046 | 31,521 | 13,525 | ||||||||||||||||
Total deposits: | ||||||||||||||||||||||||
Rupee | 3,357 | 44,260 | (40,903 | ) | 54,670 | 43,775 | 10,895 | |||||||||||||||||
Foreign currency | (4,420 | ) | (1,334 | ) | (3,086 | ) | 3,963 | 252 | 3,711 | |||||||||||||||
Total deposits | (1,063 | ) | 42,926 | (43,989 | ) | 58,633 | 44,027 | 14,606 | ||||||||||||||||
Borrowings: | ||||||||||||||||||||||||
Long term borrowings: | ||||||||||||||||||||||||
Rupee | (568 | ) | 2,794 | (3,362 | ) | 17,012 | 18,702 | (1,690 | ) | |||||||||||||||
Foreign currency | (6,221 | ) | (3,831 | ) | (2,390 | ) | 1,170 | (2,819 | ) | 3,989 | ||||||||||||||
Total long term borrowings | (6,789 | ) | (1,037 | ) | (5,752 | ) | 18,182 | 15,883 | 2,299 |
128
Fiscal 2022 vs. Fiscal 2021 | Fiscal 2023 vs. Fiscal 2022 | |||||||||||||||||||||||
Increase (decrease) due to | Increase (decrease) due to | |||||||||||||||||||||||
Net change | Change in average volume | Change in average rate | Net change | Change in average volume | Change in average rate | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Borrowings under liquidity adjustment facility with the Reserve Bank of India: | ||||||||||||||||||||||||
Rupee | (4,467 | ) | (4,284 | ) | (183 | ) | 54 | 43 | 11 | |||||||||||||||
Foreign currency | .. | .. | .. | .. | .. | .. | ||||||||||||||||||
Total borrowings under liquidity adjustment facility with the Reserve Bank of India | (4,467 | ) | (4,284 | ) | (183 | ) | 54 | 43 | 11 | |||||||||||||||
Repo borrowings | ||||||||||||||||||||||||
Rupee | (4,030 | ) | (5,138 | ) | 1,108 | 8,202 | 3,749 | 4,453 | ||||||||||||||||
Foreign currency | (22 | ) | (47 | ) | 25 | 91 | 49 | 42 | ||||||||||||||||
Total repo borrowings | (4,052 | ) | (5,185 | ) | 1,133 | 8,293 | 3,798 | 4,495 | ||||||||||||||||
Other short term borrowings: | ||||||||||||||||||||||||
Rupee | 1,645 | 2,527 | (882 | ) | 3,362 | 1,740 | 1,622 | |||||||||||||||||
Foreign currency | (195 | ) | (166 | ) | (29 | ) | 5,244 | 3,313 | 1,931 | |||||||||||||||
Total other short term borrowings | 1,450 | 2,361 | (911 | ) | 8,606 | 5,053 | 3,553 | |||||||||||||||||
Short term borrowings: | ||||||||||||||||||||||||
Rupee | (6,852 | ) | (6,895 | ) | 43 | 11,618 | 5,532 | 6,086 | ||||||||||||||||
Foreign currency | (217 | ) | (213 | ) | (4 | ) | 5,335 | 3,362 | 1,973 | |||||||||||||||
Total short term borrowings | (7,069 | ) | (7,108 | ) | 39 | 16,953 | 8,894 | 8,059 | ||||||||||||||||
Total borrowings: | ||||||||||||||||||||||||
Rupee | (7,420 | ) | (10,539 | ) | 3,119 | 28,630 | 24,160 | 4,470 | ||||||||||||||||
Foreign currency | (6,438 | ) | (3,840 | ) | (2,598 | ) | 6,505 | 1,620 | 4,885 | |||||||||||||||
Total borrowings | (13,858 | ) | (14,379 | ) | 521 | 35,135 | 25,780 | 9,355 | ||||||||||||||||
Total interest expended: | ||||||||||||||||||||||||
Rupee | (4,063 | ) | 33,721 | (37,784 | ) | 83,300 | 67,935 | 15,365 | ||||||||||||||||
Foreign currency | (10,858 | ) | (5,174 | ) | (5,684 | ) | 10,468 | 1,872 | 8,596 | |||||||||||||||
Total interest expended | (14,921 | ) | 28,547 | (43,468 | ) | 93,768 | 69,807 | 23,961 | ||||||||||||||||
Net interest income: | ||||||||||||||||||||||||
Rupee | 77,396 | 77,552 | (156 | ) | 145,712 | 131,665 | 14,047 | |||||||||||||||||
Foreign currency | (22 | ) | 3,121 | (3,143 | ) | 17,107 | (4,790 | ) | 21,897 | |||||||||||||||
Total net interest income | Rs. | 77,374 | Rs. | 80,673 | Rs. | (3,299 | ) | Rs. | 162,819 | Rs. | 126,875 | Rs. | 35,944 |
Investment portfolio
Maturity profile wise yields on debt securities
The following table sets forth, at the date indicated, the maturity profile wise yields of our investments in debt securities classified as available-for-sale. This maturity profile is based on repayment dates and does not reflect re-pricing dates of floating rate investments.
129
At March 31, 2022 | At March 31, 2023 | |||||||
Up to one year | One to five years | Five to ten years | More than ten years | Up to one year | One to five years | Five to ten years | More than ten years | |
Corporate debt securities | 6.4% | 6.7% | 5.0% | 6.1% | 7.3% | 7.1% | 5.9% | 3.8% |
Government securities | 4.5 | 5.2 | 4.5 | 5.2 | 6.7 | 6.7 | 7.3 | 7.1 |
Other securities | 5.3 | 6.2 | 5.5 | 7.1 | 7.8 | 8.5 | 8.4 | 8.4 |
Total debt securities1 | 4.8% | 5.9% | 4.7% | 5.5% | 6.9% | 7.1% | 6.8% | 7.2% |
(1) | Includes securities denominated in different currencies |
(2) | Weighted average yield is the ratio of interest earned on available-for-sale debt securities to average available-for-sale debt securities. |
(3) | The maturity is computed based on the contractual maturity of the portfolio. |
The following table sets forth, at the date indicated, the maturity profile-wise yields of our investments in debt securities classified as held-to-maturity. This maturity profile is based on repayment dates and does not reflect re-pricing dates of floating rate investments.
At March 31, 2022 | At March 31, 2023 | |||||||
Up to one year | One to five years | Five to ten years | More than ten years | Up to one year | One to five years | Five to ten years | More than ten years | |
Corporate debt securities | 5.9% | 6.6% | 7.4% | 7.5% | 7.0% | 7.1% | 7.6% | 7.7% |
Government securities | 7.7 | 6.6 | 6.8 | 6.4 | 7.0 | 6.8 | 7.4 | 7.6 |
Other securities | 4.2 | .. | .. | .. | 7.8 | .. | .. | .. |
Total debt securities1 | 6.7% | 6.6% | 6.9% | 6.4% | 7.1% | 6.8% | 7.4% | 7.6% |
(1) | Includes securities denominated in different currencies |
(2) | Weighted average yield is the ratio of interest earned on held-to-maturity debt securities to average held-to-maturity securities. |
(3) | The maturity is computed based on the contractual maturity of the portfolio. |
Investment portfolio of our overseas branches and banking subsidiaries
The following table sets forth a summary of the investment portfolio of our overseas branches and banking subsidiaries based on the category of investments.
At March 31 | ||||||||
Category | 2022 | 2023 | ||||||
(in millions) | ||||||||
Bonds | ||||||||
Banks and financial institutions | Rs. | 26,065 | Rs. | 19,460 | ||||
Corporate | 33,591 | 43,284 | ||||||
Total bonds | 59,656 | 62,744 | ||||||
Asset backed securities | .. | .. | ||||||
Others(1) | 4,925 | 5,341 | ||||||
Total | Rs. | 64,581 | Rs. | 68,085 |
(1) | Includes investments in certificates of deposits. |
Investment in India-linked securities of corporate entities was 50.0% at year-end fiscal 2023 as compared to 43.2% at year-end fiscal 2022.
The investments in these securities are governed by the respective investment policies of ICICI Bank and its banking subsidiaries. To mitigate significant concentrations in credit risk, the investment policy
130
lays down a number of limits that need to be adhered to before investments can be made. The investment policy lays down rating and issuer wise investment limits at each of these units. Further, there are counterparty limits for individual banks and financial datainstitutions. Country exposure limits have also been established for various countries. In addition, ICICI Bank monitors the credit spread risk arising out of such investments while ICICI Bank UK PLC has instituted credit spread sensitivity limits on its portfolio. Any exceptions to the above limits are made with due approvals from the appropriate forums. ICICI Bank has not bought credit protection against any of its international investments.
Investments in corporate and financial sector debt securities by our overseas branches and banking subsidiaries
The following table sets forth, at the date indicated, investments in corporate and financial sector debt securities and mortgage and asset backed securities by our overseas branches and banking subsidiaries by region and the mark-to-market and realized losses thereon.
At March 31, 2023 | ||||||||||||||||||||||||||||||||||||
Bonds(1),(2) | Others | Total | ||||||||||||||||||||||||||||||||||
Trading | Available-for-sale and held-to-maturity | Trading | Available-for-sale and held-to-maturity | Trading | Available-for-sale and held-to-maturity | Mark-to-market gain/ (loss) in fiscal 2023 | Realized gain/(loss)/ Impairment loss in income statement for fiscal 2023 | Mark-to-market gain/ (loss) at March 31, 2023 | ||||||||||||||||||||||||||||
(Rs. in millions) | ||||||||||||||||||||||||||||||||||||
U.S. | .. | 3,468 | .. | .. | .. | 3,468 | (103 | ) | 7 | (221 | ) | |||||||||||||||||||||||||
Canada | .. | 18,229 | .. | .. | .. | 18,229 | .. | 1 | .. | |||||||||||||||||||||||||||
Europe | .. | 754 | .. | .. | .. | 754 | (7 | ) | .. | (43 | ) | |||||||||||||||||||||||||
India | 163 | 38,817 | .. | .. | 163 | 38,817 | (450 | ) | (363 | ) | (486 | ) | ||||||||||||||||||||||||
Rest of Asia | .. | 1,313 | .. | 5,341 | .. | 6,654 | (5 | ) | (11 | ) | (27 | ) | ||||||||||||||||||||||||
Total portfolio | 163 | 62,581 | .. | 5,341 | 163 | 67,922 | (565 | ) | (374 | ) | (777 | ) |
(1) | Includes bonds classified under loans and receivable by our UK subsidiary including those transferred in fiscal 2009 from investment to loans and receivables pursuant to Accounting Standard Board issuing amendments to FRS 26 – ‘Financial Instruments: Recognition and Measurement’ which permitted reclassification of financial assets in certain circumstances from ‘held-for-trading’ and ‘available-for-sale categories’ to the ‘loans and receivables’ category. |
(2) | Includes corporate bonds classified under loans and receivables by our Canadian subsidiary. |
131
At March 31, 2022 | ||||||||||||||||||||||||||||||||||||
Bonds(1),(2) | Others | Total | ||||||||||||||||||||||||||||||||||
Trading | Available-for-sale and held-to-maturity | Trading | Available-for-sale and held-to-maturity | Trading | Available-for-sale and held-to-maturity | Mark-to-market gain/ (loss) in fiscal 2022 | Realized gain/(loss)/ Impairment loss in income statement for fiscal 2022 | Mark-to-market gain/ (loss) at March 31, 2022 | ||||||||||||||||||||||||||||
(Rs. in millions) | ||||||||||||||||||||||||||||||||||||
U.S. | .. | 1,809 | .. | .. | .. | 1,809 | (130 | ) | 33 | (106 | ) | |||||||||||||||||||||||||
Canada | .. | 17,480 | .. | .. | .. | 17,480 | .. | 130 | .. | |||||||||||||||||||||||||||
Europe | .. | 716 | .. | .. | .. | 716 | 89 | (0 | ) | (33 | ) | |||||||||||||||||||||||||
India | 1,491 | 37,034 | .. | .. | 1,491 | 37,034 | (672 | ) | 91 | (95 | ) | |||||||||||||||||||||||||
Rest of Asia | .. | 1,126 | .. | 4,925 | .. | 6,051 | (124 | ) | 58 | (20 | ) | |||||||||||||||||||||||||
Total portfolio | 1,491 | 58,165 | .. | 4,925 | 1,491 | 63,090 | (837 | ) | 312 | (254 | ) |
(1) | Includes bonds classified under loans and receivable by our UK subsidiary including those transferred in fiscal 2009 from investment to loans and receivables pursuant to Accounting Standard Board issuing amendments to FRS 26 – ‘Financial Instruments: Recognition and Measurement’ which permitted reclassification of financial assets in certain circumstances from ‘held-for-trading’ and ‘available-for-sale categories’ to the ‘loans and receivables’ category. |
(2) | Includes corporate bonds classified under loans and receivables by our Canadian subsidiary. |
Funding
Our funding operations are designed to ensure stability of funding, minimize funding costs and effectively manage liquidity. Our primary source of domestic funding is deposits raised from both retail and corporate customers. We also raise funds through short-term rupee borrowings, refinance borrowings and domestic or overseas bond offerings. Our domestic bond borrowings include long-term bond borrowings for financing infrastructure projects and affordable housing in accordance with U.S. GAAP, see “Selected U.S. GAAP Financial Data”the Reserve Bank of India guidelines. See also “Business—Overview of Our Products and Services—Commercial Banking for Retail Customers—Retail Deposits”.
Certain re-classificationsMaturity profile of deposits
The following table sets forth, at the date indicated, the contractual maturity profile of deposits, by type of deposit at March 31, 2023.
Up to one year | After one year and within three years | After three years | Total | |||||||||||||
(in millions) | ||||||||||||||||
Interest-bearing deposits: | ||||||||||||||||
Savings deposits(1) | Rs. | 3,848,299 | .. | .. | Rs. | 3,848,299 | ||||||||||
Time deposits | 4,341,123 | 1,827,859 | 432,713 | 6,601,695 | ||||||||||||
Non-interest-bearing deposits: | ||||||||||||||||
Other demand deposits(1) | 1,658,328 | .. | .. | 1,658,328 | ||||||||||||
Total deposits | Rs. | 9,847,750 | Rs. | 1,827,859 | Rs. | 432,713 | Rs. | 12,108,322 |
132
(1) | Savings and other demand deposits are payable on demand and hence are classified in the ‘Up to one year’ category. |
The following table sets forth, at the date indicated, the contractual maturity profile of deposits, by type of deposit at March 31, 2022.
Up to one year | After one year and within three years | After three years | Total | |||||||||||||
(in millions) | ||||||||||||||||
Interest-bearing deposits: | ||||||||||||||||
Savings deposits(1) | Rs. | 3,670,306 | .. | .. | Rs. | 3,670,306 | ||||||||||
Time deposits | 3,895,554 | 1,256,777 | 456,834 | 5,609,165 | ||||||||||||
Non-interest-bearing deposits: | ||||||||||||||||
Other demand deposits(1) | 1,634,187 | .. | .. | 1,634,187 | ||||||||||||
Total deposits | Rs. | 9,200,047 | Rs. | 1,256,777 | Rs. | 456,834 | Rs. | 10,913,658 |
(1) Savings and other demand deposits are payable on demand and hence are classified in the ‘Up to one year’ category.
Uninsured deposits
The following table sets forth, for the periods indicated, the estimated amount of time deposits that exceed the insurance limit, segregated by remaining maturity and the estimated amount of total deposits that are otherwise uninsured:
At March 31, 2023 | ||||||||||||||||||||
3 months or less | Over 3 months through 6 months | Over 6 months through 12 months | Over 12 months | Total | ||||||||||||||||
Uninsured time deposits | (in millions) | |||||||||||||||||||
India | Rs. | 1,395,233 | Rs. | 823,917 | Rs. | 1,494,583 | Rs. | 1,801,960 | Rs. | 5,515,693 | ||||||||||
Outside India | 40,410 | 31,385 | 40,918 | 38,278 | 150,991 | |||||||||||||||
Total uninsured time deposits | Rs. | 1,435,643 | Rs. | 855,302 | Rs. | 1,535,501 | Rs. | 1,840,238 | Rs. | 5,666,684 |
At March 31, 2022 | ||||||||||||||||||||
3 months or less | Over 3 months through 6 months | Over 6 months through 12 months | Over 12 months | Total | ||||||||||||||||
Uninsured time deposits | (in millions) | |||||||||||||||||||
India | Rs. | 1,262,407 | Rs. | 736,621 | Rs. | 1,373,221 | Rs. | 1,439,422 | Rs. | 4,811,671 | ||||||||||
Outside India | 22,484 | 11,989 | 19,441 | 11,443 | 65,357 | |||||||||||||||
Total uninsured time deposits | Rs. | 1,284,891 | Rs. | 748,610 | Rs. | 1,392,662 | Rs. | 1,450,865 | Rs. | 4,877,028 |
133
Total uninsured deposits at March 31, 2022 were Rs. 8,315,811 million and at March 31, 2023 were Rs. 9,314,637 million.
The classification between “in India” and “outside India” is based on the domicile of the booking unit. In India, the insured deposit calculations are based on guidelines prescribed by Deposit Insurance and Credit Guarantee Corporation. The insured amount limit prescribed by Deposit Insurance and Credit Guarantee Corporation is up to a maximum amount of Rs. 500,000 per depositor (included all type of deposits), per insured bank. The standard insurance amount for time deposits outside India is based on the insurance limits approved by the regulator in the respective foreign jurisdiction. The insurance coverage is allocated first to savings account deposits, then to current account deposits and lastly to time deposits of a depositor. For time deposits, the highest residual maturity buckets are considered for allocation of insurance coverage.
Risk Management
Asset liability gap
The following table sets forth, at the date indicated, our asset-liability gap position.
At March 31, 2023(1) | ||||||||||||||||
Less than or equal to one year | Greater than one year and up to five years | Greater than five years | Total | |||||||||||||
(in millions) | ||||||||||||||||
Advances (loans), net | Rs. | 9,282,075 | Rs. | 1,453,703 | Rs. | 102,885 | Rs. | 10,838,663 | ||||||||
Investments | 1,283,292 | 1,403,243 | 3,708,985 | 6,395,520 | ||||||||||||
Other assets(2) | 794,512 | 124,827 | 1,325,773 | 2,245,112 | ||||||||||||
Total assets | Rs. | 11,359,879 | Rs. | 2,981,773 | Rs. | 5,137,643 | Rs. | 19,479,295 | ||||||||
Capital | .. | .. | 2,144,978 | 2,144,978 | ||||||||||||
Borrowings | 1,032,692 | 584,913 | 273,013 | 1,890,618 | ||||||||||||
Deposits | 5,611,378 | 6,481,420 | 15,523 | 12,108,321 | ||||||||||||
Other liabilities | 27,686 | 1,259 | 3,412,042 | 3,440,987 | ||||||||||||
Total liabilities | 6,671,756 | 7,067,592 | 5,845,556 | 19,584,904 | ||||||||||||
Total gap before risk management positions | 4,688,123 | (4,085,819 | ) | (707,914 | ) | (105,610 | ) | |||||||||
Off-balance sheet positions(3) | (179,307 | ) | 285,840 | (114,413 | ) | (7,880 | ) | |||||||||
Total gap after risk management positions | Rs. | 4,508,816 | Rs. | (3,799,979 | ) | Rs. | (822,327 | ) | Rs. | (113,490 | ) |
(1) | Includes investments in the nature of equity, cash and cash equivalents and miscellaneous assets and liabilities. 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, including behavioral studies, as per local policy/regulatory norms of the entities. Items other than current and savings account deposits that neither re-price nor have a defined maturity are included in the ‘greater than five years’ category. Fixed assets (other than leased assets) have been excluded from the above table. Current and savings account deposits are classified based on behavior study. |
(2) | Includes cash and balances with the Reserve Bank of India, balances with banks and money at call and short notice and other assets. |
(3) Off-balance sheet positions comprises net notional amount of derivatives, including foreign exchange forward contracts.
134
At March 31, 2022(1) | ||||||||||||||||
Less than or equal to one year | Greater than one year and up to five years | Greater than five years | Total | |||||||||||||
(in millions) | ||||||||||||||||
Advances (loans), net | Rs. | 7,937,695 | Rs 1,189,111 | Rs. | 76,275 | Rs. | 9,203,081 | |||||||||
Investments | 1,271,030 | 1,362,786 | 3,037,161 | 5,670,977 | ||||||||||||
Other assets(2) | 1,246,050 | 158,385 | 1,145,081 | 2,549,516 | ||||||||||||
Total assets | 10,454,775 | 2,710,282 | 4,258,517 | 17,423,574 | ||||||||||||
Capital | .. | .. | 1,820,525 | 1,820,525 | ||||||||||||
Borrowings | 739,947 | 613,594 | 262,486 | 1,616,027 | ||||||||||||
Deposits | 5,133,624 | 5,764,171 | 15,863 | 10,913,658 | ||||||||||||
Other liabilities(3) | 96,553 | 7,084 | 3,072,527 | 3,176,164 | ||||||||||||
Total liabilities | 5,970,124 | 6,384,849 | 5,171,401 | 17,526,373 | ||||||||||||
Total gap before risk management positions | 4,484,651 | (3,674,567 | ) | (912,884 | ) | (102,799 | ) | |||||||||
Off-balance sheet positions(4) | (88,581 | ) | 26,799 | 42,866 | (18,917 | ) | ||||||||||
Total gap after risk management positions | Rs. | 4,396,070 | Rs. | (3,647,768 | ) | Rs. | (870,018 | ) | Rs. | (121,716 | ) |
(1) | Includes investments in the nature of equity, cash and balances with the Reserve Bank of India, balances with banks and money at call and short notice and miscellaneous assets and liabilities. 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, including behavioral studies, as per local policy/regulatory norms of the entities. Items other than current and savings account deposits that neither re-price nor have a defined maturity are included in the ‘greater than five years’ category. Fixed assets (other than leased assets) have been excluded from the above table. Current and savings account deposits are classified based on behavior study. |
(2) | Includes cash and balances with the Reserve Bank of India, balances with banks and money at call and short notice and other assets. |
(3) | Includes minority interest, liabilities on policy in force, and other liabilities and provisions. |
(4) | Off-balance sheet positions comprises net notional amount of derivatives, including foreign exchange forward contracts. |
Loan portfolio - fixed-floating interest rate
The following table sets forth, at the date indicated, the amount of our loans with residual contractual maturities greater than one year that had fixed and variable interest rates.
At March 31, 2023 | ||||||||||||
Fixed rate loans | Variable rate loans | Total | ||||||||||
(in millions) | ||||||||||||
Commercial loans | Rs. | 111,986 | Rs. | 1,420,577 | Rs. | 1,532,563 | ||||||
Consumer loans and credit card receivable | 1,412,339 | 3,352,737 | 4,765,076 | |||||||||
Lease financing | 33 | .. | 33 | |||||||||
Total loans | Rs. | 1,524,358 | Rs. | 4,773,314 | Rs. | 6,297,672 |
At March 31, 2022 | ||||||||||||
Fixed rate loans | Variable rate loans | Total | ||||||||||
(in millions) | ||||||||||||
Commercial loans | Rs. | 133,270 | Rs. | 1,273,869 | Rs. | 1,407,139 | ||||||
Consumer loans and credit card receivable | 1,126,546 | 2,817,494 | 3,944,040 | |||||||||
Lease financing | 187 | .. | 187 | |||||||||
Total loans | Rs. | 1,260,003 | Rs. | 4,091,363 | Rs. | 5,351,366 |
135
Impact of interest rate movement on loan portfolio
The following table sets forth, using the balance sheet at year-end fiscal 2023 as the base, one possible prediction of the impact of adverse changes in interest rates on net interest income for fiscal 2024, assuming a parallel shift in the yield curve at year-end fiscal 2023.
At March 31, 2023 | ||||||||||||||||
Change in interest rates (in basis points) | ||||||||||||||||
(100) | (50) | 50 | 100 | |||||||||||||
(in millions) | ||||||||||||||||
Rupee portfolio | Rs. | (38,337 | ) | Rs. | (19,169 | ) | Rs. | 19,169 | Rs. | 38,337 | ||||||
Foreign currency portfolio | (1,737 | ) | (869 | ) | 869 | 1,737 | ||||||||||
Total | Rs. | (40,075 | ) | Rs. | (20,037 | ) | Rs. | 20,037 | Rs. | 40,075 |
The following table sets forth, using the balance sheet at year-end fiscal 2022 as the base, one possible prediction of the impact of adverse changes in interest rates on net interest income for fiscal 2023, assuming a parallel shift in the yield curve at year-end fiscal 2022.
At March 31, 2022 | ||||||||||||||||
Change in interest rates (in basis points) | ||||||||||||||||
(100) | (50) | 50 | 100 | |||||||||||||
(in millions) | ||||||||||||||||
Rupee portfolio | Rs. | (35,655 | ) | Rs. | (17,827 | ) | Rs. | 17,827 | Rs. | 35,655 | ||||||
Foreign currency portfolio | (1,893 | ) | (946 | ) | 946 | 1,893 | ||||||||||
Total | Rs. | (37,548 | ) | Rs. | (18,774 | ) | Rs. | 18,774 | Rs. | 37,548 |
Sensitivity analysis, which is based upon 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 financial statementsrespective portfolios. Actual changes in net interest income will vary from the model.
Price Risk (Trading Book)
The following table sets forth, using the fixed income portfolio at year-end fiscal 2023 as the base, one possible prediction of the impact of changes in interest rates on the value of our fixed income held-for-trading portfolio, assuming a parallel shift in interest rate curve.
At March 31, 2023 | ||||||||||||||||||||
Change in interest rates (in basis points) - Rupee | ||||||||||||||||||||
Portfolio Size | (100) | (50) | 50 | 100 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Indian government securities | Rs. | 270,091 | Rs. | 4,667 | Rs. | 2,344 | Rs. | (2,323 | ) | Rs. | (4,630 | ) | ||||||||
Rupee corporate debt securities | 112,437 | 1,620 | 815 | (810 | ) | (1,613 | ) | |||||||||||||
Total | Rs. | 382,528 | Rs. | 6,287 | Rs. | 3,159 | Rs. | (3,133 | ) | Rs. | (6,243 | ) |
136
At March 31, 2023 | ||||||||||||||||||||
Change in interest rates (in basis points) – Foreign currency | ||||||||||||||||||||
Portfolio Size | (100) | (50) | 50 | 100 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Foreign government securities | Rs. | 38,802 | Rs. | 53 | Rs. | 26 | Rs. | (26) | Rs. | (53) | ||||||||||
Foreign corporate debt securities | 483 | 1 | .. | .. | (1) | |||||||||||||||
Total | Rs. | 39,285 | Rs. | 54 | Rs. | 26 | Rs. | (26) | Rs. | (54) |
The following table sets forth, using the fixed income portfolio at year-end fiscal 2022 as the base, one possible prediction of the impact of changes in interest rates on the value of our fixed income held-for-trading portfolio, assuming a parallel shift in interest rate curve.
At March 31, 2022 | ||||||||||||||||||||
Change in interest rates (in basis points) - Rupee | ||||||||||||||||||||
Portfolio Size | (100) | (50) | 50 | 100 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Indian government securities | Rs. | 176,474 | Rs. | 2,421 | Rs. | 1,206 | Rs. | (1,206 | ) | Rs. | (2,421 | ) | ||||||||
Rupee corporate debt securities | 60,011 | 677 | 339 | (339 | ) | (675 | ) | |||||||||||||
Total | Rs. | 236,485 | Rs. | 3,099 | Rs. | 1,545 | Rs. | (1,544 | ) | Rs. | (3,096 | ) |
At March 31, 2022 | ||||||||||||||||||||
Change in interest rates (in basis points) – Foreign currency | ||||||||||||||||||||
Portfolio Size | (100) | (50) | 50 | 100 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Foreign government securities | Rs. | 90,181 | Rs. | 157 | Rs. | 78 | Rs. | (78 | ) | Rs. | (157 | ) | ||||||||
Foreign corporate debt securities | 1,491 | 93 | 46 | (46 | ) | (93 | ) | |||||||||||||
Total | Rs. | 91,672 | Rs. | 250 | Rs. | 124 | Rs. | (124 | ) | Rs. | (250 | ) |
Value at risk on equity shares (Proprietary trading book)
ICICI Bank computes value-at-risk using historical simulation model for prior yearslimit monitoring purposes. The value-at-risk is calculated using the previous one-year market data at a 99% confidence level and a holding period of one day.
The following table sets forth the high, low, average and period-end value-at-risk for the equities portfolio of the proprietary trading group of ICICI Bank for fiscal 2022 and fiscal 2023.
Rs. in million
Fiscal 2022 | At March | Fiscal 2023 | At March | |||||||||||||||||||||||||||||
High | Low | Average | 31, 2022 | High | Low | Average | 31, 2023 | |||||||||||||||||||||||||
Value-at-risk | 234.9 | 6.8 | 90.9 | 54.1 | 149.0 | 0.0 | 34.0 | 0.0 |
137
We monitor the effectiveness of the value-at-risk model by regularly back-testing its performance. Statistically, we would expect to conformsee losses in excess of value-at-risk only 1% of the time over a one-year period. During fiscal 2023, there were three instances of hypothetical loss exceeding the value-at-risk estimates for the equities portfolio of the proprietary trading group.
The following table sets forth a comparison of the hypothetical daily profit/(loss), computed on the assumption of no intra-day trading, and value-at-risk calculated using the historical simulation model during fiscal 2022 and fiscal 2023.
Rs. in million | ||||||||||||||||
Fiscal 2022 | At March | Fiscal 2023 | At March | |||||||||||||
Average | 31, 2022 | Average | 31, 2023 | |||||||||||||
Hypothetical daily profit(loss) | 9.0 | 14.8 | (0.1 | ) | 0.0 | |||||||||||
Value-at-risk | 90.9 | 54.1 | 34.0 | 0.0 |
The high and low hypothetical daily profit/(loss) during fiscal 2023 was Rs. 37.4 million and Rs. (88.8) million respectively.
While value-at-risk is an important tool for measuring market risk under normal market conditions, it has inherent limitations that should be taken into account, including its inability to classifications usedaccurately predict future losses when extreme events are affecting the markets, because it is based on the assumption that historical market data is indicative of future market performance. Moreover, different value-at-risk calculation methods use different assumptions and hence may produce different results, and computing value-at-risk at the close of the business day would exclude intra-day risk. There is also a general possibility that the value-at-risk model may not fully capture all the risks present in the current year. Theseportfolio.
Derivative and Foreign Exchange Risk (Trading)
The following table sets forth, using the outstanding notional principal of trading derivatives and foreign exchange portfolio at year-end as the base, one possible prediction of the impact of changes have noin interest rates on the value of our trading derivatives and foreign exchange portfolio, assuming a parallel shift in interest rate curve.
At March 31, 2023 | ||||||||||||||||||||
Change in interest rates (in basis points) | ||||||||||||||||||||
Portfolio Size(1) | (100) | (50) | 50 | 100 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Interest rate derivatives | Rs. | 30,733,302 | Rs. | (13,657 | ) | Rs. | (6,828 | ) | Rs. | 6,828 | Rs. | 13,656 | ||||||||
Currency derivatives(2) | 1,661,178 | 1,176 | 588 | (588 | ) | (1,176 | ) | |||||||||||||
Foreign exchange | 14,512,948 | (3) | (2 | ) | 2 | 3 | ||||||||||||||
Total | Rs. | 46,907,428 | Rs. | (12,484 | ) | Rs. | (6,242 | ) | Rs. | 6,242 | Rs. | (12,483 | ) |
1. | Notional principal |
2. | Includes futures, options and cross currency interest rate swaps |
138
At March 31, 2022 | ||||||||||||||||||||
Change in interest rates (in basis points) | ||||||||||||||||||||
Portfolio Size(1) | (100) | (50) | 50 | 100 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Interest rate derivatives | Rs. | 31,560,088 | Rs. | (8,341 | ) | Rs. | (4,170 | ) | Rs. | 4,170 | Rs. | 8,339 | ||||||||
Currency derivatives(2) | 1,193,153 | 2,313 | 1,156 | (1,156 | ) | (2,313 | ) | |||||||||||||
Foreign exchange | 9,769,228 | (42 | ) | (21 | ) | 21 | 42 | |||||||||||||
Total | Rs. | 42,522,469 | Rs. | (6,070 | ) | Rs. | (3,035 | ) | Rs. | 3,035 | Rs. | 6,068 |
1. | Notional principal |
2. | Includes futures, options and cross currency interest rate swaps |
The following table sets forth the possible prediction of the impact of change in foreign exchange rates on previously reported resultsthe value of operations or stockholders’ equity. the net open position of the Group.
At March 31, 2023 | ||||||||||
Change in forex rates on the value of the net open position (in basis points) | ||||||||||
Net open position | (100) | 100 | ||||||||
(in millions) | ||||||||||
Total open position for the Group | Rs. | 6,221 | Rs. | 3,862 | Rs. | 492 |
At March 31, 2022 | ||||||||||
Change in forex rates on the value of the net open position (in basis points) | ||||||||||
Net open position | (100) | 100 | ||||||||
(in millions) | ||||||||||
Total open position for the Group | Rs. | 6,654 | Rs. | (1,294 | ) | Rs. | 7,653 |
Credit spread risk
The accountingfollowing table sets forth, using our held-for-trading portfolio at year-end as the base, one possible prediction of the impact of changes in credit spreads on the value of the trading portfolio, assuming a parallel shift in credit spreads.
At March 31, 2023 | |||||||||||||||||||
Change in credit spread (in basis points) | |||||||||||||||||||
Portfolio Size | (100) | (50) | 50 | 100 | |||||||||||||||
(in millions) | |||||||||||||||||||
Corporate debt securities | Rs. | 112,920 | Rs. | 1,621 | Rs. | 815 | Rs. | (810 | ) | Rs. | (1,614 | ) | |||||||
At March 31, 2022 | |||||||||||||||||||
Change in credit spread (in basis points) | |||||||||||||||||||
Portfolio Size | (100) | (50) | 50 | 100 | |||||||||||||||
(in millions) | |||||||||||||||||||
Corporate debt securities | Rs. | 61,502 | Rs. | 770 | Rs. | 386 | Rs. | (385 | ) | Rs. | (768 | ) | |||||||
139
Loan Concentration
We follow a policy of portfolio diversification and reporting policies usedevaluate our total financing exposure to a particular industry in the preparationlight of our financial statements reflect generalforecasts of growth and profitability for that industry. ICICI Bank’s policy is to limit its portfolio to any particular industry practices(other than retail loans) to 15.0% of its total exposure. In addition, we have a framework for managing concentration risk with respect to single borrower and conformgroup exposures, based on the internal rating and track- record of the borrowers. See also -“Risk Management—Credit Risk”. The exposure limits for lower rated borrowers and groups are substantially lower than the regulatory limits.
The following table sets forth, at the dates indicated, the composition of our gross advances.
At March 31, | ||||||||||||||||||||
2022 | 2023 | |||||||||||||||||||
Amount | As a % | Amount | Amount | As a % | ||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||
Retail finance(1) | Rs. | 5,040,347 | 53.2 | % | Rs. | 6,013,563 | US$ 73,167 | 54.2 | % | |||||||||||
Rural finance | 795,064 | 8.4 | 902,084 | 10,976 | 8.1 | |||||||||||||||
Services—finance | 716,294 | 7.6 | 804,240 | 9,785 | 7.2 | |||||||||||||||
Wholesale/retail trade | 296,358 | 3.1 | 448,962 | 5,462 | 4.0 | |||||||||||||||
Roads, port, telecom, urban development & other infrastructure | 308,905 | 3.3 | 329,564 | 4,010 | 3.0 | |||||||||||||||
Services—non finance | 202,096 | 2.1 | 245,057 | 2,982 | 2.2 | |||||||||||||||
Power | 202,294 | 2.1 | 188,950 | 2,299 | 1.7 | |||||||||||||||
Construction | 155,286 | 1.6 | 178,219 | 2,168 | 1.6 | |||||||||||||||
Manufacturing products (excluding metal) | 121,190 | 1.3 | 173,477 | 2,111 | 1.6 | |||||||||||||||
Iron and steel (including iron and steel products) | 150,757 | 1.6 | 162,007 | 1,971 | 1.5 | |||||||||||||||
Electronics & engineering | 130,558 | 1.4 | 154,612 | 1,881 | 1.4 | |||||||||||||||
Crude petroleum/ refining & petrochemicals | 132,908 | 1.4 | 137,118 | 1,668 | 1.2 | |||||||||||||||
Textile | 100,791 | 1.1 | 124,967 | 1,520 | 1.1 | |||||||||||||||
Others(2) | 1,122,259 | 11.8 | 1,232,134 | 14,992 | 11.2 | |||||||||||||||
Gross advances (loans) | 9,475,107 | 100.0 | % | 11,094,954 | 134,992 | 100.0 | % | |||||||||||||
Allowance for advances (loan) losses | (272,025 | ) | (256,291 | ) | (3,118 | ) | ||||||||||||||
Net advances (loans) | Rs. | 9,203,082 | Rs. | 10,838,663 | US$ 131,873 |
______________________
(1) | Includes home loans, automobile loans, commercial business loans, dealer financing and personal loans, credit cards, two wheeler loans and loans against securities. |
(2) | Primarily include developer financing portfolio, gems and jewellery, mining, cement, drugs and pharmaceuticals, shipping metal and metal products (excluding iron and steel), food & beverages, chemicals and fertilizers, automobiles and fast moving consumer goods. |
Our capital allocation is focused on building a granular portfolio and sustainably improving our portfolio quality. We are focused on capitalizing on opportunities in retail lending, including cross-selling additional products to our existing customers and growing our lending to small businesses, while adopting a selective approach to corporate lending. Given the focus on the above priorities, gross retail finance advances increased by 19.3% in fiscal 2023 compared to an increase of 17.1% in total gross advances in fiscal 2023. As a result, retail finance increased from 53.2% of gross loans at year-end fiscal 2022 to 54.2% of gross loans at year-end fiscal 2023.
140
At year-end fiscal 2023, our 20 largest borrowers accounted for 6.9% of our gross loan portfolio, with Indian GAAP, including the Accounting Standards issuedlargest borrower accounting for 1.9% of our gross loan portfolio. The largest group of companies under the same management control accounted for 1.3% of our gross loan portfolio at year-end fiscal 2023.
At year-end fiscal 2023, our exposure to largest single counterparty accounted for 12.8% of our Tier I capital fund. The exposure to largest group of connected counterparties accounted for 27.1% of our Tier I capital fund at year-end fiscal 2022.
Maturity profile of loans
The following table sets forth, for the periods indicated, the maturity profile of loans
March 31, 2023 Due within 1 year Due between 1 to 5 year Due between 5 to 15 years Due in more than 15 years Total (in millions) Commercial loans Rs. 2,951,977 Rs. 1,017,840 Rs. 512,516 Rs. 2,207 Rs. 4,484,540 Consumer loans 1,588,996 2,100,469 1,714,291 950,316 6,354,072 Lease financing 18 33 .. .. 51 Total Rs. 4,540,991 Rs. 3,118,342 Rs. 2,226,807 Rs. 952,523 Rs. 10,838,663
March 31, 2022 | ||||||||||||||||||||
Due within 1 year | Due between 1 to 5 year | Due between 5 to 15 years | Due in more than 15 years | Total | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Commercial loans | Rs. | 2,221,031 | Rs. | 881,662 | Rs. | 523,871 | Rs. | 1,606 | Rs. | 3,628,170 | ||||||||||
Consumer loans | 1,630,457 | 1,948,475 | 1,670,240 | 325,325 | 5,574,497 | |||||||||||||||
Lease financing | 230 | 187 | .. | .. | 417 | |||||||||||||||
Total | Rs. | 3,851,718 | Rs. | 2,830,324 | Rs. | 2,194,111 | Rs. | 326,931 | Rs. | 9,203,084 |
Directed Lending
The Reserve Bank of India requires banks to lend to certain sectors of the economy. Such directed lending comprises priority sector lending and export credit. ICICI Bank is required to comply with the priority sector lending requirements prescribed by the Institute of Chartered AccountantsReserve Bank of India from time to time. As prescribed in the Reserve Bank of India guideline, the Bank’s priority sector lending achievement is computed on quarterly average basis. During fiscal 2023, the Bank purchased Priority Sector Lending Certificates amounting to Rs. 716.5 billion (fiscal 2022: Rs. 715.1 billion) and guidelinessold Priority Sector Lending Certificates amounting to Rs. 741.3 billion (fiscal 2022: Rs. 1,014.4 billion). See also “Supervision and Regulation—Regulations Relating to Advancing Loans—Directed Lending—Priority Sector Lending”.
141
The following table sets forth, for the periods indicated, ICICI Bank’s average priority sector lending:
- Small and marginal farmers Fiscal 2022 Fiscal 2023 Amount % of adjusted net bank credit Amount % of adjusted net bank credit Target (% of adjusted net bank credit) (in billions, except percentages) Agriculture Sector Rs. 1,226.5 17.80% Rs. 1,423.6 US$ 17.3 17.74% 18.00% 636.4 9.20 794.7 9.7 9.90 9.50 - Non-corporate farmers 873.8 12.70 1,068.2 13.0 13.31 13.78 Micro, small and medium enterprises 1,473.7 .. 1,729.0 21.0 .. .. - Micro enterprises 550.7 8.00 661.2 8.0 8.24 7.50 Other priority sector 145.2 .. 178.3 2.2 .. .. Total priority sector lending Rs. 2,845.4 41.30% Rs. 3,330.9 US$ 40.5 41.50% 40.00% - Weaker sections Rs. 762.0 11.10% Rs. 910.2 US$ 11.1 11.34% 11.50%
1. | The above includes the impact of Priority Sector Lending Certificate purchased/sold by the Bank. |
The priority sector lending master circular issued by the Reserve Bank of India requires that banks having any shortfall in lending to priority sector shall be allocated amounts for contribution to the Insurance RegulatoryRural Infrastructure Development Fund established with National Bank for Agriculture and Rural Development Authority and other Funds as decided by the National HousingReserve Bank of India from time to time. The Bank may be required by the Reserve Bank of India to deposit with the Rural Infrastructure Development Fund and other related funds, certain amounts as applicablespecified by the Reserve Bank of India in the coming year due to ICICI Bank and specific subsidiaries and joint ventures.the shortfall in the above-mentioned sub-categories of priority sector lending targets. At year-end fiscal 2023, our total investment in funds of government sponsored development banks due to shortfall in lending to priority sectors was Rs. 216.2 billion, which was fully eligible for consideration in overall priority sector achievement.
Export Credit
The consolidated financial statementsReserve Bank of India requires banks to make loans to exporters at concessional interest rates, as part of directed lending. Export credit is provided for fiscal 2013pre-shipment and 2014 were audited by S.R. Batliboi & Co. LLP, Chartered Accountants,post-shipment requirements of exporter borrowers in rupees and for fiscal 2015 through 2017 by B S R & Co. LLP, Chartered Accountants, under auditing standards issuedforeign currencies. Export credit in the agriculture, micro, small and medium enterprises sectors is permitted to be categorised as priority sector lending. Additionally, the Export credit is extended as priority sector lending basis the classification criteria specified by the Institute of Chartered AccountantsReserve Bank of India. The consolidated financial statements for fiscal 2013interest income earned on export credits is supplemented through 2017 have also been auditedfees and commissions earned from these exporter customers from other fee-based products and services taken by KPMG, an independent registered public accounting firm in India, in accordance with the auditing standardsthem from us, such as foreign exchange products and bill handling. As at March 31, 2023, ICICI Bank’s export credit was Rs. 147.0 billion, which amounted to 1.75% of the United States Public Company Accounting Oversight Board. Our published Indian GAAP consolidated financial statements and disclosures relating to U.S. GAAPBank’s adjusted net income reconciliation and stockholders’ equity reconciliation as required by U.S Securities and Exchange Commission and applicable GAAP, audited by KPMG, are setbank credit.
142
Non-performing loans
The following table sets forth, at the enddates indicated, gross (net of this annual report.write-offs, interest suspense and derivatives income reversal) non-performing loans by borrowers’ industry or economic activity and as a percentage of total non-performing loans.
At March 31, | ||||||||||||||||||||
2022 | 2023 | |||||||||||||||||||
Amount | As a percentage of non-performing loans | Amount | Amount | As a percentage of non-performing loans | ||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||
Retail finance(1) | Rs. | 87,383 | 25.3 | % | Rs. | 76,738 | US$ 934 | 24.6 | % | |||||||||||
Construction | 55,217 | 16.0 | 51,538 | 627 | 16.5 | |||||||||||||||
Rural Retail | 37,080 | 10.7 | 37,294 | 454 | 11.9 | |||||||||||||||
Crude petroleum/ refining and petrochemicals | 25,051 | 7.3 | 25,066 | 305 | 8.0 | |||||||||||||||
Power | 31,671 | 9.2 | 22,044 | 268 | 7.1 | |||||||||||||||
Roads, ports, telecom, urban development & other infrastructure | 14,488 | 4.2 | 12,727 | 155 | 4.1 | |||||||||||||||
Electronics and engineering | 16,045 | 4.6 | 12,705 | 155 | 4.1 | |||||||||||||||
Services—non finance | 14,203 | 4.1 | 12,402 | 151 | 4.0 | |||||||||||||||
Mining | 10,934 | 3.2 | 11,781 | 143 | 3.8 | |||||||||||||||
Wholesale/retail trade | 6,501 | 1.9 | 7,908 | 96 | 2.5 | |||||||||||||||
Manufacturing products (excluding metal) | 5,311 | 1.5 | 5,827 | 71 | 1.9 | |||||||||||||||
Iron/steel and products | 5,918 | 1.7 | 5,236 | 64 | 1.7 | |||||||||||||||
Gems & jewellery | 3,154 | 0.9 | 4,028 | 49 | 1.3 | |||||||||||||||
Other Industries(2) | 32,558 | 9.4 | 27,176 | 330 | 8.5 | |||||||||||||||
Gross non-performing loans (3) | Rs. | 345,514 | 100.0 | % | Rs. | 312,470 | US$ 3,802 | 100.0 | % | |||||||||||
Aggregate provision for loan losses | (269,105 | ) | (254,507 | ) | (3,097 | ) | ||||||||||||||
Net non-performing loans | Rs. | 76,409 | Rs. | 57,963 | US$ 705 |
_____________________
(1) Includes home loans, commercial business loans, rural loans, automobile loans, business banking, credit cards, personal loans, loans against securities and dealer financing portfolio.
(2) Other industries primarily include developer financing portfolio, automobiles, cement, shipping, food and beverages, chemical and fertilizers, textile, drugs and pharmaceuticals, metal and products (excluding iron and steel) services – finance and fast moving consumer goods.
Our annual report, prepared and distributed to our shareholders under Indian law and regulations, includes consolidated as well as unconsolidated Indian GAAP financial statements and analysis of our results of operations and financial condition based on unconsolidated Indian GAAP financial statements.
You should read the following data with the more detailed information contained in “OperatingSee“Operating and Financial Review and Prospects”Prospects—Executive Summary—Certain Factors Affecting Our Results of Operations—Trends in fiscal 2022”.
143
Restructurd loans
The following table sets forth, at the dates indicated, gross restructured loans by borrowers’ industry or economic activity and our consolidated financial statements. Historical results do not necessarily predict our results in the future.as a percentage of total gross restructured loans.
Operating Results Data
At March 31, | ||||||||||||||||||||
2022 | 2023 | |||||||||||||||||||
Amount | As a percentage of restructured loans | Amount | Amount | As a percentage of restructured loans | ||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||
Retail finance | Rs. | 69,073 | 74.1 | % | Rs. | 44,643 | US$ 543 | 85.0 | % | |||||||||||
Power | 6,106 | 6.5 | .. | .. | .. | |||||||||||||||
Roads, port, telecom, urban development & other infrastructure | 2,851 | 3.1 | 2,793 | 34 | 5.3 | |||||||||||||||
Construction | 1,924 | 2.1 | 1,599 | 19 | 3.0 | |||||||||||||||
Others(1) | 13,312 | 14.2 | 3,479 | 43 | 6.7 | |||||||||||||||
Gross restructured loans | Rs. | 93,266 | 100.0 | % | Rs. | 52,514 | US$ 639 | 100.0 | % | |||||||||||
Aggregate provision for loan losses | (2,914 | ) | (1,779 | ) | (22 | ) | ||||||||||||||
Net restructured loans | Rs. | 90,352 | Rs. | 50,735 | US$ 617 |
(1) | Others primarily include automobile, textiles, food and beverages, wholesale/retail trade, services-non finance, manufacturing products (excluding metal) and gems and jewellery. |
(2) | In addition, the Bank holds general provision amounting to Rs. 12.8 billion at year-end fiscal 2023 (year-end fiscal 2022: Rs. 23.6 billion) on these restructured loans, subject to minimum provisioning requirement as per the guidelines issued by the Reserve Bank of India. |
Key ratios-Asset quality
The following table sets forth, for the periods indicated, our operating results data.key ratios on asset quality.
Year ended March 31, | ||||||||||||||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | 2017(1) | |||||||||||||||||||
(in millions, except per common share data) | ||||||||||||||||||||||||
Selected income statement data: | ||||||||||||||||||||||||
Interest income(2) | Rs. | 448,846 | Rs. | 494,792 | Rs. | 549,640 | Rs. | 592,937 | Rs. | 609,399 | US$ | 9,397 | ||||||||||||
Interest expense | (282,854 | ) | (297,106 | ) | (323,182 | ) | (339,965 | ) | (348,358 | ) | (5,372 | ) | ||||||||||||
Net interest income | 165,992 | 197,686 | 226,458 | 252,972 | 261,041 | 4,025 | ||||||||||||||||||
Non-interest income | 293,198 | 300,846 | 352,523 | 421,021 | 524,577 | 8,089 | ||||||||||||||||||
Net total income | 459,190 | 498,532 | 578,981 | 673,993 | 785,618 | 12,114 | ||||||||||||||||||
Non-interest expenses | ||||||||||||||||||||||||
Depreciation on leased assets | (328 | ) | (317 | ) | (351 | ) | (192 | ) | (0)(3) | (0)(3) | ||||||||||||||
Expenses pertaining to insurance business | (173,517 | ) | (162,367 | ) | (191,640 | ) | (232,710 | ) | (276,982 | ) | (4,271 | ) | ||||||||||||
Other operating expenses(4) | (128,225 | ) | (143,979 | ) | (158,237 | ) | (174,993 | ) | (204,718 | ) | (3,157 | ) | ||||||||||||
Total non-interest expenses | (302,070 | ) | (306,663 | ) | (350,228 | ) | (407,895 | ) | (481,700 | ) | (7,428 | ) | ||||||||||||
Operating profit before provisions | 157,120 | 191,869 | 228,753 | 266,098 | 303,918 | 4,686 | ||||||||||||||||||
Provisions and contingencies | (20,952 | ) | (29,003 | ) | (45,363 | ) | (123,054 | ) | (165,825 | ) | (2,557 | ) | ||||||||||||
Profit before tax | 136,168 | 162,866 | 183,390 | 143,044 | 138,093 | 2,129 | ||||||||||||||||||
Provision for tax | (34,869 | ) | (46,095 | ) | (53,967 | ) | (33,775 | ) | (24,690 | ) | (380 | ) | ||||||||||||
Profit after tax | 101,299 | 116,771 | 129,423 | 109,269 | 113,403 | 1,749 | ||||||||||||||||||
Minority interest | (5,263 | ) | (6,357 | ) | (6,954 | ) | (7,469 | ) | (11,519 | ) | (178 | ) | ||||||||||||
Net profit | Rs. | 96,036 | Rs. | 110,414 | Rs. | 122,469 | Rs. | 101,800 | Rs. | 101,884 | US$ | 1,571 | ||||||||||||
Per common share: | ||||||||||||||||||||||||
Earnings-basic(5) (9) | Rs. | 16.66 | Rs. | 19.13 | Rs. | 21.17 | Rs. | 17.53 | Rs. | 17.51 | US$ | 0.27 | ||||||||||||
Earnings-diluted(6) (9) | 16.57 | 19.03 | 20.94 | 17.41 | 17.43 | 0.27 | ||||||||||||||||||
Dividend(7) (9) | 4.00 | 4.60 | 5.00 | 5.00 | 2.50 | 0.04 | ||||||||||||||||||
Book value(7) (8) (9) | 114.32 | 130.51 | 143.11 | 153.10 | 169.81 | 2.62 | ||||||||||||||||||
Equity shares outstanding at the end of the period (in millions of equity shares)(9) | 5,768 | 5,774 | 5,797 | 5,815 | 5,824 | |||||||||||||||||||
Weighted average equity shares outstanding - basic (in millions of equity shares)(9) | 5,765 | 5,772 | 5,786 | 5,807 | 5,819 | |||||||||||||||||||
Weighted average equity shares outstanding – diluted (in millions of equity shares)(9) | 5,787 | 5,794 | 5,842 | 5,840 | 5,843 | |||||||||||||||||||
At or for the year ended March 31, | ||||||||
2022 | 2023 | |||||||
(Rs. in millions, except percentages) | ||||||||
Gross restructured loans as a percentage of gross loans | 0.98% | 0.47% | ||||||
-Gross restructured loans | 93,266 | 52,514 | ||||||
-Total gross loans | 9,475,107 | 11,094,954 | ||||||
Gross non-performing loans as a percentage of gross loans | 3.65 | 2.82 | ||||||
-Gross non-performing loans | 345,514 | 312,470 | ||||||
-Total gross loans | 9,475,107 | 11,094,954 | ||||||
Net restructured loans as a percentage of net loans | 0.98 | 0.47 | ||||||
-Net restructured loans | 90,352 | 50,735 | ||||||
-Total net loans | 9,203,081 | 10,838,663 | ||||||
Net non-performing loans as a percentage of net loans (1) | 0.83 | 0.53 | ||||||
-Net non-performing loans | 76,409 | 57,963 | ||||||
-Total net loans | 9,203,081 | 10,838,663 | ||||||
Provision on restructured loans as a percentage of gross restructured loans (2) | 3.12 | 3.39 | ||||||
-Provision on restructured loans | 2,914 | 1,779 | ||||||
-Gross restructured loans | 93,266 | 52,514 | ||||||
Provision on non-performing loans as a percentage of gross non-performing loans | 77.89 | 81.45 | ||||||
-Provision on non-performing loans | 269,105 | 254,507 | ||||||
-Gross non-performing loans | 345,514 | 312,470 | ||||||
Provision as a percentage of gross loans(3) | 4.45% | 4.08% | ||||||
-Provisions | 421,315 | 452,185 | ||||||
-Total gross loans | 9,475,107 | 11,094,954 | ||||||
_______________________
(1) |
(3) Insignificant amount
(9) The shareholders of the Bank approved the sub-division of one equity share of Rs. 10 into five equity shares having a face value of Rs. 2 each. The record date for the sub-division was December 5, 2014. Face value and number of shares have been re-stated and related ratios re-computed for all the previous periods presented to reflect the sub-division.
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. The average balances are the sum of daily average balances outstanding except for the average balances of overseas branches of ICICI Bank which are calculated on fortnightly basis for period till September 2014. From October 2014, average balances of the foreign branches are also averages of daily balances.
Year ended March 31, | ||||||||||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | ||||||||||||||||
Selected income statement data: | ||||||||||||||||||||
Interest income | 7.01 | % | 7.03 | % | 7.15 | % | 6.98 | % | 6.51 | % | ||||||||||
Interest expense | (4.42 | ) | (4.22 | ) | (4.20 | ) | (4.00 | ) | (3.72 | ) | ||||||||||
Net interest income | 2.59 | 2.81 | 2.95 | 2.98 | 2.79 | |||||||||||||||
Non-interest income | 4.59 | 4.28 | 4.58 | 4.96 | 5.60 | |||||||||||||||
Total income | 7.18 | 7.09 | 7.53 | 7.94 | 8.39 | |||||||||||||||
Depreciation on leased assets | (0.01 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | ||||||||||
Expenses pertaining to insurance business | (2.71 | ) | (2.31 | ) | (2.49 | ) | (2.74 | ) | (2.96 | ) | ||||||||||
Other operating expenses | (2.00 | ) | (2.05 | ) | (2.06 | ) | (2.06 | ) | (2.19 | ) | ||||||||||
Non-interest expenses | (4.72 | ) | (4.36 | ) | (4.55 | ) | (4.80 | ) | (5.15 | ) | ||||||||||
Operating profit before provisions | 2.46 | 2.73 | 2.98 | 3.14 | 3.24 | |||||||||||||||
Provisions and contingencies | (0.33 | ) | (0.41 | ) | (0.59 | ) | (1.45 | ) | (1.77 | ) | ||||||||||
Profit before tax | 2.13 | 2.32 | 2.39 | 1.69 | 1.47 | |||||||||||||||
Provision for tax | (0.55 | ) | (0.66 | ) | (0.71 | ) | (0.40 | ) | (0.26 | ) | ||||||||||
Profit after tax | 1.58 | 1.66 | 1.68 | 1.29 | 1.21 | |||||||||||||||
Minority interest | (0.08 | ) | (0.09 | ) | (0.09 | ) | (0.09 | ) | (0.12 | ) | ||||||||||
Net profit | 1.50 | % | 1.57 | % | 1.59 | % | 1.20 | % | 1.09 | % |
123
The following table sets forth, for the periods indicated, our selected financial data.
At or for the year ended March 31, | ||||||||||||||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | 2017(1) | |||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||
Selected balance sheet data: | ||||||||||||||||||||||||
Total assets | Rs. | 6,749,830 | Rs. | 7,477,624 | Rs. | 8,260,792 | Rs. | 9,187,562 | Rs. | 9,860,427 | US$ | 152,050 | ||||||||||||
Investments(2) | 2,354,684 | 2,427,901 | 2,743,108 | 2,860,441 | 3,045,017 | 46,955 | ||||||||||||||||||
Advances, net | 3,299,741 | 3,873,418 | 4,384,901 | 4,937,291 | 5,153,173 | 79,463 | ||||||||||||||||||
Non-performing customer assets (gross) | 107,165 | 122,994 | 173,870 | 293,216 | 458,861 | 7,076 | ||||||||||||||||||
Total liabilities(5) | 6,062,206 | 6,713,326 | 7,413,746 | 8,246,455 | 8,814,107 | 135,915 | ||||||||||||||||||
Deposits | 3,147,705 | 3,595,127 | 3,859,552 | 4,510,774 | 5,125,873 | 79,042 | ||||||||||||||||||
Borrowings (includes subordinated debt and redeemable non-cumulative preference shares) | 1,728,882 | 1,835,421 | 2,112,520 | 2,203,777 | 1,882,868 | 29,034 | ||||||||||||||||||
Equity share capital | 11,536 | 11,550 | 11,597 | 11,632 | 11,651 | 180 | ||||||||||||||||||
Reserves and surplus(3) | 676,088 | 752,748 | 835,449 | 929,475 | 1,034,669 | 15,955 | ||||||||||||||||||
Period average(4): | ||||||||||||||||||||||||
Total assets | 6,394,436 | 7,037,002 | 7,689,402 | 8,490,942 | 9,361,464 | 144,356 | ||||||||||||||||||
Interest-earning assets | 5,272,489 | 5,830,625 | 6,449,193 | 7,246,635 | 7,911,740 | 122,001 | ||||||||||||||||||
Advances, net | 3,149,347 | 3,589,293 | 4,049,280 | 4,672,596 | 4,996,376 | 77,045 | ||||||||||||||||||
Total liabilities(5) | 5,723,133 | 6,284,987 | 6,860,592 | 7,571,180 | 8,358,741 | 128,893 | ||||||||||||||||||
Interest-bearing liabilities | 4,556,099 | 4,996,433 | 5,445,789 | 6,094,406 | 6,630,273 | 102,240 | ||||||||||||||||||
Borrowings | 1,656,860 | 1,820,630 | 1,906,290 | 2,153,911 | 2,132,099 | 32,877 | ||||||||||||||||||
Stockholders’ equity | 671,303 | 752,016 | 828,810 | 919,753 | 1,002,723 | 15,462 | ||||||||||||||||||
Profitability: | ||||||||||||||||||||||||
Net profit as a percentage of: | ||||||||||||||||||||||||
Average total assets | 1.50 | % | 1.57 | % | 1.59 | % | 1.20 | % | 1.09 | % | ||||||||||||||
Average stockholders’ equity | 14.31 | 14.68 | 14.78 | 11.07 | 10.16 | |||||||||||||||||||
Average stockholders’ equity (including preference share capital) | 14.23 | 14.61 | 14.71 | 11.03 | 10.13 | |||||||||||||||||||
Dividend payout ratio(6) | 24.02 | 24.06 | 23.67 | 28.56 | 14.31 | |||||||||||||||||||
Spread(7) | 2.35 | 2.58 | 2.63 | 2.64 | 2.48 | |||||||||||||||||||
Net interest margin(8) | 3.20 | 3.44 | 3.55 | 3.52 | 3.33 | |||||||||||||||||||
Cost-to-income ratio(9) | 65.78 | 61.51 | 60.49 | 60.52 | 61.31 | |||||||||||||||||||
Cost-to-average assets ratio(10) | 4.72 | 4.36 | 4.55 | 4.80 | 5.15 | |||||||||||||||||||
Capital(11): | ||||||||||||||||||||||||
Average stockholders’ equity as a percentage of average total assets | 10.50 | % | 10.69 | % | 10.78 | % | 10.83 | % | 10.71 | % | ||||||||||||||
Average stockholders’ equity (including preference share capital) as a percentage of average total assets | 10.55 | % | 10.74 | % | 10.82 | % | 10.87 | % | 10.75 | % | ||||||||||||||
Asset quality: | ||||||||||||||||||||||||
Net restructured assets as a percentage of net customer assets | 1.58 | % | 2.70 | % | 2.41 | % | 1.64 | % | 0.84 | % | ||||||||||||||
Net non-performing assets as a percentage of net customer assets(12) | 0.74 | % | 0.99 | % | 1.54 | % | 2.66 | % | 4.73 | % | ||||||||||||||
Provision on restructured assets as a percentage of gross restructured assets | 7.87 | % | 8.42 | % | 7.23 | % | 7.68 | % | 5.92 | % | ||||||||||||||
Provision on non-performing assets as a percentage of gross non-performing assets | 72.80 | % | 63.72 | % | 55.59 | % | 49.60 | % | 41.09 | % | ||||||||||||||
Provision as a percentage of gross customer assets(13) | 2.63 | % | 2.47 | % | 2.89 | % | 3.36 | % | 3.86 | % |
(2) In accordance with the Reserve Bank of India circular dated July 16, 2015, investments in the Rural Infrastructure and Development Fund and other related deposits have been re-grouped to Other Assets. Accordingly, figures of all the previous periods presented have been re-grouped to conform to the current year presentation.
Includes loans identified as non-performing/impaired in line with the guidelines issued by regulators of the respective subsidiary. |
In addition, the Bank holds 25% general provision on restructured assets (including general provision required as per the guidelines issued by the Reserve Bank of India). |
(3) | Includes general provision on standard assets. |
144
Net loan write-offs and Provision on non-performing loans
The table presents net loan write-offs and percentage of average loans for the periods indicated.
March 31, 2022 | March 31, 2023 | |||||||||||||||
Average loan portfolio | Net loan charge-offs1 | % of average gross loans | Net loan charge-offs1 | % of average gross loans | ||||||||||||
(in millions, except percentages) | ||||||||||||||||
Commercial loans | Rs. | 42,528 | 1.17 | % | Rs. | 8,287 | 0.20 | % | ||||||||
Consumer loans | 52,712 | 1.03 | 19,076 | 0.31 | ||||||||||||
Lease financing | 1 | 0.10 | .. | .. | ||||||||||||
Total loans | Rs. | 95,241 | 1.09 | % | Rs. | 27,363 | 0.27 | % |
Selected U.S. GAAP Financial Data
Net loan write-offs as a percentage of our average total loan portfolios were 0.27% in the fiscal 2023 as compared to 1.09% in the fiscal 2022.
The following table sets forth, certain selected financial data under generally accepted accounting principles adoptedshows an allocation of the Group’s total provision on non-performing loans and the percentage of loans in each category to total gross loans for the United States.periods indicated.
At or for the year ended March 31, | ||||||||||||||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | 2017(1) | |||||||||||||||||||
(in millions other than per equity share)) | ||||||||||||||||||||||||
Total income(2) | Rs. | 245,463 | Rs. | 274,705 | Rs. | 319,924 | Rs. | 371,339 | Rs. | 436,639 | US$ | 6,733 | ||||||||||||
Net income/(loss) attributable to ICICI Bank’s stockholders’ | 101,052 | 101,421 | 116,913 | 73,037 | 62,399 | 962 | ||||||||||||||||||
Total assets | 5,860,331 | 6,485,471 | 7,130,592 | 7,867,628 | 8,246,572 | 127,164 | ||||||||||||||||||
ICICI Bank’s stockholders’ equity | 736,566 | 801,882 | 938,253 | 981,675 | 1,034,759 | 15,956 | ||||||||||||||||||
Other comprehensive income/(loss) | 14,431 | 2,157 | 46,436 | 44,486 | 63,305 | 976 | ||||||||||||||||||
Per equity share(3) | ||||||||||||||||||||||||
Net income/(loss) from continuing operation-basic(4) | 15.92 | 15.96 | 18.36 | 11.43 | 9.75 | 0.15 | ||||||||||||||||||
Net income/(loss) from continuing operation-diluted(5) | 15.84 | 15.89 | 18.21 | 11.36 | 9.70 | 0.15 | ||||||||||||||||||
Dividend(6) | 3.30 | 4.00 | 4.60 | 5.00 | 2.50 | 0.04 |
March 31, 2022 | March 31, 2023 | |||||||||||||||
Amount | % of loans in each category to total gross loans | Amount | % of loans in each category to total gross loans | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Commercial loans | Rs. | 203,023 | 41.8 | % | 189,176 | 39.6 | % | |||||||||
Consumer loans | 66,082 | 58.2 | 65,331 | 60.4 | ||||||||||||
Lease financing | .. | 0.0 | .. | 0.0 | ||||||||||||
Total loans | Rs. | 269,105 | 100 | % | 254,507 | 100 | % |
145
a. The basic earnings per share would have been Rs. 10.72 for fiscal 2017, Rs. 12.58 for fiscal 2016, Rs. 20.21 for fiscal 2015, Rs. 17.57 for fiscal 2014 and Rs. 17.53 for fiscal 2013.
b. The diluted earnings per share would have been Rs. 10.68 for fiscal 2017, Rs. 12.50 for fiscal 2016, Rs. 20.05 for fiscal 2015, Rs. 17.50 for fiscal 2014 and Rs. 17.44 for fiscal 2013.
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 audited consolidated financial statements. The following discussion is based on our audited consolidated financial statements and accompanying notes prepared in accordance with Indian GAAP, which varies in certain significant respects from U.S. GAAP. For a reconciliation of net income and stockholders’ equity to U.S. GAAP, a description of significant differences between Indian GAAP and U.S. GAAP and certain additional U.S. GAAP information, see notes 2021 and 2122 to our consolidated financial statements included herein.
Executive SummaryAverage Balance Sheet
IntroductionThe average balances are the sum of daily average balances outstanding. The yield on average interest-earning assets is the ratio of interest earned to average interest-earning assets. The cost of average interest-bearing liabilities is the ratio of interest expended to average interest-bearing liabilities. The average balances of advances include non-performing advances and are net of allowance for loan losses. We have re-calculated tax-exempt income on a tax-equivalent basis. Other interest income has been bifurcated into rupee and foreign currency amounts in order to facilitate the explanation of movements of rupee and foreign currency spreads and margins. The rupee portion of other interest income primarily includes interest on income tax refunds and income from swaps. The foreign currency portion of other interest income primarily includes income from interest rate swaps in foreign currencies. These interest rate swaps are not part of our trading portfolio and are undertaken by us to manage the market risk arising from our assets and liabilities.
We are a diversified financial services group offering a wide rangeThe following table sets forth, for the periods indicated, the average balances of bankingthe assets and financial servicesliabilities, which contribute to corporatethe major components of interest earned, interest expended and retail customers through a varietynet interest income.
Year ended March 31, | ||||||||||||||||||||||||||||||||||||
2021 | 2022 | 2023 | ||||||||||||||||||||||||||||||||||
Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/ cost | ||||||||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||
Advances: | ||||||||||||||||||||||||||||||||||||
Rupee | Rs. | 6,064,280 | Rs. | 573,393 | 9.46 | % | Rs. | 7,343,983 | Rs. | 649,387 | 8.84 | % | Rs. | 9,059,681 | Rs. | 844,091 | 9.32 | % | ||||||||||||||||||
Foreign currency | 1,098,730 | 29,226 | 2.66 | 975,114 | 19,482 | 2.00 | 957,139 | 35,201 | 3.68 | |||||||||||||||||||||||||||
Total advances | 7,163,010 | 602,619 | 8.41 | 8,319,097 | 668,869 | 8.04 | 10,016,820 | 879,292 | 8.78 | |||||||||||||||||||||||||||
Investments: | ||||||||||||||||||||||||||||||||||||
Investments in Government securities: | ||||||||||||||||||||||||||||||||||||
Rupee | 2,761,476 | 177,497 | 6.43 | 2,925,123 | 184,713 | 6.31 | 3,591,054 | 238,048 | 6.63 | |||||||||||||||||||||||||||
Foreign currency | 48,668 | 310 | 0.64 | 41,872 | 235 | 0.56 | 45,689 | 729 | 1.60 | |||||||||||||||||||||||||||
Total investment in Government securities: | 2,810,144 | 177,807 | 6.33 | 2,966,995 | 184,948 | 6.23 | 3,636,743 | 238,777 | 6.57 | |||||||||||||||||||||||||||
Other investments | ||||||||||||||||||||||||||||||||||||
Rupee | 865,396 | 53,021 | 6.13 | 633,746 | 33,384 | 5.27 | 632,296 | 37,070 | 5.86 | |||||||||||||||||||||||||||
Foreign currency | 131,189 | 1,846 | 1.41 | 165,134 | 1,591 | 0.96 | 109,413 | 3,237 | 2.96 | |||||||||||||||||||||||||||
122
Year ended March 31, | ||||||||||||||||||||||||||||||||||||
2021 | 2022 | 2023 | ||||||||||||||||||||||||||||||||||
Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/ cost | ||||||||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||||||||||
Total other investments | 996,585 | 54,867 | 5.51 | 798,880 | 34,975 | 4.38 | 741,709 | 40,307 | 5.43 | |||||||||||||||||||||||||||
Total investments: | ||||||||||||||||||||||||||||||||||||
Rupee | 3,626,872 | 230,518 | 6.36 | 3,558,869 | 218,097 | 6.13 | 4,223,350 | 275,118 | 6.51 | |||||||||||||||||||||||||||
Foreign currency | 179,857 | 2,156 | 1.20 | 207,006 | 1,826 | 0.88 | 155,102 | 3,966 | 2.56 | |||||||||||||||||||||||||||
Total investments | 3,806,729 | 232,674 | 6.11 | 3,765,875 | 219,923 | 5.84 | 4,378,452 | 279,084 | 6.37 | |||||||||||||||||||||||||||
Other interest-earning assets: | ||||||||||||||||||||||||||||||||||||
Lending with the Reserve Bank of India | ||||||||||||||||||||||||||||||||||||
Rupee | 448,570 | 15,470 | 3.45 | 398,765 | 14,858 | 3.73 | 140,278 | 6,486 | 4.62 | |||||||||||||||||||||||||||
Foreign currency | .. | .. | .. | .. | .. | .. | .. | .. | .. | |||||||||||||||||||||||||||
Total lending with the Reserve Bank of India: | 448,570 | 15,470 | 3.45 | 398,765 | 14,858 | 3.73 | 140,278 | 6,486 | 4.62 | |||||||||||||||||||||||||||
Repo lending | ||||||||||||||||||||||||||||||||||||
Rupee | 47,523 | 1,195 | 2.51 | 49,439 | 1,635 | 3.31 | 72,448 | 4,022 | 5.55 | |||||||||||||||||||||||||||
Foreign currency | .. | .. | .. | .. | .. | .. | .. | .. | .. | |||||||||||||||||||||||||||
Total repo lending | 47,523 | 1,195 | 2.51 | 49,439 | 1,635 | 3.31 | 72,448 | 4,022 | 5.55 | |||||||||||||||||||||||||||
Deposits in other banks: | ||||||||||||||||||||||||||||||||||||
Rupee | 36,691 | 2,381 | 6.49 | 42,636 | 2,522 | 5.92 | 56,179 | 3,676 | 6.54 | |||||||||||||||||||||||||||
Foreign currency | 180,174 | 347 | 0.19 | 269,470 | 418 | 0.16 | 254,380 | 7,667 | 3.01 | |||||||||||||||||||||||||||
Total deposits in other banks | 216,865 | 2,728 | 1.26 | 312,106 | 2,940 | 0.94 | 310,559 | 11,343 | 3.65 | |||||||||||||||||||||||||||
Other assets: | ||||||||||||||||||||||||||||||||||||
Rupee | 529,797 | 12,264 | 2.31 | 661,740 | 10,220 | 1.54 | 724,431 | 7,887 | 1.09 | |||||||||||||||||||||||||||
Foreign currency | 213,271 | 536 | 0.25 | 236,568 | 380 | 0.16 | 216,547 | 4,802 | 2.22 | |||||||||||||||||||||||||||
Total other assets | 743,068 | 12,800 | 1.72 | 898,308 | 10,600 | 1.18 | 940,978 | 12,689 | 1.35 |
123
Year ended March 31, | ||||||||||||||||||||||||||||||||||||
2021 | 2022 | 2023 | ||||||||||||||||||||||||||||||||||
Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/ cost | ||||||||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||||||||||
Total other interest-earning assets: | ||||||||||||||||||||||||||||||||||||
Rupee | 1,062,581 | 31,310 | 2.95 | 1,152,580 | 29,235 | 2.54 | 993,336 | 22,071 | 2.22 | |||||||||||||||||||||||||||
Foreign currency | 393,445 | 883 | 0.22 | 506,038 | 798 | 0.16 | 470,927 | 12,469 | 2.65 | |||||||||||||||||||||||||||
Total other interest-earning assets | 1,456,026 | 32,193 | 2.21 | 1,658,618 | 30,033 | 1.81 | 1,464,263 | 34,540 | 2.36 | |||||||||||||||||||||||||||
Other interest income: | ||||||||||||||||||||||||||||||||||||
Rupee | 20,606 | 32,441 | 16,892 | |||||||||||||||||||||||||||||||||
Foreign currency | 3,570 | 2,849 | 894 | |||||||||||||||||||||||||||||||||
Total other interest income | 24,176 | 35,290 | 17,786 | |||||||||||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||||||||||||||
Rupee | 10,753,733 | 855,827 | 7.96 | 12,055,432 | 929,160 | 7.71 | 14,276,367 | 1,158,172 | 8.11 | |||||||||||||||||||||||||||
Foreign currency | 1,672,032 | 35,835 | 2.14 | 1,688,158 | 24,955 | 1.48 | 1,583,168 | 52,530 | 3.32 | |||||||||||||||||||||||||||
Total interest-earning assets | 12,425,765 | 891,662 | 7.18 | 13,743,590 | 954,115 | 6.94 | 15,859,535 | 1,210,702 | 7.63 | |||||||||||||||||||||||||||
Fixed assets | 106,100 | 103,407 | 108,042 | |||||||||||||||||||||||||||||||||
Other assets | 2,044,392 | 2,097,041 | 2,260,812 | |||||||||||||||||||||||||||||||||
Total non-earning assets | 2,150,492 | 2,200,448 | 2,368,854 | |||||||||||||||||||||||||||||||||
Total assets | Rs. | 14,576,257 | Rs. | 891,662 | Rs. | 15,944,038 | Rs. | 954,115 | Rs. | 18,228,389 | Rs. | 1,210,702 | ||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||||||
Savings account deposits: | ||||||||||||||||||||||||||||||||||||
Rupee | Rs. | 2,452,568 | Rs. | 77,687 | 3.17 | Rs. | 3,028,734 | Rs. | 95,390 | 3.15 | Rs. | 3,430,647 | Rs. | 108,593 | 3.17 | |||||||||||||||||||||
Foreign currency | 98,475 | 803 | 0.82 | 80,149 | 321 | 0.40 | 61,367 | 705 | 1.15 | |||||||||||||||||||||||||||
Total savings account deposits | 2,551,043 | 78,490 | 3.08 | 3,108,883 | 95,711 | 3.08 | 3,492,014 | 109,298 | 3.13 | |||||||||||||||||||||||||||
Time deposits: | ||||||||||||||||||||||||||||||||||||
Rupee | 4,530,836 | 250,515 | 5.53 | 5,094,105 | 236,169 | 4.64 | 5,735,631 | 277,636 | 4.84 |
124
Year ended March 31, | ||||||||||||||||||||||||||||||||||||
2021 | 2022 | 2023 | ||||||||||||||||||||||||||||||||||
Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/ cost | ||||||||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||||||||||
Foreign currency | 377,247 | 8,190 | 2.17 | 290,939 | 4,252 | 1.46 | 309,445 | 7,831 | 2.53 | |||||||||||||||||||||||||||
Total time deposits | 4,908,083 | 258,705 | 5.27 | 5,385,044 | 240,421 | 4.46 | 6,045,076 | 285,467 | 4.72 | |||||||||||||||||||||||||||
Other demand deposits: | ||||||||||||||||||||||||||||||||||||
Rupee | 812,042 | 1,055,999 | 1,210,898 | |||||||||||||||||||||||||||||||||
Foreign currency | 112,869 | 156,310 | 165,247 | |||||||||||||||||||||||||||||||||
Total other demand deposits | 924,911 | 1,212,309 | 1,376,145 | |||||||||||||||||||||||||||||||||
Total deposits: | ||||||||||||||||||||||||||||||||||||
Rupee | 7,795,446 | 328,202 | 4.21 | 9,178,838 | 331,559 | 3.61 | 10,377,176 | 386,229 | 3.72 | |||||||||||||||||||||||||||
Foreign currency | 588,591 | 8,993 | 1.53 | 527,398 | 4,573 | 0.87 | 536,059 | 8,536 | 1.59 | |||||||||||||||||||||||||||
Total deposits | 8,384,037 | 337,196 | 4.02 | 9,706,236 | 336,132 | 3.46 | 10,913,235 | 394,765 | 3.62 | |||||||||||||||||||||||||||
Long term borrowings: | ||||||||||||||||||||||||||||||||||||
Rupee | 685,178 | 53,862 | 7.86 | 723,083 | 53,294 | 7.37 | 985,134 | 70,306 | 7.14 | |||||||||||||||||||||||||||
Foreign currency | 544,123 | 15,899 | 2.92 | 389,810 | 9,678 | 2.48 | 309,409 | 10,848 | 3.51 | |||||||||||||||||||||||||||
Total long term borrowings | 1,229,301 | 69,761 | 5.67 | 1,112,893 | 62,972 | 5.66 | 1,294,543 | 81,154 | 6.27 | |||||||||||||||||||||||||||
Short-term borrowings: | ||||||||||||||||||||||||||||||||||||
Borrowings under liquidity adjustment facility with the Reserve Bank of India | ||||||||||||||||||||||||||||||||||||
Rupee: | 103,528 | 4,497 | 4.34 | 720 | 30 | 4.17 | 1,488 | 84 | 5.65 | |||||||||||||||||||||||||||
Foreign currency | .. | .. | .. | .. | .. | .. | .. | .. | .. | |||||||||||||||||||||||||||
Total borrowings under liquidity adjustment facility with the Reserve Bank of India: | 103,528 | 4,497 | 4.34 | 720 | 30 | 4.17 | 1,488 | 84 | 5.65 | |||||||||||||||||||||||||||
Repo borrowings: | ||||||||||||||||||||||||||||||||||||
Rupee | 358,938 | 10,845 | 3.02 | 204,643 | 6,815 | 3.33 | 272,735 | 15,017 | 5.51 |
125
Year ended March 31, | ||||||||||||||||||||||||||||||||||||
2021 | 2022 | 2023 | ||||||||||||||||||||||||||||||||||
Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/ cost | ||||||||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||||||||||
Foreign currency | 7,264 | 189 | 2.60 | 5,676 | 167 | 2.94 | 6,996 | 258 | 3.69 | |||||||||||||||||||||||||||
Total repo borrowings | 366,202 | 11,034 | 3.01 | 210,319 | 6,982 | 3.32 | 279,731 | 15,275 | 5.46 | |||||||||||||||||||||||||||
Other short term borrowings | ||||||||||||||||||||||||||||||||||||
Rupee | 49,208 | 3,259 | 6.62 | 101,520 | 4,904 | 4.83 | 128,586 | 8,266 | 6.43 | |||||||||||||||||||||||||||
Foreign currency | 128,681 | 841 | 0.65 | 102,347 | 646 | 0.63 | 233,886 | 5,890 | 2.52 | |||||||||||||||||||||||||||
Total other short term borrowings | 177,889 | 4,100 | 2.30 | 203,867 | 5,550 | 2.72 | 362,472 | 14,156 | 3.91 | |||||||||||||||||||||||||||
Short term borrowings: | ||||||||||||||||||||||||||||||||||||
Rupee | 511,674 | 18,601 | 3.64 | 306,883 | 11,749 | 3.83 | 402,809 | 23,367 | 5.80 | |||||||||||||||||||||||||||
Foreign currency | 135,945 | 1,030 | 0.76 | 108,023 | 813 | 0.75 | 240,882 | 6,148 | 2.55 | |||||||||||||||||||||||||||
Total short term borrowings | 647,619 | 19,631 | 3.03 | 414,906 | 12,562 | 3.03 | 643,691 | 29,515 | 4.59 | |||||||||||||||||||||||||||
Total borrowings: | ||||||||||||||||||||||||||||||||||||
Rupee | 1,196,852 | 72,463 | 6.05 | 1,029,966 | 65,043 | 6.32 | 1,387,943 | 93,673 | 6.75 | |||||||||||||||||||||||||||
Foreign currency | 680,068 | 16,929 | 2.49 | 497,833 | 10,491 | 2.11 | 550,291 | 16,996 | 3.09 | |||||||||||||||||||||||||||
Total borrowings | 1,876,920 | 89,392 | 4.76 | 1,527,799 | 75,534 | 4.94 | 1,938,234 | 110,669 | 5.71 | |||||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||
Rupee | 8,992,298 | 400,665 | 4.46 | 10,208,804 | 396,602 | 3.88 | 11,765,119 | 479,902 | 4.08 | |||||||||||||||||||||||||||
Foreign currency | 1,268,659 | 25,922 | 2.04 | 1,025,231 | 15,064 | 1.47 | 1,086,350 | 25,532 | 2.35 | |||||||||||||||||||||||||||
Total interest-bearing liabilities | 10,260,957 | 426,588 | 4.16 | 11,234,035 | 411,666 | 3.66 | 12,851,469 | 505,434 | 3.93 | |||||||||||||||||||||||||||
Other liabilities | 2,880,817 | 3,041,905 | 3,400,782 | |||||||||||||||||||||||||||||||||
Total liabilities | 13,141,774 | 426,588 | 14,275,940 | 411,666 | 16,252,251 | 505,434 | ||||||||||||||||||||||||||||||
Stockholders’ equity | 1,434,483 | 1,668,098 | 1,976,138 | |||||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | Rs. | 14,576,257 | Rs. | 426,588 | Rs. | 15,944,038 | Rs. | 411,666 | Rs. | 18,228,389 | Rs. | 505,434 |
126
(1) | Previous period figures have been re-grouped/re-classified where necessary to conform to current period classification. |
Analysis of Changes in India in terms of total assets on a consolidated basis. Apart from banking productsInterest Earned and services, we offer lifeInterest Expended: Volume and general insurance, asset management, securities broking and private equity products and services through specialized subsidiaries. Our total assets at year-end fiscal 2017 were Rs. 9,860.4 billion. Our consolidated capital and reserves at year-end fiscal 2017 were Rs. 1,046.3 billion and our consolidated net profit for fiscal 2017 was Rs. 101.9 billion.Rate Analysis
Our primary business consistsThe following table sets forth, for the periods indicated, the changes in the components of commercial banking operations for retailnet 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 corporate customers. Our commercial banking operations for retail customers consistrate have been allocated solely to volume.
Fiscal 2022 vs. Fiscal 2021 | Fiscal 2023 vs. Fiscal 2022 | |||||||||||||||||||||||
Increase (decrease) due to | Increase (decrease) due to | |||||||||||||||||||||||
Net change | Change in average volume | Change in average rate | Net change | Change in average volume | Change in average rate | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Interest earned: | ||||||||||||||||||||||||
Advances: | ||||||||||||||||||||||||
Rupee | Rs. | 75,994 | Rs. | 113,157 | Rs. | (37,163 | ) | Rs. | 194,704 | Rs. | 159,852 | Rs. | 34,852 | |||||||||||
Foreign currency | (9,744 | ) | (2,470 | ) | (7,274 | ) | 15,719 | (661 | ) | 16,380 | ||||||||||||||
Total advances | 66,250 | 110,687 | (44,437 | ) | 210,423 | 159,191 | 51,232 | |||||||||||||||||
Investment: | ||||||||||||||||||||||||
Investment in Government securities: | ||||||||||||||||||||||||
Rupee | 7,216 | 10,334 | (3,118 | ) | 53,335 | 44,144 | 9,191 | |||||||||||||||||
Foreign currency | (75 | ) | (38 | ) | (37 | ) | 494 | 61 | 433 | |||||||||||||||
Total investment in Government securities | 7,141 | 10,296 | (3,155 | ) | 53,829 | 44,205 | 9,624 | |||||||||||||||||
Other investments: | ||||||||||||||||||||||||
Rupee | (19,637 | ) | (12,203 | ) | (7,434 | ) | 3,686 | (85 | ) | 3,771 | ||||||||||||||
Foreign currency | (255 | ) | 327 | (582 | ) | 1,646 | (1,649 | ) | 3,295 | |||||||||||||||
Total other investments | (19,892 | ) | (11,876 | ) | (8,016 | ) | 5,332 | (1,734 | ) | 7,066 | ||||||||||||||
Total investments: | ||||||||||||||||||||||||
Rupee | (12,421 | ) | (4,167 | ) | (8,254 | ) | 57,021 | 43,286 | 13,735 | |||||||||||||||
Foreign currency | (330 | ) | 239 | (569 | ) | 2,140 | (1,327 | ) | 3,467 | |||||||||||||||
Total investments | (12,751 | ) | (3,928 | ) | (8,823 | ) | 59,161 | 41,959 | 17,202 | |||||||||||||||
Other interest-earning assets: | ||||||||||||||||||||||||
Lending with the Reserve Bank of India: | ||||||||||||||||||||||||
Rupee | (612 | ) | (1,856 | ) | 1,244 | (8,372 | ) | (11,952 | ) | 3,580 | ||||||||||||||
Foreign currency | .. | .. | .. | .. | .. | .. | ||||||||||||||||||
Total lending with the Reserve Bank of India | (612 | ) | (1,856 | ) | 1,244 | (8,372 | ) | (11,952 | ) | 3,580 |
127
Fiscal 2022 vs. Fiscal 2021 | Fiscal 2023 vs. Fiscal 2022 | |||||||||||||||||||||||
Increase (decrease) due to | Increase (decrease) due to | |||||||||||||||||||||||
Net change | Change in average volume | Change in average rate | Net change | Change in average volume | Change in average rate | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Repo lending: | ||||||||||||||||||||||||
Rupee | 440 | 63 | 377 | 2,387 | 1,277 | 1,110 | ||||||||||||||||||
Foreign currency | .. | .. | .. | .. | .. | .. | ||||||||||||||||||
Total repo lending | 440 | 63 | 377 | 2,387 | 1,277 | 1,110 | ||||||||||||||||||
Deposits in other banks: | ||||||||||||||||||||||||
Rupee | 141 | 352 | (211 | ) | 1,154 | 886 | 268 | |||||||||||||||||
Foreign currency | 71 | 139 | (68 | ) | 7,249 | (455 | ) | 7,704 | ||||||||||||||||
Total deposits in other banks | 212 | 491 | (279 | ) | 8,403 | 431 | 7,972 | |||||||||||||||||
Other assets: | ||||||||||||||||||||||||
Rupee | (2,044 | ) | 2,038 | (4,082 | ) | (2,333 | ) | 683 | (3,016 | ) | ||||||||||||||
Foreign currency | (156 | ) | 37 | (193 | ) | 4,422 | (444 | ) | 4,866 | |||||||||||||||
Total other assets | (2,200 | ) | 2,075 | (4,275 | ) | 2,089 | 239 | 1,850 | ||||||||||||||||
Other interest-earning assets: | ||||||||||||||||||||||||
Rupee | (2,075 | ) | 2,283 | (4,358 | ) | (7,164 | ) | (3,538 | ) | (3,626 | ) | |||||||||||||
Foreign currency | (85 | ) | 178 | (263 | ) | 11,671 | (930 | ) | 12,601 | |||||||||||||||
Total other interest earning assets | (2,160 | ) | 2,461 | (4,621 | ) | 4,507 | (4,468 | ) | 8,975 | |||||||||||||||
Other interest income: | ||||||||||||||||||||||||
Rupee | 11,835 | .. | 11,835 | (15,549 | ) | .. | (15,549 | ) | ||||||||||||||||
Foreign currency | (721 | ) | .. | (721 | ) | (1,955 | ) | .. | (1,955 | ) | ||||||||||||||
Other interest income | 11,114 | .. | 11,114 | (17,504 | ) | .. | (17,504 | ) | ||||||||||||||||
Total interest earned: | ||||||||||||||||||||||||
Rupee | 73,333 | 111,273 | (37,940 | ) | 229,012 | 199,600 | 29,412 | |||||||||||||||||
Foreign currency | (10,880 | ) | (2,053 | ) | (8,827 | ) | 27,575 | (2,918 | ) | 30,493 | ||||||||||||||
Total interest earned | 62,453 | 109,220 | (46,767 | ) | 256,587 | 196,682 | 59,905 | |||||||||||||||||
Interest expense: | ||||||||||||||||||||||||
Savings account deposits: | ||||||||||||||||||||||||
Rupee | 17,703 | 18,146 | (443 | ) | 13,203 | 12,722 | 481 | |||||||||||||||||
Foreign currency | (482 | ) | (73 | ) | (409 | ) | 384 | (216 | ) | 600 | ||||||||||||||
Total savings account deposits | 17,221 | 18,073 | (852 | ) | 13,587 | 12,506 | 1,081 | |||||||||||||||||
Time deposits: | ||||||||||||||||||||||||
Rupee | (14,346 | ) | 26,114 | (40,460 | ) | 41,467 | 31,053 | 10,414 | ||||||||||||||||
Foreign currency | (3,938 | ) | (1,261 | ) | (2,677 | ) | 3,579 | 468 | 3,111 | |||||||||||||||
Total time deposits | (18,284 | ) | 24,853 | (43,137 | ) | 45,046 | 31,521 | 13,525 | ||||||||||||||||
Total deposits: | ||||||||||||||||||||||||
Rupee | 3,357 | 44,260 | (40,903 | ) | 54,670 | 43,775 | 10,895 | |||||||||||||||||
Foreign currency | (4,420 | ) | (1,334 | ) | (3,086 | ) | 3,963 | 252 | 3,711 | |||||||||||||||
Total deposits | (1,063 | ) | 42,926 | (43,989 | ) | 58,633 | 44,027 | 14,606 | ||||||||||||||||
Borrowings: | ||||||||||||||||||||||||
Long term borrowings: | ||||||||||||||||||||||||
Rupee | (568 | ) | 2,794 | (3,362 | ) | 17,012 | 18,702 | (1,690 | ) | |||||||||||||||
Foreign currency | (6,221 | ) | (3,831 | ) | (2,390 | ) | 1,170 | (2,819 | ) | 3,989 | ||||||||||||||
Total long term borrowings | (6,789 | ) | (1,037 | ) | (5,752 | ) | 18,182 | 15,883 | 2,299 |
128
Fiscal 2022 vs. Fiscal 2021 | Fiscal 2023 vs. Fiscal 2022 | |||||||||||||||||||||||
Increase (decrease) due to | Increase (decrease) due to | |||||||||||||||||||||||
Net change | Change in average volume | Change in average rate | Net change | Change in average volume | Change in average rate | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Borrowings under liquidity adjustment facility with the Reserve Bank of India: | ||||||||||||||||||||||||
Rupee | (4,467 | ) | (4,284 | ) | (183 | ) | 54 | 43 | 11 | |||||||||||||||
Foreign currency | .. | .. | .. | .. | .. | .. | ||||||||||||||||||
Total borrowings under liquidity adjustment facility with the Reserve Bank of India | (4,467 | ) | (4,284 | ) | (183 | ) | 54 | 43 | 11 | |||||||||||||||
Repo borrowings | ||||||||||||||||||||||||
Rupee | (4,030 | ) | (5,138 | ) | 1,108 | 8,202 | 3,749 | 4,453 | ||||||||||||||||
Foreign currency | (22 | ) | (47 | ) | 25 | 91 | 49 | 42 | ||||||||||||||||
Total repo borrowings | (4,052 | ) | (5,185 | ) | 1,133 | 8,293 | 3,798 | 4,495 | ||||||||||||||||
Other short term borrowings: | ||||||||||||||||||||||||
Rupee | 1,645 | 2,527 | (882 | ) | 3,362 | 1,740 | 1,622 | |||||||||||||||||
Foreign currency | (195 | ) | (166 | ) | (29 | ) | 5,244 | 3,313 | 1,931 | |||||||||||||||
Total other short term borrowings | 1,450 | 2,361 | (911 | ) | 8,606 | 5,053 | 3,553 | |||||||||||||||||
Short term borrowings: | ||||||||||||||||||||||||
Rupee | (6,852 | ) | (6,895 | ) | 43 | 11,618 | 5,532 | 6,086 | ||||||||||||||||
Foreign currency | (217 | ) | (213 | ) | (4 | ) | 5,335 | 3,362 | 1,973 | |||||||||||||||
Total short term borrowings | (7,069 | ) | (7,108 | ) | 39 | 16,953 | 8,894 | 8,059 | ||||||||||||||||
Total borrowings: | ||||||||||||||||||||||||
Rupee | (7,420 | ) | (10,539 | ) | 3,119 | 28,630 | 24,160 | 4,470 | ||||||||||||||||
Foreign currency | (6,438 | ) | (3,840 | ) | (2,598 | ) | 6,505 | 1,620 | 4,885 | |||||||||||||||
Total borrowings | (13,858 | ) | (14,379 | ) | 521 | 35,135 | 25,780 | 9,355 | ||||||||||||||||
Total interest expended: | ||||||||||||||||||||||||
Rupee | (4,063 | ) | 33,721 | (37,784 | ) | 83,300 | 67,935 | 15,365 | ||||||||||||||||
Foreign currency | (10,858 | ) | (5,174 | ) | (5,684 | ) | 10,468 | 1,872 | 8,596 | |||||||||||||||
Total interest expended | (14,921 | ) | 28,547 | (43,468 | ) | 93,768 | 69,807 | 23,961 | ||||||||||||||||
Net interest income: | ||||||||||||||||||||||||
Rupee | 77,396 | 77,552 | (156 | ) | 145,712 | 131,665 | 14,047 | |||||||||||||||||
Foreign currency | (22 | ) | 3,121 | (3,143 | ) | 17,107 | (4,790 | ) | 21,897 | |||||||||||||||
Total net interest income | Rs. | 77,374 | Rs. | 80,673 | Rs. | (3,299 | ) | Rs. | 162,819 | Rs. | 126,875 | Rs. | 35,944 |
Investment portfolio
In our international banking operations, our primary focus isMaturity profile wise yields on offering products and services to persons of Indian origin, Indian businesses, select local businesses and multi-national corporations and insured mortgage products in our Canada subsidiary as well as offering deposit products to the larger community. ICICI Bank’s overseas branches take deposits, raise borrowings and make loans to Indian companies for their overseas operations as well as for their foreign currency requirements in India, global multi-national corporations and to local corporations in their jurisdiction. They also engage in advisory and syndication activities for fund-raising by Indian companies and their overseas operations. We currently have banking subsidiaries in the United Kingdom and Canada, branches in China, Singapore, Dubai International Finance Centre, Sri Lanka, Hong Kong, Qatar Financial Centre, the United States, South Africa and Bahrain and representative offices in the United Arab Emirates, Bangladesh, Malaysia and Indonesia. Our subsidiary in the United Kingdom has established a branch in each of Antwerp, Belgium and Frankfurt, Germany.debt securities
Our treasury operations includeThe following table sets forth, at the maintenance and managementdate indicated, the maturity profile wise yields of regulatory reserves, proprietary trading in equity and fixed income and a range of foreign exchange and derivatives products and services for corporate customers, such as forward contracts and interest rate and currency swaps. We take advantage of movements in markets to earn treasury income. Our overseas branches and subsidiaries also haveour investments in credit derivatives, bonds of non-India financial institutions and in asset-backed securities.
We are also engaged in insurance, asset management,debt securities business and private equity fund management through specialized subsidiaries. Our subsidiaries ICICI Prudential Life Insurance Company, ICICI Lombard General Insurance Company and ICICI Prudential Asset Management Company provide a wide range of life and general insurance and asset management products and services to retail and corporate customers. ICICI Prudential Life Insurance Company was the largest private sector life insurance company in India during fiscal 2017, with a market share of 12.0%classified as available-for-sale. This maturity profile is based on new business written (on a retail weighted received premium basis) according to the Life Insurance Council. During fiscal 2017, ICICI Prudential Life Insurance Company was listed on the National Stock Exchangerepayment dates and does not reflect re-pricing dates of India Limited and BSE Limited, following the sale of 12.63% out of the shares held by ICICI Bank through an offer for sale in an initial public offering. ICICI Lombard General Insurance Company was the largest private sector general insurance company in India during fiscal 2017, with a market share of 8.4% on a gross direct premium income basis according to the General Insurance Council of India. ICICI Prudential Asset Management Company manages the ICICI Prudential Mutual Fund, which was the largest mutual fund in India in terms of average funds under management for the three months ended March 31, 2017 according to Association of Mutual Funds in India. We cross-sell the products of our insurance and
asset management subsidiaries and other asset management companies to our retail and corporate customers. Our subsidiaries ICICI Securities Limited and ICICI Securities Primary Dealership Limited are engaged in equity underwriting and brokerage and primary dealership in government securities respectively. ICICI Securities owns icicidirect.com, a leading online brokerage platform. ICICI Securities Limited has a subsidiary in the United States, ICICI Securities Holdings Inc., which in turn has an operating subsidiary in the United States, ICICI Securities Inc., engaged in brokerage services. Our private equity fund management subsidiary ICICI Venture Funds Management Company manages funds that make private equityfloating rate investments.
Business environment129
Trends in fiscal 2017
Global economic growth slowed to 3.1% during calendar year 2016, with moderation in both advanced as well as emerging economies. The US Federal Reserve increased policy rates towards the end of calendar year 2016, and again in March 2017, while the monetary policy stance remained accommodative in most other economies. Commodity prices, which had declined sharply in calendar year 2015, partially recovered during calendar year 2016, particularly those of crude oil and metals. Global trade showed an improvement towards the later part of the year, partly led by the rise in commodity prices.
In India, fiscal year 2017 witnessed a number of major policy initiatives:
At March 31, 2022 | At March 31, 2023 | |||||||
Up to one year | One to five years | Five to ten years | More than ten years | Up to one year | One to five years | Five to ten years | More than ten years | |
Corporate debt securities | 6.4% | 6.7% | 5.0% | 6.1% | 7.3% | 7.1% | 5.9% | 3.8% |
Government securities | 4.5 | 5.2 | 4.5 | 5.2 | 6.7 | 6.7 | 7.3 | 7.1 |
Other securities | 5.3 | 6.2 | 5.5 | 7.1 | 7.8 | 8.5 | 8.4 | 8.4 |
Total debt securities1 | 4.8% | 5.9% | 4.7% | 5.5% | 6.9% | 7.1% | 6.8% | 7.2% |
(3) | The maturity is computed based on the contractual maturity of the portfolio. |
The following table sets forth, at the date indicated, the maturity profile-wise yields of our investments in debt securities classified as held-to-maturity. This maturity profile is based on repayment dates and does not reflect re-pricing dates of floating rate investments.
At March 31, 2022 | At March 31, 2023 | |||||||
Up to one year | One to five years | Five to ten years | More than ten years | Up to one year | One to five years | Five to ten years | More than ten years | |
Corporate debt securities | 5.9% | 6.6% | 7.4% | 7.5% | 7.0% | 7.1% | 7.6% | 7.7% |
Government securities | 7.7 | 6.6 | 6.8 | 6.4 | 7.0 | 6.8 | 7.4 | 7.6 |
Other securities | 4.2 | .. | .. | .. | 7.8 | .. | .. | .. |
Total debt securities1 | 6.7% | 6.6% | 6.9% | 6.4% | 7.1% | 6.8% | 7.4% | 7.6% |
(1) | Includes securities denominated in different currencies |
(2) | Weighted average yield is the ratio of interest earned on held-to-maturity debt securities to average held-to-maturity securities. |
(3) | The maturity is computed based on the contractual maturity of the portfolio. |
Investment portfolio of our overseas branches and banking subsidiaries
The following table sets forth a summary of the investment portfolio of our overseas branches and banking subsidiaries based on the category of investments.
At March 31 | ||||||||
Category | 2022 | 2023 | ||||||
(in millions) | ||||||||
Bonds | ||||||||
Banks and financial institutions | Rs. | 26,065 | Rs. | 19,460 | ||||
Corporate | 33,591 | 43,284 | ||||||
Total bonds | 59,656 | 62,744 | ||||||
Asset backed securities | .. | .. | ||||||
Others(1) | 4,925 | 5,341 | ||||||
Total | Rs. | 64,581 | Rs. | 68,085 |
(1) | Includes investments in certificates of deposits. |
Investment in India-linked securities of corporate entities was 50.0% at year-end fiscal 2023 as compared to 43.2% at year-end fiscal 2022.
The investments in these securities are governed by the respective investment policies of ICICI Bank and its banking subsidiaries. To mitigate significant concentrations in credit risk, the investment policy
130
lays down a number of limits that need to be adhered to before investments can be made. The investment policy lays down rating and issuer wise investment limits at each of these units. Further, there are counterparty limits for individual banks and financial institutions. Country exposure limits have also been established for various countries. In addition, ICICI Bank monitors the credit spread risk arising out of such investments while ICICI Bank UK PLC has instituted credit spread sensitivity limits on its portfolio. Any exceptions to the above limits are made with due approvals from the appropriate forums. ICICI Bank has not bought credit protection against any of its international investments.
Investments in corporate and financial sector debt securities by our overseas branches and banking subsidiaries
The following table sets forth, at the date indicated, investments in corporate and financial sector debt securities and mortgage and asset backed securities by our overseas branches and banking subsidiaries by region and the mark-to-market and realized losses thereon.
At March 31, 2023 | ||||||||||||||||||||||||||||||||||||
Bonds(1),(2) | Others | Total | ||||||||||||||||||||||||||||||||||
Trading | Available-for-sale and held-to-maturity | Trading | Available-for-sale and held-to-maturity | Trading | Available-for-sale and held-to-maturity | Mark-to-market gain/ (loss) in fiscal 2023 | Realized gain/(loss)/ Impairment loss in income statement for fiscal 2023 | Mark-to-market gain/ (loss) at March 31, 2023 | ||||||||||||||||||||||||||||
(Rs. in millions) | ||||||||||||||||||||||||||||||||||||
U.S. | .. | 3,468 | .. | .. | .. | 3,468 | (103 | ) | 7 | (221 | ) | |||||||||||||||||||||||||
Canada | .. | 18,229 | .. | .. | .. | 18,229 | .. | 1 | .. | |||||||||||||||||||||||||||
Europe | .. | 754 | .. | .. | .. | 754 | (7 | ) | .. | (43 | ) | |||||||||||||||||||||||||
India | 163 | 38,817 | .. | .. | 163 | 38,817 | (450 | ) | (363 | ) | (486 | ) | ||||||||||||||||||||||||
Rest of Asia | .. | 1,313 | .. | 5,341 | .. | 6,654 | (5 | ) | (11 | ) | (27 | ) | ||||||||||||||||||||||||
Total portfolio | 163 | 62,581 | .. | 5,341 | 163 | 67,922 | (565 | ) | (374 | ) | (777 | ) |
(1) | Includes bonds classified under loans and receivable by our UK subsidiary including those transferred in fiscal 2009 from investment to loans and receivables pursuant to Accounting Standard Board issuing amendments to FRS 26 – ‘Financial Instruments: Recognition and Measurement’ which permitted reclassification of financial assets in certain circumstances from ‘held-for-trading’ and ‘available-for-sale categories’ to the ‘loans and receivables’ category. |
(2) | Includes corporate bonds classified under loans and receivables by our Canadian subsidiary. |
131
At March 31, 2022 | ||||||||||||||||||||||||||||||||||||
Bonds(1),(2) | Others | Total | ||||||||||||||||||||||||||||||||||
Trading | Available-for-sale and held-to-maturity | Trading | Available-for-sale and held-to-maturity | Trading | Available-for-sale and held-to-maturity | Mark-to-market gain/ (loss) in fiscal 2022 | Realized gain/(loss)/ Impairment loss in income statement for fiscal 2022 | Mark-to-market gain/ (loss) at March 31, 2022 | ||||||||||||||||||||||||||||
(Rs. in millions) | ||||||||||||||||||||||||||||||||||||
U.S. | .. | 1,809 | .. | .. | .. | 1,809 | (130 | ) | 33 | (106 | ) | |||||||||||||||||||||||||
Canada | .. | 17,480 | .. | .. | .. | 17,480 | .. | 130 | .. | |||||||||||||||||||||||||||
Europe | .. | 716 | .. | .. | .. | 716 | 89 | (0 | ) | (33 | ) | |||||||||||||||||||||||||
India | 1,491 | 37,034 | .. | .. | 1,491 | 37,034 | (672 | ) | 91 | (95 | ) | |||||||||||||||||||||||||
Rest of Asia | .. | 1,126 | .. | 4,925 | .. | 6,051 | (124 | ) | 58 | (20 | ) | |||||||||||||||||||||||||
Total portfolio | 1,491 | 58,165 | .. | 4,925 | 1,491 | 63,090 | (837 | ) | 312 | (254 | ) |
(1) | Includes bonds classified under loans and receivable by our UK subsidiary including those transferred in fiscal 2009 from investment to loans and receivables pursuant to Accounting Standard Board issuing amendments to FRS 26 – ‘Financial Instruments: Recognition and Measurement’ which permitted reclassification of financial assets in certain circumstances from ‘held-for-trading’ and ‘available-for-sale categories’ to the ‘loans and receivables’ category. |
(2) | Includes corporate bonds classified under loans and receivables by our Canadian subsidiary. |
Funding
Our funding operations are designed to ensure stability of funding, minimize funding costs and effectively manage liquidity. Our primary source of domestic funding is deposits raised from both retail and corporate customers. We also raise funds through short-term rupee borrowings, refinance borrowings and domestic or overseas bond offerings. Our domestic bond borrowings include long-term bond borrowings for financing infrastructure projects and affordable housing in accordance with the Reserve Bank of India guidelines. See also “Business—Overview of Our Products and Services—Commercial Banking for Retail Customers—Retail Deposits”.
Maturity profile of deposits
The following table sets forth, at the date indicated, the contractual maturity profile of deposits, by type of deposit at March 31, 2023.
Up to one year | After one year and within three years | After three years | Total | |||||||||||||
(in millions) | ||||||||||||||||
Interest-bearing deposits: | ||||||||||||||||
Savings deposits(1) | Rs. | 3,848,299 | .. | .. | Rs. | 3,848,299 | ||||||||||
Time deposits | 4,341,123 | 1,827,859 | 432,713 | 6,601,695 | ||||||||||||
Non-interest-bearing deposits: | ||||||||||||||||
Other demand deposits(1) | 1,658,328 | .. | .. | 1,658,328 | ||||||||||||
Total deposits | Rs. | 9,847,750 | Rs. | 1,827,859 | Rs. | 432,713 | Rs. | 12,108,322 |
132
(1) | Savings and other demand deposits are payable on demand and hence are classified in the ‘Up to one year’ category. |
The following table sets forth, at the date indicated, the contractual maturity profile of deposits, by type of deposit at March 31, 2022.
Up to one year | After one year and within three years | After three years | Total | |||||||||||||
(in millions) | ||||||||||||||||
Interest-bearing deposits: | ||||||||||||||||
Savings deposits(1) | Rs. | 3,670,306 | .. | .. | Rs. | 3,670,306 | ||||||||||
Time deposits | 3,895,554 | 1,256,777 | 456,834 | 5,609,165 | ||||||||||||
Non-interest-bearing deposits: | ||||||||||||||||
Other demand deposits(1) | 1,634,187 | .. | .. | 1,634,187 | ||||||||||||
Total deposits | Rs. | 9,200,047 | Rs. | 1,256,777 | Rs. | 456,834 | Rs. | 10,913,658 |
(1) Savings and other demand deposits are payable on demand and hence are classified in the ‘Up to one year’ category.
Uninsured deposits
The following table sets forth, for the periods indicated, the estimated amount of time deposits that exceed the insurance limit, segregated by remaining maturity and the estimated amount of total deposits that are otherwise uninsured:
At March 31, 2023 | ||||||||||||||||||||
3 months or less | Over 3 months through 6 months | Over 6 months through 12 months | Over 12 months | Total | ||||||||||||||||
Uninsured time deposits | (in millions) | |||||||||||||||||||
India | Rs. | 1,395,233 | Rs. | 823,917 | Rs. | 1,494,583 | Rs. | 1,801,960 | Rs. | 5,515,693 | ||||||||||
Outside India | 40,410 | 31,385 | 40,918 | 38,278 | 150,991 | |||||||||||||||
Total uninsured time deposits | Rs. | 1,435,643 | Rs. | 855,302 | Rs. | 1,535,501 | Rs. | 1,840,238 | Rs. | 5,666,684 |
At March 31, 2022 | ||||||||||||||||||||
3 months or less | Over 3 months through 6 months | Over 6 months through 12 months | Over 12 months | Total | ||||||||||||||||
Uninsured time deposits | (in millions) | |||||||||||||||||||
India | Rs. | 1,262,407 | Rs. | 736,621 | Rs. | 1,373,221 | Rs. | 1,439,422 | Rs. | 4,811,671 | ||||||||||
Outside India | 22,484 | 11,989 | 19,441 | 11,443 | 65,357 | |||||||||||||||
Total uninsured time deposits | Rs. | 1,284,891 | Rs. | 748,610 | Rs. | 1,392,662 | Rs. | 1,450,865 | Rs. | 4,877,028 |
133
Total uninsured deposits at March 31, 2022 were Rs. 8,315,811 million and at March 31, 2023 were Rs. 9,314,637 million.
The classification between “in India” and “outside India” is based on the domicile of the booking unit. In India, the insured deposit calculations are based on guidelines prescribed by Deposit Insurance and Credit Guarantee Corporation. The insured amount limit prescribed by Deposit Insurance and Credit Guarantee Corporation is up to a maximum amount of Rs. 500,000 per depositor (included all type of deposits), per insured bank. The standard insurance amount for time deposits outside India is based on the insurance limits approved by the regulator in the respective foreign jurisdiction. The insurance coverage is allocated first to savings account deposits, then to current account deposits and lastly to time deposits of a depositor. For time deposits, the highest residual maturity buckets are considered for allocation of insurance coverage.
Risk Management
Asset liability gap
The following table sets forth, at the date indicated, our asset-liability gap position.
At March 31, 2023(1) | ||||||||||||||||
Less than or equal to one year | Greater than one year and up to five years | Greater than five years | Total | |||||||||||||
(in millions) | ||||||||||||||||
Advances (loans), net | Rs. | 9,282,075 | Rs. | 1,453,703 | Rs. | 102,885 | Rs. | 10,838,663 | ||||||||
Investments | 1,283,292 | 1,403,243 | 3,708,985 | 6,395,520 | ||||||||||||
Other assets(2) | 794,512 | 124,827 | 1,325,773 | 2,245,112 | ||||||||||||
Total assets | Rs. | 11,359,879 | Rs. | 2,981,773 | Rs. | 5,137,643 | Rs. | 19,479,295 | ||||||||
Capital | .. | .. | 2,144,978 | 2,144,978 | ||||||||||||
Borrowings | 1,032,692 | 584,913 | 273,013 | 1,890,618 | ||||||||||||
Deposits | 5,611,378 | 6,481,420 | 15,523 | 12,108,321 | ||||||||||||
Other liabilities | 27,686 | 1,259 | 3,412,042 | 3,440,987 | ||||||||||||
Total liabilities | 6,671,756 | 7,067,592 | 5,845,556 | 19,584,904 | ||||||||||||
Total gap before risk management positions | 4,688,123 | (4,085,819 | ) | (707,914 | ) | (105,610 | ) | |||||||||
Off-balance sheet positions(3) | (179,307 | ) | 285,840 | (114,413 | ) | (7,880 | ) | |||||||||
Total gap after risk management positions | Rs. | 4,508,816 | Rs. | (3,799,979 | ) | Rs. | (822,327 | ) | Rs. | (113,490 | ) |
(1) | Includes investments in the nature of equity, cash and cash equivalents and miscellaneous assets and liabilities. 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, including behavioral studies, as per local policy/regulatory norms of the entities. Items other than current and savings account deposits that neither re-price nor have a defined maturity are included in the ‘greater than five years’ category. Fixed assets (other than leased assets) have been excluded from the above table. Current and savings account deposits are classified based on behavior study. |
(2) | Includes cash and balances with the Reserve Bank of India, balances with banks and money at call and short notice and other assets. |
(3) Off-balance sheet positions comprises net notional amount of derivatives, including foreign exchange forward contracts.
134
At March 31, 2022(1) | ||||||||||||||||
Less than or equal to one year | Greater than one year and up to five years | Greater than five years | Total | |||||||||||||
(in millions) | ||||||||||||||||
Advances (loans), net | Rs. | 7,937,695 | Rs 1,189,111 | Rs. | 76,275 | Rs. | 9,203,081 | |||||||||
Investments | 1,271,030 | 1,362,786 | 3,037,161 | 5,670,977 | ||||||||||||
Other assets(2) | 1,246,050 | 158,385 | 1,145,081 | 2,549,516 | ||||||||||||
Total assets | 10,454,775 | 2,710,282 | 4,258,517 | 17,423,574 | ||||||||||||
Capital | .. | .. | 1,820,525 | 1,820,525 | ||||||||||||
Borrowings | 739,947 | 613,594 | 262,486 | 1,616,027 | ||||||||||||
Deposits | 5,133,624 | 5,764,171 | 15,863 | 10,913,658 | ||||||||||||
Other liabilities(3) | 96,553 | 7,084 | 3,072,527 | 3,176,164 | ||||||||||||
Total liabilities | 5,970,124 | 6,384,849 | 5,171,401 | 17,526,373 | ||||||||||||
Total gap before risk management positions | 4,484,651 | (3,674,567 | ) | (912,884 | ) | (102,799 | ) | |||||||||
Off-balance sheet positions(4) | (88,581 | ) | 26,799 | 42,866 | (18,917 | ) | ||||||||||
Total gap after risk management positions | Rs. | 4,396,070 | Rs. | (3,647,768 | ) | Rs. | (870,018 | ) | Rs. | (121,716 | ) |
(1) | Includes investments in the |
India’s gross domestic product grew by 7.1% year-on-year during fiscal 2017 compared to a growth of 8.0% during fiscal 2016. As per industry-wise growth estimates on gross value added basis, the agriculture sector grew by 4.9%, the industrial sector by 5.6% and the services sector by 7.7% during fiscal 2017 compared to 0.7%, 8.8% and 9.7% respectively during fiscal 2016.
Retail inflation, as measured by the Consumer Price Index, eased from 4.8% in March 2016 to 3.9% in March 2017. Core consumer price index inflation, excluding food and fuel products, increased from 4.7% in March 2016 to 4.9% in March 2017. The wholesale price index ended fiscal 2017 with an increase of 5.3% year-on-year in March 2017, as compared to a contraction during fiscal 2016. The average wholesale price index inflation during fiscal 2017 was 1.7% compared to a decline of 3.7% during fiscal 2016.
The repo rate was reduced by 50 basis points during fiscal 2017 with a 25 basis points reduction from 6.75% to 6.50% in April 2016 and another 25 basis points reduction to 6.25% in October 2016. This took the cumulative reduction in the repo rate since January 2015, when the policy rate reduction cycle began, to 175 basis points. However, in the subsequent policy announcements during the year, the repo rate was kept unchanged and the policy stance was changed from accommodative to neutral in February 2017 due to concerns on inflation exceeding the articulated target band of 4% (+/- 2%) going forward.
Trends in merchandise trade remained muted for most of fiscal 2017 but picked up during the latter part of the year. Exports grew by 5.4% and imports by 0.5% year-on-year during fiscal 2017 compared to a decline of 15.5% and 15.0% respectively during fiscal 2016. The improvement in trade primarily reflected the pickup in global commodity prices and improvement in global trade flows. India’s current account deficit narrowed to 0.7% of gross domestic product during fiscal 2017, compared to 1.1% of gross domestic product during fiscal 2016. Foreign direct investment inflows were at US$ 42.2 billion during fiscal 2017 compared to inflows of US$ 44.9 billion during fiscal 2016. There was a net inflow of investments by foreign portfolio investors of US$ 7.8 billion during fiscal 2017, with a net inflow of US$ 8.6 billion in equity markets and a net outflow of US$ 0.8 billion in debt markets. The equity market benchmark S&P BSE Sensex increased by 16.9% during fiscal 2017 to close at 29,621. The Rupee appreciated from Rs. 66.3 per U.S. dollar at year-end fiscal 2016 to Rs. 64.9 per U.S. dollar at year-end fiscal 2017. Yields on the benchmark 10-year Government securities remained in the range of 7.0% to 7.5% during April-October 2016. Yields fell significantly following the withdrawal of legal tender status of high denomination currency notes to around 6.2% in November 2016, but thereafter increased to 6.7% at March 31, 2017.
In the banking sector, there was an increase in deposits following the withdrawal of legal tender status of high denomination currency notes in November 2016. There was a net increase of Rs. 8.20 trillion in deposits in the banking system from November 2016 to March 2017. Total deposit growth, which was in the range of 9.0-10.0% year-on-year for most part of April-October 2016, increased to over 15.0% year-on-year in November 2016 and subsequently moderated to 11.8% year-on-year at March 31, 2017, as compared to a growth of 9.1% year-on-year at April 1, 2016. Demand deposits grew by 20.1% year-on-year at March 31, 2017 compared to a 14.4% year-on-year growth at April 1, 2016. Time deposits grew by 10.7% year-on-year at March 31, 2017 compared to an 8.5% year-on-year growth at April 1, 2016. Credit growth, however, remained muted. Non-food credit, which grew in the range of 9.0-11.0% year-on-year during April-October 2016, moderated further from November 2016 and grew by 5.8% year-on-year at March 31, 2017 compared to 9.9% year-on-year at April 1, 2016. The banking system continued to experience stress on corporate asset quality due to low profitability, the slowdown in economic growth particularly in industrial and services sectors and subdued investment activity. The process of resolution of stressed assets remained slower than expected due to delays in decision making at the Joint Lenders’ Forum that were set up to explore options for early resolution of stress in loan accounts. Several measures were announced by the Reserve Bank of India and the government, including the introduction of the Insolvency and Bankruptcy Code, during the year to enable early resolution of assets. However, the continued challenges in the operating and recovery environment adversely impacted the pace of resolution leading to a significant increase in non-performing loans. The gross non-performing ratio in the Indian banking industry increased from 7.8% at March 31, 2016 to 9.6% at March 31, 2017. Total stressed loans (including standard restructured advances) increased from 11.7% at March 31, 2016 to 12.0% at March 31, 2017.
During the year, digital financial transactions received impetus through the launch of new payment applications including the Unified Payment Interface, a payment platform which allows instant fund transfer to any bank account using a virtual payment address and without requiring bank account details, the Bharat Interface for Money a mobile application built using the Unified Payment Interface and the Aadhaar-Enabled Payment System which enables banking transactions using authentication based on Aadhaar, India’s unique identification number. Transactions using the Unified Payment Interface, including Bharat Interface for Money, were Rs. 69.5 billion in the first year of its launch in fiscal 2017.
The sharp increase in deposit growth compared to credit growth led to an increase in liquidity in the banking system during the third and fourth quarter of fiscal 2017. In line with the Reserve Bank of India’s articulated objective of maintaining system liquidity at near neutrality, the liquidity in the system just prior to the withdrawal of high denomination currency notes was at a deficit of Rs. 350.0 billion at November 8, 2016. Subsequently, liquidity increased significantly and crossed Rs. 5.0 trillion in a span of two weeks. In order to absorb surplus liquidity, as a temporary measure the Reserve Bank of India announced an incremental cash reserve ratio of 100.0% of the increase in net demand and time liabilities between September 16, 2016 and November 11, 2016 effective the fortnight beginning November 26, 2016. Later, to facilitate liquidity management operations by the Reserve Bank of India, the Government of India on December 2, 2016, revised the ceiling for issue of securities under the Market Stabilization Scheme to Rs. 6.00 trillion. Subsequently, on December 7, 2016, the Reserve Bank of India withdrew the incremental cash reserve ratio requirement effective
the fortnight beginning December 10, 2016. During the three months ended March 31, 2017, the Reserve Bank of India adopted reverse repo transactions and issuance of securities under the Market Stabilization Scheme to absorb the surplus liquidity in the system. However, liquidity remained high with an average daily liquidity surplus of Rs. 5.93 trillion during the three months ended March 31, 2017, compared to an average daily liquidity surplus of Rs. 2.24 trillion during the three months ended December 31, 2016. In the monetary policy announced in April 2017, the Reserve Bank of India narrowed the policy rate corridor from +/- 50 basis points to +/- 25 basis points. Accordingly, the reverse repo rate and the marginal standing facility rate were revised by 25 basis points lower/higher than the repo rate to 6.0% and 6.5% respectively. Further, the Reserve Bank of India has proposed the introduction of a Standing Deposit Facility that will eliminate the requirement of collateral for absorbing liquidity.
Following the withdrawal of legal tender status of high denomination currency notes, several short-term measures were announced by the Reserve Bank of India. From time to time, guidelines were issued with regard to limits on exchange of the specified currency notes and cash withdrawal limits from ATMs and bank accounts. Banks also proactively initiated steps like waiving merchant discount rates and transaction related charges during the period. The key regulations announced by the Reserve Bank of India during this period were:
The first year retail premium underwritten in the life insurance sector (on weighted received premium basis) grew by 20.7% from Rs. 440.8 billion during fiscal 2016 to Rs. 532.2 billion during fiscal 2017. Gross direct premium income of the general insurance sector grew by 32.4% from Rs. 963.8 billion during fiscal 2016 to Rs. 1,276.3 billion during fiscal 2017. The average assets under management of mutual funds increased by 35.2% from Rs. 13,534.4 billion for the three months ended March 31, 2016 to Rs. 18,295.8 billion for the three months ended March 31, 2017.
Other key regulatory developments were:
be no transfer of risks or loan assets in these transactions. A bank can issue priority sector lending certificates up to 50.0% of the previous year’s priority sector lending achievement. The certificates will expire on March 31 and will not be valid beyond the last reporting date for the fiscal. The calculation of priority sector lending would be the sum of the outstanding priority sector lending portfolio and the net priority sector lending certificates purchased.
Loan portfolio - fixed-floating interest rate
The following table sets forth, at the date indicated, the amount of our loans with residual contractual maturities greater than one year that had fixed and variable interest rates.
At March 31, 2023 | ||||||||||||
Fixed rate loans | Variable rate loans | Total | ||||||||||
(in millions) | ||||||||||||
Commercial loans | Rs. | 111,986 | Rs. | 1,420,577 | Rs. | 1,532,563 | ||||||
Consumer loans and credit card receivable | 1,412,339 | 3,352,737 | 4,765,076 | |||||||||
Lease financing | 33 | .. | 33 | |||||||||
Total loans | Rs. | 1,524,358 | Rs. | 4,773,314 | Rs. | 6,297,672 |
At March 31, 2022 | ||||||||||||
Fixed rate loans | Variable rate loans | Total | ||||||||||
(in millions) | ||||||||||||
Commercial loans | Rs. | 133,270 | Rs. | 1,273,869 | Rs. | 1,407,139 | ||||||
Consumer loans and credit card receivable | 1,126,546 | 2,817,494 | 3,944,040 | |||||||||
Lease financing | 187 | .. | 187 | |||||||||
Total loans | Rs. | 1,260,003 | Rs. | 4,091,363 | Rs. | 5,351,366 |
135
Impact of interest rate movement on loan portfolio
The following table sets forth, using the balance sheet at year-end fiscal 2023 as the base, one possible prediction of the impact of adverse changes in interest rates on net interest income for fiscal 2024, assuming a parallel shift in the yield curve at year-end fiscal 2023.
At March 31, 2023 | ||||||||||||||||
Change in interest rates (in basis points) | ||||||||||||||||
(100) | (50) | 50 | 100 | |||||||||||||
(in millions) | ||||||||||||||||
Rupee portfolio | Rs. | (38,337 | ) | Rs. | (19,169 | ) | Rs. | 19,169 | Rs. | 38,337 | ||||||
Foreign currency portfolio | (1,737 | ) | (869 | ) | 869 | 1,737 | ||||||||||
Total | Rs. | (40,075 | ) | Rs. | (20,037 | ) | Rs. | 20,037 | Rs. | 40,075 |
The following table sets forth, using the balance sheet at year-end fiscal 2022 as the base, one possible prediction of the impact of adverse changes in interest rates on net interest income for fiscal 2023, assuming a parallel shift in the yield curve at year-end fiscal 2022.
At March 31, 2022 | ||||||||||||||||
Change in interest rates (in basis points) | ||||||||||||||||
(100) | (50) | 50 | 100 | |||||||||||||
(in millions) | ||||||||||||||||
Rupee portfolio | Rs. | (35,655 | ) | Rs. | (17,827 | ) | Rs. | 17,827 | Rs. | 35,655 | ||||||
Foreign currency portfolio | (1,893 | ) | (946 | ) | 946 | 1,893 | ||||||||||
Total | Rs. | (37,548 | ) | Rs. | (18,774 | ) | Rs. | 18,774 | Rs. | 37,548 |
Sensitivity analysis, which is based upon 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)
The following table sets forth, using the fixed income portfolio at year-end fiscal 2023 as the base, one possible prediction of the impact of changes in interest rates on the value of our fixed income held-for-trading portfolio, assuming a parallel shift in interest rate curve.
At March 31, 2023 | ||||||||||||||||||||
Change in interest rates (in basis points) - Rupee | ||||||||||||||||||||
Portfolio Size | (100) | (50) | 50 | 100 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Indian government securities | Rs. | 270,091 | Rs. | 4,667 | Rs. | 2,344 | Rs. | (2,323 | ) | Rs. | (4,630 | ) | ||||||||
Rupee corporate debt securities | 112,437 | 1,620 | 815 | (810 | ) | (1,613 | ) | |||||||||||||
Total | Rs. | 382,528 | Rs. | 6,287 | Rs. | 3,159 | Rs. | (3,133 | ) | Rs. | (6,243 | ) |
136
At March 31, 2023 | ||||||||||||||||||||
Change in interest rates (in basis points) – Foreign currency | ||||||||||||||||||||
Portfolio Size | (100) | (50) | 50 | 100 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Foreign government securities | Rs. | 38,802 | Rs. | 53 | Rs. | 26 | Rs. | (26) | Rs. | (53) | ||||||||||
Foreign corporate debt securities | 483 | 1 | .. | .. | (1) | |||||||||||||||
Total | Rs. | 39,285 | Rs. | 54 | Rs. | 26 | Rs. | (26) | Rs. | (54) |
The following table sets forth, using the fixed income portfolio at year-end fiscal 2022 as the base, one possible prediction of the impact of changes in interest rates on the value of our fixed income held-for-trading portfolio, assuming a parallel shift in interest rate curve.
At March 31, 2022 | ||||||||||||||||||||
Change in interest rates (in basis points) - Rupee | ||||||||||||||||||||
Portfolio Size | (100) | (50) | 50 | 100 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Indian government securities | Rs. | 176,474 | Rs. | 2,421 | Rs. | 1,206 | Rs. | (1,206 | ) | Rs. | (2,421 | ) | ||||||||
Rupee corporate debt securities | 60,011 | 677 | 339 | (339 | ) | (675 | ) | |||||||||||||
Total | Rs. | 236,485 | Rs. | 3,099 | Rs. | 1,545 | Rs. | (1,544 | ) | Rs. | (3,096 | ) |
At March 31, 2022 | ||||||||||||||||||||
Change in interest rates (in basis points) – Foreign currency | ||||||||||||||||||||
Portfolio Size | (100) | (50) | 50 | 100 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Foreign government securities | Rs. | 90,181 | Rs. | 157 | Rs. | 78 | Rs. | (78 | ) | Rs. | (157 | ) | ||||||||
Foreign corporate debt securities | 1,491 | 93 | 46 | (46 | ) | (93 | ) | |||||||||||||
Total | Rs. | 91,672 | Rs. | 250 | Rs. | 124 | Rs. | (124 | ) | Rs. | (250 | ) |
Value at risk on equity shares (Proprietary trading book)
ICICI Bank computes value-at-risk using historical simulation model for limit monitoring purposes. The value-at-risk is calculated using the previous one-year market data at a 99% confidence level and a holding period of one day.
The following table sets forth the high, low, average and period-end value-at-risk for the equities portfolio of the proprietary trading group of ICICI Bank for fiscal 2022 and fiscal 2023.
Rs. in million
Fiscal 2022 | At March | Fiscal 2023 | At March | |||||||||||||||||||||||||||||
High | Low | Average | 31, 2022 | High | Low | Average | 31, 2023 | |||||||||||||||||||||||||
Value-at-risk | 234.9 | 6.8 | 90.9 | 54.1 | 149.0 | 0.0 | 34.0 | 0.0 |
137
We monitor the effectiveness of the value-at-risk model by regularly back-testing its performance. Statistically, we would expect to see losses in excess of value-at-risk only 1% of the time over a one-year period. During fiscal 2023, there were three instances of hypothetical loss exceeding the value-at-risk estimates for the equities portfolio of the proprietary trading group.
The following table sets forth a comparison of the hypothetical daily profit/(loss), computed on the assumption of no intra-day trading, and value-at-risk calculated using the historical simulation model during fiscal 2022 and fiscal 2023.
Rs. in million | ||||||||||||||||
Fiscal 2022 | At March | Fiscal 2023 | At March | |||||||||||||
Average | 31, 2022 | Average | 31, 2023 | |||||||||||||
Hypothetical daily profit(loss) | 9.0 | 14.8 | (0.1 | ) | 0.0 | |||||||||||
Value-at-risk | 90.9 | 54.1 | 34.0 | 0.0 |
The high and low hypothetical daily profit/(loss) during fiscal 2023 was Rs. 37.4 million and Rs. (88.8) million respectively.
While value-at-risk is an important tool for measuring market risk under normal market conditions, it has inherent limitations that should be taken into account, including its inability to accurately predict future losses when extreme events are affecting the markets, because it is based on the assumption that historical market data is indicative of future market performance. Moreover, different value-at-risk calculation methods use different assumptions and hence may produce different results, and computing value-at-risk at the close of the business day would exclude intra-day risk. There is also a general possibility that the value-at-risk model may not fully capture all the risks present in the portfolio.
Derivative and Foreign Exchange Risk (Trading)
The following table sets forth, using the outstanding notional principal of trading derivatives and foreign exchange portfolio at year-end as the base, one possible prediction of the impact of changes in interest rates on the value of our trading derivatives and foreign exchange portfolio, assuming a parallel shift in interest rate curve.
At March 31, 2023 | ||||||||||||||||||||
Change in interest rates (in basis points) | ||||||||||||||||||||
Portfolio Size(1) | (100) | (50) | 50 | 100 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Interest rate derivatives | Rs. | 30,733,302 | Rs. | (13,657 | ) | Rs. | (6,828 | ) | Rs. | 6,828 | Rs. | 13,656 | ||||||||
Currency derivatives(2) | 1,661,178 | 1,176 | 588 | (588 | ) | (1,176 | ) | |||||||||||||
Foreign exchange | 14,512,948 | (3) | (2 | ) | 2 | 3 | ||||||||||||||
Total | Rs. | 46,907,428 | Rs. | (12,484 | ) | Rs. | (6,242 | ) | Rs. | 6,242 | Rs. | (12,483 | ) |
2. | Includes futures, options and cross currency interest rate swaps |
138
At March 31, 2022 | ||||||||||||||||||||
Change in interest rates (in basis points) | ||||||||||||||||||||
Portfolio Size(1) | (100) | (50) | 50 | 100 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Interest rate derivatives | Rs. | 31,560,088 | Rs. | (8,341 | ) | Rs. | (4,170 | ) | Rs. | 4,170 | Rs. | 8,339 | ||||||||
Currency derivatives(2) | 1,193,153 | 2,313 | 1,156 | (1,156 | ) | (2,313 | ) | |||||||||||||
Foreign exchange | 9,769,228 | (42 | ) | (21 | ) | 21 | 42 | |||||||||||||
Total | Rs. | 42,522,469 | Rs. | (6,070 | ) | Rs. | (3,035 | ) | Rs. | 3,035 | Rs. | 6,068 |
2. | Includes futures, options and cross currency |
The following table sets forth the possible prediction of the impact of change in foreign exchange rates on the value of the net open position of the Group.
At March 31, 2023 | ||||||||||
Change in forex rates on the value of the net open position (in basis points) | ||||||||||
Net open position | (100) | 100 | ||||||||
(in millions) | ||||||||||
Total open position for the Group | Rs. | 6,221 | Rs. | 3,862 | Rs. | 492 |
At March 31, 2022 | ||||||||||
Change in forex rates on the value of the net open position (in basis points) | ||||||||||
Net open position | (100) | 100 | ||||||||
(in millions) | ||||||||||
Total open position for the Group | Rs. | 6,654 | Rs. | (1,294 | ) | Rs. | 7,653 |
Credit spread risk
The following table sets forth, using our held-for-trading portfolio at year-end as the base, one possible prediction of the impact of changes in credit spreads on the value of the trading portfolio, assuming a parallel shift in credit spreads.
At March 31, 2023 | |||||||||||||||||||
Change in credit spread (in basis points) | |||||||||||||||||||
Portfolio Size | (100) | (50) | 50 | 100 | |||||||||||||||
(in millions) | |||||||||||||||||||
Corporate debt securities | Rs. | 112,920 | Rs. | 1,621 | Rs. | 815 | Rs. | (810 | ) | Rs. | (1,614 | ) | |||||||
At March 31, 2022 | |||||||||||||||||||
Change in credit spread (in basis points) | |||||||||||||||||||
Portfolio Size | (100) | (50) | 50 | 100 | |||||||||||||||
(in millions) | |||||||||||||||||||
Corporate debt securities | Rs. | 61,502 | Rs. | 770 | Rs. | 386 | Rs. | (385 | ) | Rs. | (768 | ) | |||||||
139
Loan Concentration
We follow a policy of portfolio diversification and evaluate our total financing exposure to a particular industry in the light of our forecasts of growth and profitability for that industry. ICICI Bank’s policy is to limit its portfolio to any particular industry (other than retail loans) to 15.0% of its total exposure. In addition, we have a framework for managing concentration risk with respect to single borrower and group exposures, based on the internal rating and track- record of the borrowers. See also -“Risk Management—Credit Risk”. The exposure limits for lower rated borrowers and groups are substantially lower than the regulatory limits.
The following table sets forth, at the dates indicated, the composition of our gross advances.
At March 31, | ||||||||||||||||||||
2022 | 2023 | |||||||||||||||||||
Amount | As a % | Amount | Amount | As a % | ||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||
Retail finance(1) | Rs. | 5,040,347 | 53.2 | % | Rs. | 6,013,563 | US$ 73,167 | 54.2 | % | |||||||||||
Rural finance | 795,064 | 8.4 | 902,084 | 10,976 | 8.1 | |||||||||||||||
Services—finance | 716,294 | 7.6 | 804,240 | 9,785 | 7.2 | |||||||||||||||
Wholesale/retail trade | 296,358 | 3.1 | 448,962 | 5,462 | 4.0 | |||||||||||||||
Roads, port, telecom, urban development & other infrastructure | 308,905 | 3.3 | 329,564 | 4,010 | 3.0 | |||||||||||||||
Services—non finance | 202,096 | 2.1 | 245,057 | 2,982 | 2.2 | |||||||||||||||
Power | 202,294 | 2.1 | 188,950 | 2,299 | 1.7 | |||||||||||||||
Construction | 155,286 | 1.6 | 178,219 | 2,168 | 1.6 | |||||||||||||||
Manufacturing products (excluding metal) | 121,190 | 1.3 | 173,477 | 2,111 | 1.6 | |||||||||||||||
Iron and steel (including iron and steel products) | 150,757 | 1.6 | 162,007 | 1,971 | 1.5 | |||||||||||||||
Electronics & engineering | 130,558 | 1.4 | 154,612 | 1,881 | 1.4 | |||||||||||||||
Crude petroleum/ refining & petrochemicals | 132,908 | 1.4 | 137,118 | 1,668 | 1.2 | |||||||||||||||
Textile | 100,791 | 1.1 | 124,967 | 1,520 | 1.1 | |||||||||||||||
Others(2) | 1,122,259 | 11.8 | 1,232,134 | 14,992 | 11.2 | |||||||||||||||
Gross advances (loans) | 9,475,107 | 100.0 | % | 11,094,954 | 134,992 | 100.0 | % | |||||||||||||
Allowance for advances (loan) losses | (272,025 | ) | (256,291 | ) | (3,118 | ) | ||||||||||||||
Net advances (loans) | Rs. | 9,203,082 | Rs. | 10,838,663 | US$ 131,873 |
______________________
(2) | Primarily include |
Further,Our capital allocation is focused on building a granular portfolio and sustainably improving our portfolio quality. We are focused on capitalizing on opportunities in June 2017, the Reserve Bank of India issued directionsretail lending, including cross-selling additional products to banksour existing customers and growing our lending to file for resolution under the Insolvency and Bankruptcy Code with the National Company Law Tribunal in respect of 12 large stressed accounts. The Reserve Bank of India has also directed banks to maintain a minimum prescribed provision for these cases referred to the National Company Law Tribunal. With respect to other identified stressed accounts, the banks are required to finalize a resolution plan within six months. In cases where a viable resolution plan is not agreed upon within six months, banks shall be required to file for insolvency proceedings under the Insolvency and Bankruptcy Code.
Business overview
While assessing our performance, we monitor key financial variables such as movement in yield on assets, cost of funds and net interest margin, movement in fee income, cost ratios, loan loss provisions and return on assets and equity. We also monitor key business indicators such as deposit growth, funding mix, loan disbursements and loan delinquency trends. We also analyze changes in economic indicators such as interest rates, liquidity and exchange rates. In addition to these indicators, we monitor other non-financial indicators such as quality of customer service and the extent and nature of customer complaints and estimates of market share in key product lines.
From fiscal 2010, the Indian corporate sector undertook significant investments, including in the infrastructure and commodity sectors. This led to high loan growth in the banking sector, including for us. Subsequently, the Indian economy experienced challenges in terms of high inflation and consequently higher interest rates, currency depreciation and a sharp slowdown in economic growth. The corporate sector experienced a decline in sales and profit growth, an elongation of working capital cycles and a high level of receivables, including from the government, and significant challenges in project completion and cash flow generation, due to policy changes, delays in approvals like clearances on environment and land, and judicial decisions like the deallocation of coal mines. Indian corporations, especially in the infrastructure and industrial sectors, had limited ability to access capital in view of the economic scenario and volatility in global and domestic financial markets. Corporate investment activity declined. From fiscal 2014 onwards, these developments led to an increase in non-performing and restructured corporate loans in the Indian banking sector, including us, and a substantial moderation in overall loan growth, driven primarily by lower growth in credit to the corporate sector. The corporate sector continued to be impacted due to lower than anticipated cash flow generation and high leverage. The significant decline in global commodity prices in fiscal 2015 and fiscal 2016, including metals, coal and crude oil, negatively impacted borrowers in commodity-linked sectors. Capital investments in the economy remained subdued impacting corporations in investment-linked sectors like construction. Due to the lower than projected cash flows, the progress in reducing leverage in the corporate sector was slow, and the additions to non-performing loans, including slippages from restructured loans, increased.
During fiscal 2017, the additions to non-performing loans, including slippages from restructured loans, continued to remain elevated as the corporate sector challenges continued due to the slowdown in economic growth, low corporate profitability and subdued investment activity. The slowdown in economic growth was primarily in the industrial and services sectors, with growth in the industrial sector moderating to 5.6% during fiscal 2017 compared to 8.8% during fiscal 2016, and in the services sector to 7.7% in fiscal 2017 compared to 9.7% in fiscal 2016. Further, during the second half of fiscal 2017, there was a reduction in the availability of cash caused by the withdrawal of high denomination currency notes by the government of India, which also impacted businesses. While several companies are working with banks to restructure and reorganize theirsmall businesses, and reduce their leverage through sales of businesses and assets, the process of resolution of stressed assets remained slower than expected due to delays in decision making at the Joint Lenders’ Forum that were set up to explore options for early resolution of stress in loan accounts. Several measures were announced by the Reserve Bank of India and the government, including the introduction of the Insolvency and Bankruptcy Code, during the year to enable early resolution of assets. However, the continued challenges in the operating and recovery environment adversely impacted the pace of resolution leading to a significant increase in non-performing loans, including slippages from restructured loans, during fiscal 2017.
See also “—Executive Summary—Business environment—Trends in fiscal 2017”.
Due to the increased level of risks in the business environment, the Indian banking system in general has experienced an increase in the level of additions to non-performing loans including slippages from restructured loans. During the three months ended December 31, 2015, against the backdrop of continuing challenges in the corporate sector, the Reserve Bank of India articulated an objective of early and conservative recognition of stress and provisioning and held discussions with and asked a number of Indian banks, including us, to review certain loan accounts and their classification over the six months ended March 31, 2016. As a result of
challenges faced by the corporate sector and the discussions with and review by the Reserve Bank of India, Indian banks, including us, experienced a substantial increase in the level of additions to non-performing loans, including downgrades from restructured loans, into non-performing status during the second half of fiscal 2016. During fiscal 2017, theadditions to non-performing loans, including slippages from restructured loans, continued to remain elevated as the corporate sector challenges continued due to the slowdown in economic growth, low corporate profitability and subdued investment activity. In June 2017, the Reserve Bank of India has directed banks to commence proceedings under the Insolvency and Bankruptcy Code, enacted in 2016, in respect of certain corporate borrowers. Under this Code, a resolution plan for these borrowers would be required to be finalized within specified timeframes, failing which the borrowers would go into liquidation. Given the limited experience of this framework, the successful resolution of these borrowers would be achieved, and should one or more of these borrowers go into liquidation, the provisioning requirement and credit loss on these loans could result in significantly higher provisions.
There has been a substantial moderation in overall loan growth in the banking sector, driven primarily by lower growth in credit to the corporate sector. System deposits growth in fiscal 2017 improved sharply due to the Government’s decision to withdraw high denomination currency notes. This resulted in a significant increase in savings and current account deposits, and a reduction in deposit rates for banks. In general, trends in systemic liquidity, interest rates and inflation influence deposit growth, especially with respect to low cost savings and current account deposits. Our ability to grow our low cost deposit base may be impacted by increasing competition for such deposits from existing banks and new entrants. The slowdown in fresh corporate investments and new infrastructure projects has impacted our related fee income revenue streams. Given these developments, we have adopted a balanced approach to growth, risk management and profitability. We have continued our focus on driving momentum in the retail segment while adopting a selective approach to corporate lending. We have also focusedGiven the focus on sustaining the improvements in our deposit profile and cost ratios and managing the quality of our portfolio. As we grow our businesses, meeting customer expectations on service quality has been a critical element of our strategy.
A discussion of our financial performanceabove priorities, gross retail finance advances increased by 19.3% in fiscal 2017 is given below:
Operating profit before provisions increased by 14.2% from Rs. 266.1 billion in fiscal 2016 to Rs. 303.9 billion in fiscal 2017 primarily due2023 compared to an increase of 17.1% in non-interest income, offset, in part, by an increase in non-interest expenses.
Net interest income increased by 3.2% from Rs. 253.0 billiontotal gross advances in fiscal 2016 to Rs. 261.0 billion in fiscal 2017 reflecting an increase of 9.2% in the average volume of interest-earning assets, offset, in part, by2023. As a decrease in net interest margin by 19 basis points from 3.52% in fiscal 2016 to 3.33% in fiscal 2017.
Non-interest income increased by 24.6% from Rs. 421.0 billion in fiscal 2016 to Rs. 524.6 billion in fiscal 2017 primarily due to an increase in net earned premium and other operating income relating to insurance business and income from treasury-related activities. Premium and other operating income relating to insurance business increased by 18.3% from Rs. 263.8 billion in fiscal 2016 to Rs. 312.0 billion in fiscal 2017 primarily reflecting an increase in business volume. Income from treasury-related activitiesresult, retail finance increased from Rs. 66.2 billion in fiscal 2016 to Rs. 114.4 billion in fiscal 2017, primarily due to the Bank’s sale, during fiscal 2017,53.2% of equity shares representing a 12.63% shareholding in its life insurance subsidiary, ICICI Prudential Life Insurance Company Limited, through an initial public offer. This sale resulted in a gain of Rs. 51.3 billion.
Non-interest expenses increased by 18.1% from Rs. 407.9 billion in fiscal 2016 to Rs. 481.7 billion in fiscal 2017, primarily due to an increase in expenses pertaining to insurance business and other operating expenses.
Provisions and contingencies (excluding provision for tax) increased by 34.8% from Rs. 123.1 billion in fiscal 2016 to Rs. 165.8 billion in fiscal 2017. This increase was primarily due to an increase in provisions for non-performing assets. The net non-performing assets ratio increased from 2.7%gross loans at year-end fiscal 20162022 to 4.7%54.2% of gross loans at year-end fiscal 2017.2023.
140
At year-end fiscal 2023, our 20 largest borrowers accounted for 6.9% of our gross loan portfolio, with the largest borrower accounting for 1.9% of our gross loan portfolio. The provisionslargest group of companies under the same management control accounted for non-performing assets are expected1.3% of our gross loan portfolio at year-end fiscal 2023.
At year-end fiscal 2023, our exposure to remain elevated in the near term duelargest single counterparty accounted for 12.8% of our Tier I capital fund. The exposure to high corporate sector leverage, slow improvement in corporate cash flows, the time requiredlargest group of connected counterparties accounted for resolution27.1% of stressed assets and the evolving regulatory approach.our Tier I capital fund at year-end fiscal 2022.
Maturity profile of loans
The income tax expense decreased by 26.9% from Rs. 33.8 billion in fiscal 2016 to Rs. 24.7 billion in fiscal 2017 primarily due to a lower effective tax rate in fiscal 2017, primarily reflectingfollowing table sets forth, for the compositionperiods indicated, the maturity profile of income.loans
As a result of the above, the profit after tax increased marginally from Rs. 101.8 billion in fiscal 2016 to Rs. 101.9 billion in fiscal 2017. March 31, 2023 Due within 1 year Due between 1 to 5 year Due between 5 to 15 years Due in more than 15 years Total (in millions) Commercial loans Rs. 2,951,977 Rs. 1,017,840 Rs. 512,516 Rs. 2,207 Rs. 4,484,540 Consumer loans 1,588,996 2,100,469 1,714,291 950,316 6,354,072 Lease financing 18 33 .. .. 51 Total Rs. 4,540,991 Rs. 3,118,342 Rs. 2,226,807 Rs. 952,523 Rs. 10,838,663
Net worth (equity share capital and reserves and surplus)increased from Rs. 941.1 billion at year-end fiscal 2016 to Rs. 1,046.3 billion at year-end fiscal 2017 primarily due to accretion to reserves from profit for the year.
March 31, 2022 | ||||||||||||||||||||
Due within 1 year | Due between 1 to 5 year | Due between 5 to 15 years | Due in more than 15 years | Total | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Commercial loans | Rs. | 2,221,031 | Rs. | 881,662 | Rs. | 523,871 | Rs. | 1,606 | Rs. | 3,628,170 | ||||||||||
Consumer loans | 1,630,457 | 1,948,475 | 1,670,240 | 325,325 | 5,574,497 | |||||||||||||||
Lease financing | 230 | 187 | .. | .. | 417 | |||||||||||||||
Total | Rs. | 3,851,718 | Rs. | 2,830,324 | Rs. | 2,194,111 | Rs. | 326,931 | Rs. | 9,203,084 |
Total assets increased by 7.3% from Rs. 9,187.6 billion at year-end fiscal 2016 to Rs. 9,860.4 billion at year-end fiscal 2017. Total deposits increased by 13.6% from Rs. 4,510.8 billion at year-end fiscal 2016 to Rs. 5,125.9 billion at year-end fiscal 2017. Savings account deposits increased by 23.9% from Rs. 1,444.6 billion at year-end fiscal 2016 to Rs. 1,790.1 billion at year-end fiscal 2017. Current account deposits increased by 27.3% from Rs. 603.4 billion at year-end fiscal 2016 to Rs. 767.9 billion at year-end fiscal 2017. The current account and savings account ratio (ratio of current account and savings account deposits to total deposits) increased from 45.4% at year-end fiscal 2016 to 49.9% at year-end fiscal 2017 which includes the impact of significantly higher current account and savings account deposit inflows in the second half of the fiscal 2017 following the withdrawal of legal tender status of high denomination currency notes by the government of India. Total advances increased by 4.4% from Rs. 4,937.3 billion at year-end fiscal 2016 to Rs. 5,153.2 billion at year-end fiscal 2017. Our retail advances increased by 12.7% from Rs. 2,385.7 billion at year-end fiscal 2016 to Rs. 2,689.6 billion at year-end fiscal 2017.
ICICI Bank’s branch network in India increased from 4,450 branches at year-end fiscal 2016 to 4,850 branches at year-end fiscal 2017. The ATM network of the Bank increased from 13,766 ATMs at year-end fiscal 2016 to 13,882 ATMs at year-end fiscal 2017.Directed Lending
The capital adequacy ratios of ICICI Bank on an unconsolidated basis in accordance with the Reserve Bank of India’s guidelines on Basel III, at year-end fiscal 2017 were: common equity Tier 1 risk-based capital ratio of 13.7%; Tier 1 risk-based capital ratio of 14.4% and total risk-based capital ratio of 17.4%. Our capital adequacy ratios on a consolidated basis in accordance with the Reserve Bank of India’s guidelines on Basel III, at year-end fiscal 2017 were: common equity Tier 1 risk-based capital ratio of 13.8%; Tier 1 risk-based capital ratio of 14.4%; and total risk-based capital ratio of 17.3%.
Business outlook
Growth in India’s gross domestic product had recovered from 6.4% in fiscal 2014 to 7.5% in fiscal 2015 and further to 8.0% in fiscal 2016. Growth in fiscal 2017, however, declined to 7.1% primarily due to the slowdown in growth in industrial and services sectors. Growth in the industrial sector moderated to 5.6% during fiscal 2017 compared to 8.8% during fiscal 2016, and in the services sector to 7.7% in fiscal 2017 compared to 9.7% in fiscal 2016. Other macroeconomic parameters remained stable supported by a moderation in inflation, a strengthened external sector position and a relatively stable exchange rate. The corporate sector continued to experience challenges reflected in low profitability and subdued investment activity. During fiscal 2017, credit growth in the Indian banking system continued to remain muted while deposit growth improved following the Government’s decision to withdraw high denomination currency notes. This was accompanied by an increase in the level of non-performing loans. See also “Risk Factors—Risks Relating to India and other Economic and Market Risks—A prolonged slowdown in economic growth or rise in interest rates in India could cause our business to suffer”.
The operating environment for the Indian corporate sector continues to remain challenging, in view of the gradual nature of the economic recovery, continued weak corporate investment activity and high leverage. The decline in commodity prices has had an impact on borrowers in commodity-linked sectors. Subdued capital investment in the economy has impacted corporations in investment-linked sectors like construction. Lending opportunities for banks in the corporate sector have remained limited due to weak credit demand with focus shifting to higher rated corporates and the retail segment for incremental credit. Competitive pressures in lending to these segments are impacting pricing and the net interest income of banks. Further, pricing of loans has been impacted by the introduction of marginal cost of funds based lending rates, which has led to re-pricing of loans to a lower rate compared to the earlier base rate. The withdrawal of high denomination currency notes in November 2016 also increased pricing pressures due to the significant inflow of low cost deposits in the banking system. Competition is also rising among a few large public sector banks, private sector banks and the recently licensed new types of banks that are seeking to expand their customer base through deployment of capital and technology.
Due to the increased level of risks in the business environment, the Indian banking system in general has experienced an increase in the level of additions to non-performing loans including slippages from restructured loans. Further, during the three months ended December 31, 2015, against the backdrop of continuing challenges in the corporate sector, the Reserve Bank of India articulated an objective of early and conservative recognition of stress and provisioning and held discussions with and asked a number of Indianrequires banks including us, to reviewlend to certain loan accounts and their classification over the six months ended March 31, 2016. As a resultsectors of the challenges faced byeconomy. Such directed lending comprises priority sector lending and export credit. ICICI Bank is required to comply with the corporatepriority sector and the discussions with and reviewlending requirements prescribed by the Reserve Bank of India non-performing loans and provisionsfrom time to time. As prescribed in the Reserve Bank of a number of Indian banks, including us, increased significantly duringIndia guideline, the second half of fiscal 2016.
Bank’s priority sector lending achievement is computed on quarterly average basis. During fiscal 2017, corporate2023, the Bank purchased Priority Sector Lending Certificates amounting to Rs. 716.5 billion (fiscal 2022: Rs. 715.1 billion) and sold Priority Sector Lending Certificates amounting to Rs. 741.3 billion (fiscal 2022: Rs. 1,014.4 billion). See also “Supervision and Regulation—Regulations Relating to Advancing Loans—Directed Lending—Priority Sector Lending”.
141
The following table sets forth, for the periods indicated, ICICI Bank’s average priority sector challenges continued due to the slowdown in economic growth, low corporate profitability and subdued investment activity. Further, during the second half of fiscal 2017, there was a reduction in the availability of cash caused by the withdrawal of high denomination currency notes by the government of India, which also impacted businesses. While several companies are working with banks to restructure and reorganize their businesses and reduce their leverage through sales of businesses and assets, the process of resolution of stressed assets remained slower than expected due to delays in decision making at the Joint Lenders’ Forum that were set up to explore options for early resolution of stress in loan accounts. Several measures were announcedlending:
- Small and marginal farmers Fiscal 2022 Fiscal 2023 Amount % of adjusted net bank credit Amount % of adjusted net bank credit Target (% of adjusted net bank credit) (in billions, except percentages) Agriculture Sector Rs. 1,226.5 17.80% Rs. 1,423.6 US$ 17.3 17.74% 18.00% 636.4 9.20 794.7 9.7 9.90 9.50 - Non-corporate farmers 873.8 12.70 1,068.2 13.0 13.31 13.78 Micro, small and medium enterprises 1,473.7 .. 1,729.0 21.0 .. .. - Micro enterprises 550.7 8.00 661.2 8.0 8.24 7.50 Other priority sector 145.2 .. 178.3 2.2 .. .. Total priority sector lending Rs. 2,845.4 41.30% Rs. 3,330.9 US$ 40.5 41.50% 40.00% - Weaker sections Rs. 762.0 11.10% Rs. 910.2 US$ 11.1 11.34% 11.50%
1. | The above includes the impact of Priority Sector Lending Certificate purchased/sold by the Bank. |
The priority sector lending master circular issued by the Reserve Bank of India requires that banks having any shortfall in lending to priority sector shall be allocated amounts for contribution to the Rural Infrastructure Development Fund established with National Bank for Agriculture and the government, including the introduction of the InsolvencyRural Development and Bankruptcy Code, during the year to enable early resolution of assets. However, the continued challenges in the operating and recovery environment adversely impacted the pace of resolution leading to a significant increase in non-performing loans during fiscal 2017. Further, in June 2017,other Funds as decided by the Reserve Bank of India directed banksfrom time to commence proceedings under the Insolvency and Bankruptcy Code, enacted in 2016, in respect of certain corporate borrowers. Under this Code, a resolution plan for these borrowers wouldtime. The Bank may be required by the Reserve Bank of India to be finalized withindeposit with the Rural Infrastructure Development Fund and other related funds, certain amounts as specified timeframes, failingby the Reserve Bank of India in the coming year due to the shortfall in the above-mentioned sub-categories of priority sector lending targets. At year-end fiscal 2023, our total investment in funds of government sponsored development banks due to shortfall in lending to priority sectors was Rs. 216.2 billion, which the borrowers would go into liquidation. was fully eligible for consideration in overall priority sector achievement.
Export Credit
The Reserve Bank of India has also specified higher provisions in respect ofrequires banks to make loans to these borrowers. Given the limited experienceexporters at concessional interest rates, as part of this framework, should one or moredirected lending. Export credit is provided for pre-shipment and post-shipment requirements of theseexporter borrowers go into liquidation, the provisioning requirementin rupees and foreign currencies. Export credit loss on these loans could result in significantly higher provisions.Our non-performing loans and provisions are expected to remain elevated in the near term.
However,overagriculture, micro, small and medium enterprises sectors is permitted to be categorised as priority sector lending. Additionally, the longer-term, we see favorable prospects forExport credit is extended as priority sector lending basis the Indian economy. The Government andclassification criteria specified by the Reserve Bank of India have announced several measuresIndia. The interest income earned on export 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. As at March 31, 2023, ICICI Bank’s export credit was Rs. 147.0 billion, which amounted to address the stress in the Indian banking system. The Government has also announced several policy initiatives in the areas of foreign investments, promoting manufacturing, efficiency of government services, fiscal consolidation and long-term projects for improving infrastructure. Structural reforms like the implementation1.75% of the Goods and Services Tax have been introduced. We expect India’s strong domestic consumption and investment drivers to continue to support healthy rates of growth. Increasing household incomes and consumption are expected to lead to opportunities in retail savings, investment and loan products, significant industrial and infrastructure investment potential to lead to opportunities in project and corporate finance, and increasing global linkages to lead to opportunities in international banking for Indian corporations and non-resident Indians.Bank’s adjusted net bank credit.
In the life insurance sector, the new business retail weighted premium for the industry increased by 20.7% during fiscal 2017 compared to growth142
Considering the challenges in the operating environment, we have over the years re-balanced our deposit profile, improved cost efficiency, scaled up retail loan growth, calibrated corporate loan growth and maintained high capital adequacy ratios. Our objective going forward will be to sustain our robust funding profile and improvements in our operating performance while continuing to closely monitor credit quality. We will focus on reducing concentration risks in our portfolio and seek resolution and recovery of exposures impacted by the economic environment. Meeting customer expectations on service quality through digital initiatives and a strong customer franchise will be a critical element of our strategy. We will also continue to focus on unlocking value in our subsidiaries and further improve capital efficiency.Non-performing loans
The successfollowing table sets forth, at the dates indicated, gross (net of write-offs, interest suspense and derivatives income reversal) non-performing loans by borrowers’ industry or economic activity and as a percentage of total non-performing loans.
At March 31, | ||||||||||||||||||||
2022 | 2023 | |||||||||||||||||||
Amount | As a percentage of non-performing loans | Amount | Amount | As a percentage of non-performing loans | ||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||
Retail finance(1) | Rs. | 87,383 | 25.3 | % | Rs. | 76,738 | US$ 934 | 24.6 | % | |||||||||||
Construction | 55,217 | 16.0 | 51,538 | 627 | 16.5 | |||||||||||||||
Rural Retail | 37,080 | 10.7 | 37,294 | 454 | 11.9 | |||||||||||||||
Crude petroleum/ refining and petrochemicals | 25,051 | 7.3 | 25,066 | 305 | 8.0 | |||||||||||||||
Power | 31,671 | 9.2 | 22,044 | 268 | 7.1 | |||||||||||||||
Roads, ports, telecom, urban development & other infrastructure | 14,488 | 4.2 | 12,727 | 155 | 4.1 | |||||||||||||||
Electronics and engineering | 16,045 | 4.6 | 12,705 | 155 | 4.1 | |||||||||||||||
Services—non finance | 14,203 | 4.1 | 12,402 | 151 | 4.0 | |||||||||||||||
Mining | 10,934 | 3.2 | 11,781 | 143 | 3.8 | |||||||||||||||
Wholesale/retail trade | 6,501 | 1.9 | 7,908 | 96 | 2.5 | |||||||||||||||
Manufacturing products (excluding metal) | 5,311 | 1.5 | 5,827 | 71 | 1.9 | |||||||||||||||
Iron/steel and products | 5,918 | 1.7 | 5,236 | 64 | 1.7 | |||||||||||||||
Gems & jewellery | 3,154 | 0.9 | 4,028 | 49 | 1.3 | |||||||||||||||
Other Industries(2) | 32,558 | 9.4 | 27,176 | 330 | 8.5 | |||||||||||||||
Gross non-performing loans (3) | Rs. | 345,514 | 100.0 | % | Rs. | 312,470 | US$ 3,802 | 100.0 | % | |||||||||||
Aggregate provision for loan losses | (269,105 | ) | (254,507 | ) | (3,097 | ) | ||||||||||||||
Net non-performing loans | Rs. | 76,409 | Rs. | 57,963 | US$ 705 |
_____________________
(1) Includes home loans, commercial business loans, rural loans, automobile loans, business banking, credit cards, personal loans, loans against securities and dealer financing portfolio.
(2) Other industries primarily include developer financing portfolio, automobiles, cement, shipping, food and beverages, chemical and fertilizers, textile, drugs and pharmaceuticals, metal and products (excluding iron and steel) services – finance and fast moving consumer goods.
See“Operating and Financial Review and Prospects—Executive Summary—Certain Factors Affecting Our Results of Operations—Trends in fiscal 2022”.
143
Restructurd loans
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.
At March 31, | ||||||||||||||||||||
2022 | 2023 | |||||||||||||||||||
Amount | As a percentage of restructured loans | Amount | Amount | As a percentage of restructured loans | ||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||
Retail finance | Rs. | 69,073 | 74.1 | % | Rs. | 44,643 | US$ 543 | 85.0 | % | |||||||||||
Power | 6,106 | 6.5 | .. | .. | .. | |||||||||||||||
Roads, port, telecom, urban development & other infrastructure | 2,851 | 3.1 | 2,793 | 34 | 5.3 | |||||||||||||||
Construction | 1,924 | 2.1 | 1,599 | 19 | 3.0 | |||||||||||||||
Others(1) | 13,312 | 14.2 | 3,479 | 43 | 6.7 | |||||||||||||||
Gross restructured loans | Rs. | 93,266 | 100.0 | % | Rs. | 52,514 | US$ 639 | 100.0 | % | |||||||||||
Aggregate provision for loan losses | (2,914 | ) | (1,779 | ) | (22 | ) | ||||||||||||||
Net restructured loans | Rs. | 90,352 | Rs. | 50,735 | US$ 617 |
(1) | Others primarily include automobile, textiles, food and beverages, wholesale/retail trade, services-non finance, manufacturing products (excluding metal) and gems and jewellery. |
(2) | In addition, the Bank holds general provision amounting to Rs. 12.8 billion at year-end fiscal 2023 (year-end fiscal 2022: Rs. 23.6 billion) on these restructured loans, subject to minimum provisioning requirement as per the guidelines issued by the Reserve Bank of India. |
Key ratios-Asset quality
The following table sets forth, for the periods indicated, our key ratios on asset quality.
At or for the year ended March 31, | ||||||||
2022 | 2023 | |||||||
(Rs. in millions, except percentages) | ||||||||
Gross restructured loans as a percentage of gross loans | 0.98% | 0.47% | ||||||
-Gross restructured loans | 93,266 | 52,514 | ||||||
-Total gross loans | 9,475,107 | 11,094,954 | ||||||
Gross non-performing loans as a percentage of gross loans | 3.65 | 2.82 | ||||||
-Gross non-performing loans | 345,514 | 312,470 | ||||||
-Total gross loans | 9,475,107 | 11,094,954 | ||||||
Net restructured loans as a percentage of net loans | 0.98 | 0.47 | ||||||
-Net restructured loans | 90,352 | 50,735 | ||||||
-Total net loans | 9,203,081 | 10,838,663 | ||||||
Net non-performing loans as a percentage of net loans (1) | 0.83 | 0.53 | ||||||
-Net non-performing loans | 76,409 | 57,963 | ||||||
-Total net loans | 9,203,081 | 10,838,663 | ||||||
Provision on restructured loans as a percentage of gross restructured loans (2) | 3.12 | 3.39 | ||||||
-Provision on restructured loans | 2,914 | 1,779 | ||||||
-Gross restructured loans | 93,266 | 52,514 | ||||||
Provision on non-performing loans as a percentage of gross non-performing loans | 77.89 | 81.45 | ||||||
-Provision on non-performing loans | 269,105 | 254,507 | ||||||
-Gross non-performing loans | 345,514 | 312,470 | ||||||
Provision as a percentage of gross loans(3) | 4.45% | 4.08% | ||||||
-Provisions | 421,315 | 452,185 | ||||||
-Total gross loans | 9,475,107 | 11,094,954 | ||||||
_______________________
(1) | Includes loans identified as non-performing/impaired in line with the guidelines issued by regulators of the respective subsidiary. |
(2) | In addition, the Bank holds 25% general provision on restructured assets (including general provision required as per the guidelines issued by the Reserve Bank of India). |
(3) | Includes general provision on standard assets. |
144
Net loan write-offs and Provision on non-performing loans
The table presents net loan write-offs and percentage of average loans for the periods indicated.
March 31, 2022 | March 31, 2023 | |||||||||||||||
Average loan portfolio | Net loan charge-offs1 | % of average gross loans | Net loan charge-offs1 | % of average gross loans | ||||||||||||
(in millions, except percentages) | ||||||||||||||||
Commercial loans | Rs. | 42,528 | 1.17 | % | Rs. | 8,287 | 0.20 | % | ||||||||
Consumer loans | 52,712 | 1.03 | 19,076 | 0.31 | ||||||||||||
Lease financing | 1 | 0.10 | .. | .. | ||||||||||||
Total loans | Rs. | 95,241 | 1.09 | % | Rs. | 27,363 | 0.27 | % |
(1) | Net loan write offs is the difference between gross loan write-offs and recoveries from write-offs. |
Net loan write-offs as a percentage of our strategy dependsaverage total loan portfolios were 0.27% in the fiscal 2023 as compared to 1.09% in the fiscal 2022.
The following table shows an allocation of the Group’s total provision on several factors, includingnon-performing loans and the percentage of loans in each category to total gross loans for the periods indicated.
March 31, 2022 | March 31, 2023 | |||||||||||||||
Amount | % of loans in each category to total gross loans | Amount | % of loans in each category to total gross loans | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Commercial loans | Rs. | 203,023 | 41.8 | % | 189,176 | 39.6 | % | |||||||||
Consumer loans | 66,082 | 58.2 | 65,331 | 60.4 | ||||||||||||
Lease financing | .. | 0.0 | .. | 0.0 | ||||||||||||
Total loans | Rs. | 269,105 | 100 | % | 254,507 | 100 | % |
145
Operating and Financial Review and Prospects
You should read the following discussion and analysis of our ability to growfinancial condition and results of operations together with our low cost deposit base, growing our loan book profitably, containing non-performing and restructured loans, early resolution of stressed assets, our judicial process, maintaining regulatory compliance in an evolving regulatory environment, addressing regulators’ assessments of and observationsaudited consolidated financial statements. The following discussion is based on our operations,audited consolidated financial statements and competing effectivelyaccompanying notes prepared in theaccordance with Indian corporateGAAP, which varies in certain significant respects from U.S. GAAP. For a reconciliation of net income and retail financial services market. Regulations governing the financial sector in India, including banking, insurancestockholders’ equity to U.S. GAAP, a description of significant differences between Indian GAAP and asset management, continue to evolve, with a potential impact on the growthU.S. GAAP and profitability of financial services groups such as us. Our overseas branches are primarily funded from wholesale sourcescertain additional U.S. GAAP information, see notes 21 and global financial market conditions may impact our ability to raise funds and grow the business of our overseas branches. See also “Risk Factors—Risks Relating to Our Business—Our international operations increase the complexity of the risks that we face”. The success of our strategy is also subject to the overall regulatory and policy environment in which we operate including the direction of monetary policy. Our ability to execute our strategy will also depend on the liquidity and interest rate environment. See also “Risk Factors—Risks Relating to Our Business—Our banking and trading activities are 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, the quality of our loan portfolio and our financial performance”.With regard22 to our overseas banking subsidiaries, recent global developments, including subdued crude oil prices and continuing negotiations between the United
Kingdom and European policymakers following its vote to withdraw from the European Union, are expected to slow down economic growth in Canada and the United Kingdom, respectively, which in turn could impact the business of our banking subsidiaries in these countries.consolidated financial statements included herein.
For a detailed discussion of risks that we face in our business please refer to “Risk Factors”.
Average Balance Sheet
The average balances are the sum of daily average balances outstanding, except for the average balances of our overseas branches which are calculated on fortnightly basis for period till September 2014. From October 2014, average balances of the foreign branches are also averages of daily balances.outstanding. The yield on average interest-earning assets is the ratio of interest incomeearned to average interest-earning assets. The cost of average interest-bearing liabilities is the ratio of interest expenseexpended to average interest-bearing liabilities. The average balances of advances include non-performing advances and are net of allowance for loan losses. We have re-calculated tax-exempt income on a tax-equivalent basis. Tax exempt income primarily consists of dividend income and interest income on tax free bonds. For fiscal 2017, we have applied an effective marginal tax rate of 27% for the purpose of this recomputation. Other interest income has been bifurcated into rupee and foreign currency amounts in order to facilitate the explanation of movements of rupee and foreign currency spreads and margins. The rupee portion of other interest income primarily includes interest on income tax refunds and income from interest rate swaps. The foreign currency portion of other interest income primarily includes income from interest rate swaps in foreign currencies. These interest rate swaps are not part of our trading portfolio and are undertaken by us to manage the market risk arising from our assets and liabilities. Previous year figures have been re-grouped/re-classified where necessary to conform to current period classification.
The following table sets forth, for the periods indicated, the average balances of the assets and liabilities, outstanding, which contribute to the major components of interest income,earned, interest expenseexpended and net interest income.
Year ended March 31, | ||||||||||||||||||||||||||||||||||||
2021 | 2022 | 2023 | ||||||||||||||||||||||||||||||||||
Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/ cost | ||||||||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||
Advances: | ||||||||||||||||||||||||||||||||||||
Rupee | Rs. | 6,064,280 | Rs. | 573,393 | 9.46 | % | Rs. | 7,343,983 | Rs. | 649,387 | 8.84 | % | Rs. | 9,059,681 | Rs. | 844,091 | 9.32 | % | ||||||||||||||||||
Foreign currency | 1,098,730 | 29,226 | 2.66 | 975,114 | 19,482 | 2.00 | 957,139 | 35,201 | 3.68 | |||||||||||||||||||||||||||
Total advances | 7,163,010 | 602,619 | 8.41 | 8,319,097 | 668,869 | 8.04 | 10,016,820 | 879,292 | 8.78 | |||||||||||||||||||||||||||
Investments: | ||||||||||||||||||||||||||||||||||||
Investments in Government securities: | ||||||||||||||||||||||||||||||||||||
Rupee | 2,761,476 | 177,497 | 6.43 | 2,925,123 | 184,713 | 6.31 | 3,591,054 | 238,048 | 6.63 | |||||||||||||||||||||||||||
Foreign currency | 48,668 | 310 | 0.64 | 41,872 | 235 | 0.56 | 45,689 | 729 | 1.60 | |||||||||||||||||||||||||||
Total investment in Government securities: | 2,810,144 | 177,807 | 6.33 | 2,966,995 | 184,948 | 6.23 | 3,636,743 | 238,777 | 6.57 | |||||||||||||||||||||||||||
Other investments | ||||||||||||||||||||||||||||||||||||
Rupee | 865,396 | 53,021 | 6.13 | 633,746 | 33,384 | 5.27 | 632,296 | 37,070 | 5.86 | |||||||||||||||||||||||||||
Foreign currency | 131,189 | 1,846 | 1.41 | 165,134 | 1,591 | 0.96 | 109,413 | 3,237 | 2.96 | |||||||||||||||||||||||||||
122
Year ended March 31, | ||||||||||||||||||||||||||||||||||||
2015 | 2016 | 2017 | ||||||||||||||||||||||||||||||||||
Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/ cost | ||||||||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||
Advances: | ||||||||||||||||||||||||||||||||||||
Rupee | Rs. | 2,655,787 | Rs. | 321,025 | 12.09 | % | Rs. | 3,117,572 | Rs. | 353,636 | 11.34 | % | Rs. | 3,539,213 | Rs. | 366,258 | 10.35 | % | ||||||||||||||||||
Foreign currency | 1,393,493 | 59,572 | 4.28 | 1,555,024 | 61,873 | 3.98 | 1,457,164 | 54,546 | 3.74 | |||||||||||||||||||||||||||
Total advances | 4,049,280 | 380,597 | 9.40 | 4,672,596 | 415,509 | 8.89 | 4,996,376 | 420,804 | 8.42 | |||||||||||||||||||||||||||
Investments: | ||||||||||||||||||||||||||||||||||||
Rupee(1) | 1,746,884 | 139,343 | 7.98 | 1,863,861 | 143,498 | 7.70 | 2,105,650 | 154,825 | 7.35 | |||||||||||||||||||||||||||
Foreign currency | 76,461 | 1,107 | 1.45 | 105,495 | 1,790 | 1.70 | 117,045 | 2,231 | 1.91 | |||||||||||||||||||||||||||
Total investments | 1,823,345 | 140,450 | 7.70 | 1,969,356 | 145,288 | 7.38 | 2,222,696 | 157,056 | 7.07 | |||||||||||||||||||||||||||
Other interest-earning assets: | ||||||||||||||||||||||||||||||||||||
Rupee1 | 436,451 | 16,372 | 3.75 | 507,352 | 19,027 | 3.75 | 557,025 | 20,248 | 3.63 | |||||||||||||||||||||||||||
Foreign currency | 140,116 | 1,092 | 0.78 | 97,331 | 655 | 0.67 | 135,643 | 1,126 | 0.83 | |||||||||||||||||||||||||||
Total other interest-earning assets | 576,567 | 17,464 | 3.03 | % | 604,683 | 19,682 | 3.25 | % | 692,668 | 21,374 | 3.09 | % | ||||||||||||||||||||||||
Other interest income: | ||||||||||||||||||||||||||||||||||||
Rupee | 5,624 | 6,771 | 7,512 | |||||||||||||||||||||||||||||||||
Foreign currency | 8,156 | 7,730 | 5,150 | |||||||||||||||||||||||||||||||||
Total other interest income | 13,780 | 14,501 | 12,661 | |||||||||||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||||||||||||||
Rupee | 4,839,122 | 482,364 | 9.97 | 5,488,785 | 522,932 | 9.53 | 6,201,888 | 548,842 | 8.85 | |||||||||||||||||||||||||||
Foreign currency | 1,610,070 | 69,927 | 4.34 | 1,757,850 | 72,048 | 4.10 | 1,709,852 | 63,053 | 3.69 | |||||||||||||||||||||||||||
Total interest-earning assets | 6,449,192 | 552,291 | 8.56 | 7,246,635 | 594,980 | 8.21 | 7,911,740 | 611,895 | 7.73 | |||||||||||||||||||||||||||
Fixed assets | 56,101 | 59,269 | 88,377 | |||||||||||||||||||||||||||||||||
Other assets | 1,184,109 | 1,185,038 | 1,361,346 | |||||||||||||||||||||||||||||||||
Total non-earning assets | 1,240,210 | 1,244,307 | 1,449,723 |
Year ended March 31, | ||||||||||||||||||||||||||||||||||||
2021 | 2022 | 2023 | ||||||||||||||||||||||||||||||||||
Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/ cost | ||||||||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||||||||||
Total other investments | 996,585 | 54,867 | 5.51 | 798,880 | 34,975 | 4.38 | 741,709 | 40,307 | 5.43 | |||||||||||||||||||||||||||
Total investments: | ||||||||||||||||||||||||||||||||||||
Rupee | 3,626,872 | 230,518 | 6.36 | 3,558,869 | 218,097 | 6.13 | 4,223,350 | 275,118 | 6.51 | |||||||||||||||||||||||||||
Foreign currency | 179,857 | 2,156 | 1.20 | 207,006 | 1,826 | 0.88 | 155,102 | 3,966 | 2.56 | |||||||||||||||||||||||||||
Total investments | 3,806,729 | 232,674 | 6.11 | 3,765,875 | 219,923 | 5.84 | 4,378,452 | 279,084 | 6.37 | |||||||||||||||||||||||||||
Other interest-earning assets: | ||||||||||||||||||||||||||||||||||||
Lending with the Reserve Bank of India | ||||||||||||||||||||||||||||||||||||
Rupee | 448,570 | 15,470 | 3.45 | 398,765 | 14,858 | 3.73 | 140,278 | 6,486 | 4.62 | |||||||||||||||||||||||||||
Foreign currency | .. | .. | .. | .. | .. | .. | .. | .. | .. | |||||||||||||||||||||||||||
Total lending with the Reserve Bank of India: | 448,570 | 15,470 | 3.45 | 398,765 | 14,858 | 3.73 | 140,278 | 6,486 | 4.62 | |||||||||||||||||||||||||||
Repo lending | ||||||||||||||||||||||||||||||||||||
Rupee | 47,523 | 1,195 | 2.51 | 49,439 | 1,635 | 3.31 | 72,448 | 4,022 | 5.55 | |||||||||||||||||||||||||||
Foreign currency | .. | .. | .. | .. | .. | .. | .. | .. | .. | |||||||||||||||||||||||||||
Total repo lending | 47,523 | 1,195 | 2.51 | 49,439 | 1,635 | 3.31 | 72,448 | 4,022 | 5.55 | |||||||||||||||||||||||||||
Deposits in other banks: | ||||||||||||||||||||||||||||||||||||
Rupee | 36,691 | 2,381 | 6.49 | 42,636 | 2,522 | 5.92 | 56,179 | 3,676 | 6.54 | |||||||||||||||||||||||||||
Foreign currency | 180,174 | 347 | 0.19 | 269,470 | 418 | 0.16 | 254,380 | 7,667 | 3.01 | |||||||||||||||||||||||||||
Total deposits in other banks | 216,865 | 2,728 | 1.26 | 312,106 | 2,940 | 0.94 | 310,559 | 11,343 | 3.65 | |||||||||||||||||||||||||||
Other assets: | ||||||||||||||||||||||||||||||||||||
Rupee | 529,797 | 12,264 | 2.31 | 661,740 | 10,220 | 1.54 | 724,431 | 7,887 | 1.09 | |||||||||||||||||||||||||||
Foreign currency | 213,271 | 536 | 0.25 | 236,568 | 380 | 0.16 | 216,547 | 4,802 | 2.22 | |||||||||||||||||||||||||||
Total other assets | 743,068 | 12,800 | 1.72 | 898,308 | 10,600 | 1.18 | 940,978 | 12,689 | 1.35 |
123
Year ended March 31, | ||||||||||||||||||||||||||||||||||||
2021 | 2022 | 2023 | ||||||||||||||||||||||||||||||||||
Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/ cost | ||||||||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||||||||||
Total other interest-earning assets: | ||||||||||||||||||||||||||||||||||||
Rupee | 1,062,581 | 31,310 | 2.95 | 1,152,580 | 29,235 | 2.54 | 993,336 | 22,071 | 2.22 | |||||||||||||||||||||||||||
Foreign currency | 393,445 | 883 | 0.22 | 506,038 | 798 | 0.16 | 470,927 | 12,469 | 2.65 | |||||||||||||||||||||||||||
Total other interest-earning assets | 1,456,026 | 32,193 | 2.21 | 1,658,618 | 30,033 | 1.81 | 1,464,263 | 34,540 | 2.36 | |||||||||||||||||||||||||||
Other interest income: | ||||||||||||||||||||||||||||||||||||
Rupee | 20,606 | 32,441 | 16,892 | |||||||||||||||||||||||||||||||||
Foreign currency | 3,570 | 2,849 | 894 | |||||||||||||||||||||||||||||||||
Total other interest income | 24,176 | 35,290 | 17,786 | |||||||||||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||||||||||||||
Rupee | 10,753,733 | 855,827 | 7.96 | 12,055,432 | 929,160 | 7.71 | 14,276,367 | 1,158,172 | 8.11 | |||||||||||||||||||||||||||
Foreign currency | 1,672,032 | 35,835 | 2.14 | 1,688,158 | 24,955 | 1.48 | 1,583,168 | 52,530 | 3.32 | |||||||||||||||||||||||||||
Total interest-earning assets | 12,425,765 | 891,662 | 7.18 | 13,743,590 | 954,115 | 6.94 | 15,859,535 | 1,210,702 | 7.63 | |||||||||||||||||||||||||||
Fixed assets | 106,100 | 103,407 | 108,042 | |||||||||||||||||||||||||||||||||
Other assets | 2,044,392 | 2,097,041 | 2,260,812 | |||||||||||||||||||||||||||||||||
Total non-earning assets | 2,150,492 | 2,200,448 | 2,368,854 | |||||||||||||||||||||||||||||||||
Total assets | Rs. | 14,576,257 | Rs. | 891,662 | Rs. | 15,944,038 | Rs. | 954,115 | Rs. | 18,228,389 | Rs. | 1,210,702 | ||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||||||
Savings account deposits: | ||||||||||||||||||||||||||||||||||||
Rupee | Rs. | 2,452,568 | Rs. | 77,687 | 3.17 | Rs. | 3,028,734 | Rs. | 95,390 | 3.15 | Rs. | 3,430,647 | Rs. | 108,593 | 3.17 | |||||||||||||||||||||
Foreign currency | 98,475 | 803 | 0.82 | 80,149 | 321 | 0.40 | 61,367 | 705 | 1.15 | |||||||||||||||||||||||||||
Total savings account deposits | 2,551,043 | 78,490 | 3.08 | 3,108,883 | 95,711 | 3.08 | 3,492,014 | 109,298 | 3.13 | |||||||||||||||||||||||||||
Time deposits: | ||||||||||||||||||||||||||||||||||||
Rupee | 4,530,836 | 250,515 | 5.53 | 5,094,105 | 236,169 | 4.64 | 5,735,631 | 277,636 | 4.84 |
124
Year ended March 31, | ||||||||||||||||||||||||||||||||||||
2021 | 2022 | 2023 | ||||||||||||||||||||||||||||||||||
Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/ cost | ||||||||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||||||||||
Foreign currency | 377,247 | 8,190 | 2.17 | 290,939 | 4,252 | 1.46 | 309,445 | 7,831 | 2.53 | |||||||||||||||||||||||||||
Total time deposits | 4,908,083 | 258,705 | 5.27 | 5,385,044 | 240,421 | 4.46 | 6,045,076 | 285,467 | 4.72 | |||||||||||||||||||||||||||
Other demand deposits: | ||||||||||||||||||||||||||||||||||||
Rupee | 812,042 | 1,055,999 | 1,210,898 | |||||||||||||||||||||||||||||||||
Foreign currency | 112,869 | 156,310 | 165,247 | |||||||||||||||||||||||||||||||||
Total other demand deposits | 924,911 | 1,212,309 | 1,376,145 | |||||||||||||||||||||||||||||||||
Total deposits: | ||||||||||||||||||||||||||||||||||||
Rupee | 7,795,446 | 328,202 | 4.21 | 9,178,838 | 331,559 | 3.61 | 10,377,176 | 386,229 | 3.72 | |||||||||||||||||||||||||||
Foreign currency | 588,591 | 8,993 | 1.53 | 527,398 | 4,573 | 0.87 | 536,059 | 8,536 | 1.59 | |||||||||||||||||||||||||||
Total deposits | 8,384,037 | 337,196 | 4.02 | 9,706,236 | 336,132 | 3.46 | 10,913,235 | 394,765 | 3.62 | |||||||||||||||||||||||||||
Long term borrowings: | ||||||||||||||||||||||||||||||||||||
Rupee | 685,178 | 53,862 | 7.86 | 723,083 | 53,294 | 7.37 | 985,134 | 70,306 | 7.14 | |||||||||||||||||||||||||||
Foreign currency | 544,123 | 15,899 | 2.92 | 389,810 | 9,678 | 2.48 | 309,409 | 10,848 | 3.51 | |||||||||||||||||||||||||||
Total long term borrowings | 1,229,301 | 69,761 | 5.67 | 1,112,893 | 62,972 | 5.66 | 1,294,543 | 81,154 | 6.27 | |||||||||||||||||||||||||||
Short-term borrowings: | ||||||||||||||||||||||||||||||||||||
Borrowings under liquidity adjustment facility with the Reserve Bank of India | ||||||||||||||||||||||||||||||||||||
Rupee: | 103,528 | 4,497 | 4.34 | 720 | 30 | 4.17 | 1,488 | 84 | 5.65 | |||||||||||||||||||||||||||
Foreign currency | .. | .. | .. | .. | .. | .. | .. | .. | .. | |||||||||||||||||||||||||||
Total borrowings under liquidity adjustment facility with the Reserve Bank of India: | 103,528 | 4,497 | 4.34 | 720 | 30 | 4.17 | 1,488 | 84 | 5.65 | |||||||||||||||||||||||||||
Repo borrowings: | ||||||||||||||||||||||||||||||||||||
Rupee | 358,938 | 10,845 | 3.02 | 204,643 | 6,815 | 3.33 | 272,735 | 15,017 | 5.51 |
125
Year ended March 31, | ||||||||||||||||||||||||||||||||||||
2021 | 2022 | 2023 | ||||||||||||||||||||||||||||||||||
Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/ cost | ||||||||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||||||||||
Foreign currency | 7,264 | 189 | 2.60 | 5,676 | 167 | 2.94 | 6,996 | 258 | 3.69 | |||||||||||||||||||||||||||
Total repo borrowings | 366,202 | 11,034 | 3.01 | 210,319 | 6,982 | 3.32 | 279,731 | 15,275 | 5.46 | |||||||||||||||||||||||||||
Other short term borrowings | ||||||||||||||||||||||||||||||||||||
Rupee | 49,208 | 3,259 | 6.62 | 101,520 | 4,904 | 4.83 | 128,586 | 8,266 | 6.43 | |||||||||||||||||||||||||||
Foreign currency | 128,681 | 841 | 0.65 | 102,347 | 646 | 0.63 | 233,886 | 5,890 | 2.52 | |||||||||||||||||||||||||||
Total other short term borrowings | 177,889 | 4,100 | 2.30 | 203,867 | 5,550 | 2.72 | 362,472 | 14,156 | 3.91 | |||||||||||||||||||||||||||
Short term borrowings: | ||||||||||||||||||||||||||||||||||||
Rupee | 511,674 | 18,601 | 3.64 | 306,883 | 11,749 | 3.83 | 402,809 | 23,367 | 5.80 | |||||||||||||||||||||||||||
Foreign currency | 135,945 | 1,030 | 0.76 | 108,023 | 813 | 0.75 | 240,882 | 6,148 | 2.55 | |||||||||||||||||||||||||||
Total short term borrowings | 647,619 | 19,631 | 3.03 | 414,906 | 12,562 | 3.03 | 643,691 | 29,515 | 4.59 | |||||||||||||||||||||||||||
Total borrowings: | ||||||||||||||||||||||||||||||||||||
Rupee | 1,196,852 | 72,463 | 6.05 | 1,029,966 | 65,043 | 6.32 | 1,387,943 | 93,673 | 6.75 | |||||||||||||||||||||||||||
Foreign currency | 680,068 | 16,929 | 2.49 | 497,833 | 10,491 | 2.11 | 550,291 | 16,996 | 3.09 | |||||||||||||||||||||||||||
Total borrowings | 1,876,920 | 89,392 | 4.76 | 1,527,799 | 75,534 | 4.94 | 1,938,234 | 110,669 | 5.71 | |||||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||
Rupee | 8,992,298 | 400,665 | 4.46 | 10,208,804 | 396,602 | 3.88 | 11,765,119 | 479,902 | 4.08 | |||||||||||||||||||||||||||
Foreign currency | 1,268,659 | 25,922 | 2.04 | 1,025,231 | 15,064 | 1.47 | 1,086,350 | 25,532 | 2.35 | |||||||||||||||||||||||||||
Total interest-bearing liabilities | 10,260,957 | 426,588 | 4.16 | 11,234,035 | 411,666 | 3.66 | 12,851,469 | 505,434 | 3.93 | |||||||||||||||||||||||||||
Other liabilities | 2,880,817 | 3,041,905 | 3,400,782 | |||||||||||||||||||||||||||||||||
Total liabilities | 13,141,774 | 426,588 | 14,275,940 | 411,666 | 16,252,251 | 505,434 | ||||||||||||||||||||||||||||||
Stockholders’ equity | 1,434,483 | 1,668,098 | 1,976,138 | |||||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | Rs. | 14,576,257 | Rs. | 426,588 | Rs. | 15,944,038 | Rs. | 411,666 | Rs. | 18,228,389 | Rs. | 505,434 |
126
Year ended March 31, | ||||||||||||||||||||||||||||||||||||
2015 | 2016 | 2017 | ||||||||||||||||||||||||||||||||||
Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/cost | Average balance | Interest income/ expense | Average yield/ cost | ||||||||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||||||||||
Total assets | Rs. | 7,689,402 | Rs. | 552,291 | Rs. | 8,490,942 | Rs. | 594,980 | Rs. | 9,361,464 | Rs. | 611,895 | ||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||||||
Savings account deposits: | ||||||||||||||||||||||||||||||||||||
Rupee | Rs. | 981,430 | Rs. | 39,012 | 3.98 | % | Rs. | 1,121,213 | Rs. | 44,730 | 3.99 | % | Rs. | 1,391,381 | Rs. | 55,373 | 3.98 | % | ||||||||||||||||||
Foreign currency | 76,724 | 849 | 1.11 | 86,770 | 957 | 1.10 | 83,108 | 805 | 0.97 | |||||||||||||||||||||||||||
Total savings account deposits | 1,058,154 | 39,861 | 3.77 | 1,207,983 | 45,687 | 3.78 | 1,474,489 | 56,177 | 3.81 | |||||||||||||||||||||||||||
Time deposits: | ||||||||||||||||||||||||||||||||||||
Rupee | 1,693,728 | 148,279 | 8.75 | 1,891,635 | 155,382 | 8.21 | 2,163,756 | 162,366 | 7.50 | |||||||||||||||||||||||||||
Foreign currency | 461,456 | 19,583 | 4.24 | 456,709 | 18,921 | 4.14 | 383,130 | 14,084 | 3.68 | |||||||||||||||||||||||||||
Total time deposits | 2,155,184 | 167,862 | 7.79 | 2,348,344 | 174,303 | 7.42 | 2,546,886 | 176,449 | 6.93 | |||||||||||||||||||||||||||
Other demand deposits: | ||||||||||||||||||||||||||||||||||||
Rupee | 277,798 | 326,919 | 409,105 | |||||||||||||||||||||||||||||||||
Foreign currency | 48,364 | 57,249 | 67,693 | |||||||||||||||||||||||||||||||||
Total other demand deposits | 326,162 | 384,168 | 476,798 | |||||||||||||||||||||||||||||||||
Total deposits: | ||||||||||||||||||||||||||||||||||||
Rupee | 2,952,956 | 187,291 | 6.34 | 3,339,767 | 200,112 | 5.99 | 3,964,243 | 217,738 | 5.49 | |||||||||||||||||||||||||||
Foreign currency | 586,544 | 20,432 | 3.48 | 600,728 | 19,878 | 3.31 | 533,932 | 14,888 | 2.79 | |||||||||||||||||||||||||||
Total deposits | 3,539,500 | 207,723 | 5.87 | 3,940,495 | 219,990 | 5.58 | 4,498,175 | 232,626 | 5.17 | |||||||||||||||||||||||||||
Borrowings: | ||||||||||||||||||||||||||||||||||||
Rupee | 717,975 | 75,376 | 10.50 | 815,910 | 80,749 | 9.90 | 834,502 | 76,252 | 9.14 | |||||||||||||||||||||||||||
Foreign currency | 1,188,315 | 40,083 | 3.37 | 1,338,001 | 39,226 | 2.93 | 1,297,597 | 39,480 | 3.04 | |||||||||||||||||||||||||||
Total borrowings | 1,906,290 | 115,459 | 6.06 | 2,153,911 | 119,975 | 5.57 | 2,132,099 | 115,732 | 5.43 | |||||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||
Rupee | 3,670,931 | 262,667 | 7.16 | 4,155,677 | 280,861 | 6.76 | 4,798,745 | 293,990 | 6.13 | |||||||||||||||||||||||||||
Foreign currency | 1,774,859 | 60,515 | 3.41 | 1,938,729 | 59,104 | 3.05 | 1,831,529 | 54,368 | 2.97 | |||||||||||||||||||||||||||
Total interest-bearing liabilities | 5,445,790 | 323,182 | 5.93 | 6,094,406 | 339,965 | 5.58 | 6,630,273 | 348,358 | 5.25 | |||||||||||||||||||||||||||
Preference share capital | 3,500 | 3,500 | 3,500 | |||||||||||||||||||||||||||||||||
Other liabilities | 1,411,302 | 1,473,283 | 1,724,967 | |||||||||||||||||||||||||||||||||
Total liabilities | 6,860,592 | 323,182 | 7,571,189 | 339,965 | 8,358,741 | 348,358 | ||||||||||||||||||||||||||||||
Stockholders’ equity | 828,810 | 919,753 | 1,002,723 | |||||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | Rs. | 7,689,402 | Rs. | 323,182 | Rs. | 8,490,942 | Rs. | 339,965 | Rs. | 9,361,464 | Rs. | 348,358 | ||||||||||||||||||||||||
Analysis of Changes in Interest IncomeEarned and Interest Expense:Expended: 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.
Fiscal 2016 vs. Fiscal 2015 | Fiscal 2017 vs. Fiscal 2016 | Fiscal 2022 vs. Fiscal 2021 | Fiscal 2023 vs. Fiscal 2022 | |||||||||||||||||||||||||||||||||||||||||||||
Increase (decrease) due to | Increase (decrease) due to | Increase (decrease) due to | Increase (decrease) due to | |||||||||||||||||||||||||||||||||||||||||||||
Net change | Change in average volume | Change in average rate | Net change | Change in average volume | Change in average rate | Net change | Change in average volume | Change in average rate | Net change | Change in average volume | Change in average rate | |||||||||||||||||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
Interest income: | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest earned: | ||||||||||||||||||||||||||||||||||||||||||||||||
Advances: | ||||||||||||||||||||||||||||||||||||||||||||||||
Rupee | Rs. | 32,611 | Rs. | 52,382 | Rs. | (19,771 | ) | Rs. | 12,622 | Rs. | 43,634 | Rs. | (31,012 | ) | Rs. | 75,994 | Rs. | 113,157 | Rs. | (37,163 | ) | Rs. | 194,704 | Rs. | 159,852 | Rs. | 34,852 | |||||||||||||||||||||
Foreign currency | 2,301 | 6,427 | (4,126 | ) | (7,328 | ) | (3,663 | ) | (3,665 | ) | (9,744 | ) | (2,470 | ) | (7,274 | ) | 15,719 | (661 | ) | 16,380 | ||||||||||||||||||||||||||||
Total advances | 34,912 | 58,809 | (23,897 | ) | 5,294 | 39,971 | (34,677 | ) | 66,250 | 110,687 | (44,437 | ) | 210,423 | 159,191 | 51,232 | |||||||||||||||||||||||||||||||||
Investments: | ||||||||||||||||||||||||||||||||||||||||||||||||
Rupee1 | 4,155 | 9,006 | (4,851 | ) | 11,327 | 17,778 | (6,451 | ) | ||||||||||||||||||||||||||||||||||||||||
Investment: | ||||||||||||||||||||||||||||||||||||||||||||||||
Investment in Government securities: | ||||||||||||||||||||||||||||||||||||||||||||||||
Rupee | 7,216 | 10,334 | (3,118 | ) | 53,335 | 44,144 | 9,191 | |||||||||||||||||||||||||||||||||||||||||
Foreign currency | (75 | ) | (38 | ) | (37 | ) | 494 | 61 | 433 | |||||||||||||||||||||||||||||||||||||||
Total investment in Government securities | 7,141 | 10,296 | (3,155 | ) | 53,829 | 44,205 | 9,624 | |||||||||||||||||||||||||||||||||||||||||
Other investments: | ||||||||||||||||||||||||||||||||||||||||||||||||
Rupee | (19,637 | ) | (12,203 | ) | (7,434 | ) | 3,686 | (85 | ) | 3,771 | ||||||||||||||||||||||||||||||||||||||
Foreign currency | (255 | ) | 327 | (582 | ) | 1,646 | (1,649 | ) | 3,295 | |||||||||||||||||||||||||||||||||||||||
Total other investments | (19,892 | ) | (11,876 | ) | (8,016 | ) | 5,332 | (1,734 | ) | 7,066 | ||||||||||||||||||||||||||||||||||||||
Total investments: | ||||||||||||||||||||||||||||||||||||||||||||||||
Rupee | (12,421 | ) | (4,167 | ) | (8,254 | ) | 57,021 | 43,286 | 13,735 | |||||||||||||||||||||||||||||||||||||||
Foreign currency | 682 | 492 | 190 | 441 | 220 | 221 | (330 | ) | 239 | (569 | ) | 2,140 | (1,327 | ) | 3,467 | |||||||||||||||||||||||||||||||||
Total investments | 4,837 | 9,498 | (4,661 | ) | 11,768 | 17,998 | (6,230 | ) | (12,751 | ) | (3,928 | ) | (8,823 | ) | 59,161 | 41,959 | 17,202 | |||||||||||||||||||||||||||||||
Other interest-earning assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Rupee1 | 2,654 | 2,659 | (5 | ) | 1,221 | 1,806 | (585 | ) | ||||||||||||||||||||||||||||||||||||||||
Foreign currency | (436 | ) | (288 | ) | (148 | ) | 471 | 318 | 153 | |||||||||||||||||||||||||||||||||||||||
Total other interest earning asset | 2,218 | 2,371 | (153 | ) | 1,692 | 2,124 | (432 | ) | ||||||||||||||||||||||||||||||||||||||||
Other interest income | ||||||||||||||||||||||||||||||||||||||||||||||||
Lending with the Reserve Bank of India: | ||||||||||||||||||||||||||||||||||||||||||||||||
Rupee | 1,148 | — | 1,148 | 740 | — | 740 | (612 | ) | (1,856 | ) | 1,244 | (8,372 | ) | (11,952 | ) | 3,580 | ||||||||||||||||||||||||||||||||
Foreign currency | (426 | ) | — | (426 | ) | (2,580 | ) | — | (2,580 | ) | .. | .. | .. | .. | .. | .. | ||||||||||||||||||||||||||||||||
Other interest income | 722 | — | 722 | (1,840 | ) | — | (1,840 | ) | ||||||||||||||||||||||||||||||||||||||||
Total interest income: | ||||||||||||||||||||||||||||||||||||||||||||||||
Rupee | 40,568 | 64,047 | (23,479 | ) | 25,910 | 63,218 | (37,308 | ) | ||||||||||||||||||||||||||||||||||||||||
Foreign currency | 2,121 | 6,631 | (4,510 | ) | (8,996 | ) | (3,125 | ) | (5,871 | ) | ||||||||||||||||||||||||||||||||||||||
Total interest income | 42,689 | 70,678 | (27,989 | ) | 16,914 | 60,093 | (43,179 | ) | ||||||||||||||||||||||||||||||||||||||||
Interest expense: | ||||||||||||||||||||||||||||||||||||||||||||||||
Savings account deposits: | ||||||||||||||||||||||||||||||||||||||||||||||||
Rupee | 5,717 | 5,576 | 141 | 10,643 | 10,752 | (109 | ) | |||||||||||||||||||||||||||||||||||||||||
Foreign currency | 107 | 110 | (3 | ) | (152 | ) | (35 | ) | (117 | ) | ||||||||||||||||||||||||||||||||||||||
Total savings account deposits | 5,824 | 5,686 | 138 | 10,491 | 10,717 | (226 | ) | |||||||||||||||||||||||||||||||||||||||||
Time deposits: | ||||||||||||||||||||||||||||||||||||||||||||||||
Rupee | 7,103 | 16,256 | (9,153 | ) | 6,983 | 20,420 | (13,437 | ) | ||||||||||||||||||||||||||||||||||||||||
Foreign currency | (662 | ) | (197 | ) | (465 | ) | (4,838 | ) | (2,705 | ) | (2,133 | ) | ||||||||||||||||||||||||||||||||||||
Total time deposits | 6,441 | 16,059 | (9,618 | ) | 2,145 | 17,715 | (15,570 | ) | ||||||||||||||||||||||||||||||||||||||||
Total deposits: | ||||||||||||||||||||||||||||||||||||||||||||||||
Rupee | 12,820 | 21,832 | (9,012 | ) | 17,626 | 31,172 | (13,546 | ) | ||||||||||||||||||||||||||||||||||||||||
Foreign currency | (555 | ) | (87 | ) | (468 | ) | (4,990 | ) | (2,740 | ) | (2,250 | ) | ||||||||||||||||||||||||||||||||||||
Total deposits | 12,265 | 21,745 | (9,480 | ) | 12,636 | 28,432 | (15,796 | ) | ||||||||||||||||||||||||||||||||||||||||
Borrowings: | ||||||||||||||||||||||||||||||||||||||||||||||||
Rupee | 5,373 | 9,693 | (4,320 | ) | (4,497 | ) | 1,699 | (6,196 | ) | |||||||||||||||||||||||||||||||||||||||
Foreign currency | (856 | ) | 4,388 | (5,244 | ) | 254 | (1,229 | ) | 1,483 | |||||||||||||||||||||||||||||||||||||||
Total borrowings | 4,517 | 14,080 | (9,564 | ) | (4,243 | ) | 470 | (4,713 | ) | |||||||||||||||||||||||||||||||||||||||
Total interest expense: | ||||||||||||||||||||||||||||||||||||||||||||||||
Rupee | 18,193 | 31,525 | (13,332 | ) | 13,129 | 32,871 | (19,742 | ) | ||||||||||||||||||||||||||||||||||||||||
Foreign currency | (1,411 | ) | 4,301 | (5,712 | ) | (4,736 | ) | (3,969 | ) | (767 | ) | |||||||||||||||||||||||||||||||||||||
Total interest expense | 16,782 | 35,825 | (19,044 | ) | 8,393 | 28,902 | (20,509 | ) | ||||||||||||||||||||||||||||||||||||||||
Net interest income: | ||||||||||||||||||||||||||||||||||||||||||||||||
Rupee | 22,375 | 32,522 | (10,147 | ) | 12,781 | 30,347 | (17,566 | ) | ||||||||||||||||||||||||||||||||||||||||
Foreign currency | 3,532 | 2,330 | 1,202 | (4,260 | ) | 844 | (5,104 | ) | ||||||||||||||||||||||||||||||||||||||||
Total net interest income | Rs. | 25,907 | Rs. | 34,852 | Rs. | (8,945 | ) | Rs. | 8,521 | Rs. | 31,191 | Rs. | (22,670 | ) | ||||||||||||||||||||||||||||||||||
Total lending with the Reserve Bank of India | (612 | ) | (1,856 | ) | 1,244 | (8,372 | ) | (11,952 | ) | 3,580 |
127
Fiscal 2022 vs. Fiscal 2021 | Fiscal 2023 vs. Fiscal 2022 | |||||||||||||||||||||||
Increase (decrease) due to | Increase (decrease) due to | |||||||||||||||||||||||
Net change | Change in average volume | Change in average rate | Net change | Change in average volume | Change in average rate | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Repo lending: | ||||||||||||||||||||||||
Rupee | 440 | 63 | 377 | 2,387 | 1,277 | 1,110 | ||||||||||||||||||
Foreign currency | .. | .. | .. | .. | .. | .. | ||||||||||||||||||
Total repo lending | 440 | 63 | 377 | 2,387 | 1,277 | 1,110 | ||||||||||||||||||
Deposits in other banks: | ||||||||||||||||||||||||
Rupee | 141 | 352 | (211 | ) | 1,154 | 886 | 268 | |||||||||||||||||
Foreign currency | 71 | 139 | (68 | ) | 7,249 | (455 | ) | 7,704 | ||||||||||||||||
Total deposits in other banks | 212 | 491 | (279 | ) | 8,403 | 431 | 7,972 | |||||||||||||||||
Other assets: | ||||||||||||||||||||||||
Rupee | (2,044 | ) | 2,038 | (4,082 | ) | (2,333 | ) | 683 | (3,016 | ) | ||||||||||||||
Foreign currency | (156 | ) | 37 | (193 | ) | 4,422 | (444 | ) | 4,866 | |||||||||||||||
Total other assets | (2,200 | ) | 2,075 | (4,275 | ) | 2,089 | 239 | 1,850 | ||||||||||||||||
Other interest-earning assets: | ||||||||||||||||||||||||
Rupee | (2,075 | ) | 2,283 | (4,358 | ) | (7,164 | ) | (3,538 | ) | (3,626 | ) | |||||||||||||
Foreign currency | (85 | ) | 178 | (263 | ) | 11,671 | (930 | ) | 12,601 | |||||||||||||||
Total other interest earning assets | (2,160 | ) | 2,461 | (4,621 | ) | 4,507 | (4,468 | ) | 8,975 | |||||||||||||||
Other interest income: | ||||||||||||||||||||||||
Rupee | 11,835 | .. | 11,835 | (15,549 | ) | .. | (15,549 | ) | ||||||||||||||||
Foreign currency | (721 | ) | .. | (721 | ) | (1,955 | ) | .. | (1,955 | ) | ||||||||||||||
Other interest income | 11,114 | .. | 11,114 | (17,504 | ) | .. | (17,504 | ) | ||||||||||||||||
Total interest earned: | ||||||||||||||||||||||||
Rupee | 73,333 | 111,273 | (37,940 | ) | 229,012 | 199,600 | 29,412 | |||||||||||||||||
Foreign currency | (10,880 | ) | (2,053 | ) | (8,827 | ) | 27,575 | (2,918 | ) | 30,493 | ||||||||||||||
Total interest earned | 62,453 | 109,220 | (46,767 | ) | 256,587 | 196,682 | 59,905 | |||||||||||||||||
Interest expense: | ||||||||||||||||||||||||
Savings account deposits: | ||||||||||||||||||||||||
Rupee | 17,703 | 18,146 | (443 | ) | 13,203 | 12,722 | 481 | |||||||||||||||||
Foreign currency | (482 | ) | (73 | ) | (409 | ) | 384 | (216 | ) | 600 | ||||||||||||||
Total savings account deposits | 17,221 | 18,073 | (852 | ) | 13,587 | 12,506 | 1,081 | |||||||||||||||||
Time deposits: | ||||||||||||||||||||||||
Rupee | (14,346 | ) | 26,114 | (40,460 | ) | 41,467 | 31,053 | 10,414 | ||||||||||||||||
Foreign currency | (3,938 | ) | (1,261 | ) | (2,677 | ) | 3,579 | 468 | 3,111 | |||||||||||||||
Total time deposits | (18,284 | ) | 24,853 | (43,137 | ) | 45,046 | 31,521 | 13,525 | ||||||||||||||||
Total deposits: | ||||||||||||||||||||||||
Rupee | 3,357 | 44,260 | (40,903 | ) | 54,670 | 43,775 | 10,895 | |||||||||||||||||
Foreign currency | (4,420 | ) | (1,334 | ) | (3,086 | ) | 3,963 | 252 | 3,711 | |||||||||||||||
Total deposits | (1,063 | ) | 42,926 | (43,989 | ) | 58,633 | 44,027 | 14,606 | ||||||||||||||||
Borrowings: | ||||||||||||||||||||||||
Long term borrowings: | ||||||||||||||||||||||||
Rupee | (568 | ) | 2,794 | (3,362 | ) | 17,012 | 18,702 | (1,690 | ) | |||||||||||||||
Foreign currency | (6,221 | ) | (3,831 | ) | (2,390 | ) | 1,170 | (2,819 | ) | 3,989 | ||||||||||||||
Total long term borrowings | (6,789 | ) | (1,037 | ) | (5,752 | ) | 18,182 | 15,883 | 2,299 |
128
Fiscal 2022 vs. Fiscal 2021 | Fiscal 2023 vs. Fiscal 2022 | |||||||||||||||||||||||
Increase (decrease) due to | Increase (decrease) due to | |||||||||||||||||||||||
Net change | Change in average volume | Change in average rate | Net change | Change in average volume | Change in average rate | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Borrowings under liquidity adjustment facility with the Reserve Bank of India: | ||||||||||||||||||||||||
Rupee | (4,467 | ) | (4,284 | ) | (183 | ) | 54 | 43 | 11 | |||||||||||||||
Foreign currency | .. | .. | .. | .. | .. | .. | ||||||||||||||||||
Total borrowings under liquidity adjustment facility with the Reserve Bank of India | (4,467 | ) | (4,284 | ) | (183 | ) | 54 | 43 | 11 | |||||||||||||||
Repo borrowings | ||||||||||||||||||||||||
Rupee | (4,030 | ) | (5,138 | ) | 1,108 | 8,202 | 3,749 | 4,453 | ||||||||||||||||
Foreign currency | (22 | ) | (47 | ) | 25 | 91 | 49 | 42 | ||||||||||||||||
Total repo borrowings | (4,052 | ) | (5,185 | ) | 1,133 | 8,293 | 3,798 | 4,495 | ||||||||||||||||
Other short term borrowings: | ||||||||||||||||||||||||
Rupee | 1,645 | 2,527 | (882 | ) | 3,362 | 1,740 | 1,622 | |||||||||||||||||
Foreign currency | (195 | ) | (166 | ) | (29 | ) | 5,244 | 3,313 | 1,931 | |||||||||||||||
Total other short term borrowings | 1,450 | 2,361 | (911 | ) | 8,606 | 5,053 | 3,553 | |||||||||||||||||
Short term borrowings: | ||||||||||||||||||||||||
Rupee | (6,852 | ) | (6,895 | ) | 43 | 11,618 | 5,532 | 6,086 | ||||||||||||||||
Foreign currency | (217 | ) | (213 | ) | (4 | ) | 5,335 | 3,362 | 1,973 | |||||||||||||||
Total short term borrowings | (7,069 | ) | (7,108 | ) | 39 | 16,953 | 8,894 | 8,059 | ||||||||||||||||
Total borrowings: | ||||||||||||||||||||||||
Rupee | (7,420 | ) | (10,539 | ) | 3,119 | 28,630 | 24,160 | 4,470 | ||||||||||||||||
Foreign currency | (6,438 | ) | (3,840 | ) | (2,598 | ) | 6,505 | 1,620 | 4,885 | |||||||||||||||
Total borrowings | (13,858 | ) | (14,379 | ) | 521 | 35,135 | 25,780 | 9,355 | ||||||||||||||||
Total interest expended: | ||||||||||||||||||||||||
Rupee | (4,063 | ) | 33,721 | (37,784 | ) | 83,300 | 67,935 | 15,365 | ||||||||||||||||
Foreign currency | (10,858 | ) | (5,174 | ) | (5,684 | ) | 10,468 | 1,872 | 8,596 | |||||||||||||||
Total interest expended | (14,921 | ) | 28,547 | (43,468 | ) | 93,768 | 69,807 | 23,961 | ||||||||||||||||
Net interest income: | ||||||||||||||||||||||||
Rupee | 77,396 | 77,552 | (156 | ) | 145,712 | 131,665 | 14,047 | |||||||||||||||||
Foreign currency | (22 | ) | 3,121 | (3,143 | ) | 17,107 | (4,790 | ) | 21,897 | |||||||||||||||
Total net interest income | Rs. | 77,374 | Rs. | 80,673 | Rs. | (3,299 | ) | Rs. | 162,819 | Rs. | 126,875 | Rs. | 35,944 |
Investment portfolio
Maturity profile wise yields on debt securities
The following table sets forth, at the date indicated, the maturity profile wise yields of our investments in debt securities classified as available-for-sale. This maturity profile is based on repayment dates and does not reflect re-pricing dates of floating rate investments.
129
At March 31, 2022 | At March 31, 2023 | |||||||
Up to one year | One to five years | Five to ten years | More than ten years | Up to one year | One to five years | Five to ten years | More than ten years | |
Corporate debt securities | 6.4% | 6.7% | 5.0% | 6.1% | 7.3% | 7.1% | 5.9% | 3.8% |
Government securities | 4.5 | 5.2 | 4.5 | 5.2 | 6.7 | 6.7 | 7.3 | 7.1 |
Other securities | 5.3 | 6.2 | 5.5 | 7.1 | 7.8 | 8.5 | 8.4 | 8.4 |
Total debt securities1 | 4.8% | 5.9% | 4.7% | 5.5% | 6.9% | 7.1% | 6.8% | 7.2% |
(1) | Includes securities denominated in different currencies |
(2) | Weighted average yield is the ratio of interest earned on available-for-sale debt securities to average available-for-sale debt securities. |
(3) | The maturity is computed based on the contractual maturity of the portfolio. |
The following table sets forth, at the date indicated, the maturity profile-wise yields of our investments in debt securities classified as held-to-maturity. This maturity profile is based on repayment dates and does not reflect re-pricing dates of floating rate investments.
At March 31, 2022 | At March 31, 2023 | |||||||
Up to one year | One to five years | Five to ten years | More than ten years | Up to one year | One to five years | Five to ten years | More than ten years | |
Corporate debt securities | 5.9% | 6.6% | 7.4% | 7.5% | 7.0% | 7.1% | 7.6% | 7.7% |
Government securities | 7.7 | 6.6 | 6.8 | 6.4 | 7.0 | 6.8 | 7.4 | 7.6 |
Other securities | 4.2 | .. | .. | .. | 7.8 | .. | .. | .. |
Total debt securities1 | 6.7% | 6.6% | 6.9% | 6.4% | 7.1% | 6.8% | 7.4% | 7.6% |
(1) | Includes securities denominated in different currencies |
(2) | Weighted average yield is the ratio of interest earned on held-to-maturity debt securities to average held-to-maturity securities. |
(3) | The maturity is computed based on the contractual maturity of the portfolio. |
Investment portfolio of our overseas branches and banking subsidiaries
The following table sets forth a summary of the investment portfolio of our overseas branches and banking subsidiaries based on the category of investments.
At March 31 | ||||||||
Category | 2022 | 2023 | ||||||
(in millions) | ||||||||
Bonds | ||||||||
Banks and financial institutions | Rs. | 26,065 | Rs. | 19,460 | ||||
Corporate | 33,591 | 43,284 | ||||||
Total bonds | 59,656 | 62,744 | ||||||
Asset backed securities | .. | .. | ||||||
Others(1) | 4,925 | 5,341 | ||||||
Total | Rs. | 64,581 | Rs. | 68,085 |
(1) | Includes investments in certificates of deposits. |
Investment in India-linked securities of corporate entities was 50.0% at year-end fiscal 2023 as compared to 43.2% at year-end fiscal 2022.
The investments in these securities are governed by the respective investment policies of ICICI Bank and its banking subsidiaries. To mitigate significant concentrations in credit risk, the investment policy
130
lays down a number of limits that need to be adhered to before investments can be made. The investment policy lays down rating and issuer wise investment limits at each of these units. Further, there are counterparty limits for individual banks and financial institutions. Country exposure limits have also been established for various countries. In addition, ICICI Bank monitors the credit spread risk arising out of such investments while ICICI Bank UK PLC has instituted credit spread sensitivity limits on its portfolio. Any exceptions to the above limits are made with due approvals from the appropriate forums. ICICI Bank has not bought credit protection against any of its international investments.
Investments in corporate and financial sector debt securities by our overseas branches and banking subsidiaries
The following table sets forth, at the date indicated, investments in corporate and financial sector debt securities and mortgage and asset backed securities by our overseas branches and banking subsidiaries by region and the mark-to-market and realized losses thereon.
At March 31, 2023 | ||||||||||||||||||||||||||||||||||||
Bonds(1),(2) | Others | Total | ||||||||||||||||||||||||||||||||||
Trading | Available-for-sale and held-to-maturity | Trading | Available-for-sale and held-to-maturity | Trading | Available-for-sale and held-to-maturity | Mark-to-market gain/ (loss) in fiscal 2023 | Realized gain/(loss)/ Impairment loss in income statement for fiscal 2023 | Mark-to-market gain/ (loss) at March 31, 2023 | ||||||||||||||||||||||||||||
(Rs. in millions) | ||||||||||||||||||||||||||||||||||||
U.S. | .. | 3,468 | .. | .. | .. | 3,468 | (103 | ) | 7 | (221 | ) | |||||||||||||||||||||||||
Canada | .. | 18,229 | .. | .. | .. | 18,229 | .. | 1 | .. | |||||||||||||||||||||||||||
Europe | .. | 754 | .. | .. | .. | 754 | (7 | ) | .. | (43 | ) | |||||||||||||||||||||||||
India | 163 | 38,817 | .. | .. | 163 | 38,817 | (450 | ) | (363 | ) | (486 | ) | ||||||||||||||||||||||||
Rest of Asia | .. | 1,313 | .. | 5,341 | .. | 6,654 | (5 | ) | (11 | ) | (27 | ) | ||||||||||||||||||||||||
Total portfolio | 163 | 62,581 | .. | 5,341 | 163 | 67,922 | (565 | ) | (374 | ) | (777 | ) |
(1) | Includes bonds classified under loans and receivable by our UK subsidiary including those transferred in fiscal 2009 from investment to loans and receivables pursuant to Accounting Standard Board issuing amendments to FRS 26 – ‘Financial Instruments: Recognition and Measurement’ which permitted reclassification of financial assets in certain circumstances from ‘held-for-trading’ and ‘available-for-sale categories’ to the ‘loans and receivables’ category. |
(2) | Includes corporate bonds classified under loans and receivables by our Canadian subsidiary. |
131
At March 31, 2022 | ||||||||||||||||||||||||||||||||||||
Bonds(1),(2) | Others | Total | ||||||||||||||||||||||||||||||||||
Trading | Available-for-sale and held-to-maturity | Trading | Available-for-sale and held-to-maturity | Trading | Available-for-sale and held-to-maturity | Mark-to-market gain/ (loss) in fiscal 2022 | Realized gain/(loss)/ Impairment loss in income statement for fiscal 2022 | Mark-to-market gain/ (loss) at March 31, 2022 | ||||||||||||||||||||||||||||
(Rs. in millions) | ||||||||||||||||||||||||||||||||||||
U.S. | .. | 1,809 | .. | .. | .. | 1,809 | (130 | ) | 33 | (106 | ) | |||||||||||||||||||||||||
Canada | .. | 17,480 | .. | .. | .. | 17,480 | .. | 130 | .. | |||||||||||||||||||||||||||
Europe | .. | 716 | .. | .. | .. | 716 | 89 | (0 | ) | (33 | ) | |||||||||||||||||||||||||
India | 1,491 | 37,034 | .. | .. | 1,491 | 37,034 | (672 | ) | 91 | (95 | ) | |||||||||||||||||||||||||
Rest of Asia | .. | 1,126 | .. | 4,925 | .. | 6,051 | (124 | ) | 58 | (20 | ) | |||||||||||||||||||||||||
Total portfolio | 1,491 | 58,165 | .. | 4,925 | 1,491 | 63,090 | (837 | ) | 312 | (254 | ) |
(1) | Includes bonds classified under loans and receivable by our UK subsidiary including those transferred in fiscal 2009 from investment to loans and receivables pursuant to Accounting Standard Board issuing amendments to FRS 26 – ‘Financial Instruments: Recognition and Measurement’ which permitted reclassification of financial assets in certain circumstances from ‘held-for-trading’ and ‘available-for-sale categories’ to the ‘loans and receivables’ category. |
(2) | Includes corporate bonds classified under loans and receivables by our Canadian subsidiary. |
Funding
Our funding operations are designed to ensure stability of funding, minimize funding costs and effectively manage liquidity. Our primary source of domestic funding is deposits raised from both retail and corporate customers. We also raise funds through short-term rupee borrowings, refinance borrowings and domestic or overseas bond offerings. Our domestic bond borrowings include long-term bond borrowings for financing infrastructure projects and affordable housing in accordance with the Reserve Bank of India guidelines. See also “Business—Overview of Our Products and Services—Commercial Banking for Retail Customers—Retail Deposits”.
Maturity profile of deposits
The following table sets forth, at the date indicated, the contractual maturity profile of deposits, by type of deposit at March 31, 2023.
Up to one year | After one year and within three years | After three years | Total | |||||||||||||
(in millions) | ||||||||||||||||
Interest-bearing deposits: | ||||||||||||||||
Savings deposits(1) | Rs. | 3,848,299 | .. | .. | Rs. | 3,848,299 | ||||||||||
Time deposits | 4,341,123 | 1,827,859 | 432,713 | 6,601,695 | ||||||||||||
Non-interest-bearing deposits: | ||||||||||||||||
Other demand deposits(1) | 1,658,328 | .. | .. | 1,658,328 | ||||||||||||
Total deposits | Rs. | 9,847,750 | Rs. | 1,827,859 | Rs. | 432,713 | Rs. | 12,108,322 |
132
(1) | Savings and other demand deposits are payable on demand and hence are classified in the ‘Up to one year’ category. |
The following table sets forth, at the date indicated, the contractual maturity profile of deposits, by type of deposit at March 31, 2022.
Up to one year | After one year and within three years | After three years | Total | |||||||||||||
(in millions) | ||||||||||||||||
Interest-bearing deposits: | ||||||||||||||||
Savings deposits(1) | Rs. | 3,670,306 | .. | .. | Rs. | 3,670,306 | ||||||||||
Time deposits | 3,895,554 | 1,256,777 | 456,834 | 5,609,165 | ||||||||||||
Non-interest-bearing deposits: | ||||||||||||||||
Other demand deposits(1) | 1,634,187 | .. | .. | 1,634,187 | ||||||||||||
Total deposits | Rs. | 9,200,047 | Rs. | 1,256,777 | Rs. | 456,834 | Rs. | 10,913,658 |
(1) Savings and other demand deposits are payable on demand and hence are classified in the ‘Up to one year’ category.
Uninsured deposits
The following table sets forth, for the periods indicated, the estimated amount of time deposits that exceed the insurance limit, segregated by remaining maturity and the estimated amount of total deposits that are otherwise uninsured:
At March 31, 2023 | ||||||||||||||||||||
3 months or less | Over 3 months through 6 months | Over 6 months through 12 months | Over 12 months | Total | ||||||||||||||||
Uninsured time deposits | (in millions) | |||||||||||||||||||
India | Rs. | 1,395,233 | Rs. | 823,917 | Rs. | 1,494,583 | Rs. | 1,801,960 | Rs. | 5,515,693 | ||||||||||
Outside India | 40,410 | 31,385 | 40,918 | 38,278 | 150,991 | |||||||||||||||
Total uninsured time deposits | Rs. | 1,435,643 | Rs. | 855,302 | Rs. | 1,535,501 | Rs. | 1,840,238 | Rs. | 5,666,684 |
At March 31, 2022 | ||||||||||||||||||||
3 months or less | Over 3 months through 6 months | Over 6 months through 12 months | Over 12 months | Total | ||||||||||||||||
Uninsured time deposits | (in millions) | |||||||||||||||||||
India | Rs. | 1,262,407 | Rs. | 736,621 | Rs. | 1,373,221 | Rs. | 1,439,422 | Rs. | 4,811,671 | ||||||||||
Outside India | 22,484 | 11,989 | 19,441 | 11,443 | 65,357 | |||||||||||||||
Total uninsured time deposits | Rs. | 1,284,891 | Rs. | 748,610 | Rs. | 1,392,662 | Rs. | 1,450,865 | Rs. | 4,877,028 |
133
Total uninsured deposits at March 31, 2022 were Rs. 8,315,811 million and at March 31, 2023 were Rs. 9,314,637 million.
The classification between “in India” and “outside India” is based on the domicile of the booking unit. In India, the insured deposit calculations are based on guidelines prescribed by Deposit Insurance and Credit Guarantee Corporation. The insured amount limit prescribed by Deposit Insurance and Credit Guarantee Corporation is up to a maximum amount of Rs. 500,000 per depositor (included all type of deposits), per insured bank. The standard insurance amount for time deposits outside India is based on the insurance limits approved by the regulator in the respective foreign jurisdiction. The insurance coverage is allocated first to savings account deposits, then to current account deposits and lastly to time deposits of a depositor. For time deposits, the highest residual maturity buckets are considered for allocation of insurance coverage.
Risk Management
Asset liability gap
The following table sets forth, at the date indicated, our asset-liability gap position.
At March 31, 2023(1) | ||||||||||||||||
Less than or equal to one year | Greater than one year and up to five years | Greater than five years | Total | |||||||||||||
(in millions) | ||||||||||||||||
Advances (loans), net | Rs. | 9,282,075 | Rs. | 1,453,703 | Rs. | 102,885 | Rs. | 10,838,663 | ||||||||
Investments | 1,283,292 | 1,403,243 | 3,708,985 | 6,395,520 | ||||||||||||
Other assets(2) | 794,512 | 124,827 | 1,325,773 | 2,245,112 | ||||||||||||
Total assets | Rs. | 11,359,879 | Rs. | 2,981,773 | Rs. | 5,137,643 | Rs. | 19,479,295 | ||||||||
Capital | .. | .. | 2,144,978 | 2,144,978 | ||||||||||||
Borrowings | 1,032,692 | 584,913 | 273,013 | 1,890,618 | ||||||||||||
Deposits | 5,611,378 | 6,481,420 | 15,523 | 12,108,321 | ||||||||||||
Other liabilities | 27,686 | 1,259 | 3,412,042 | 3,440,987 | ||||||||||||
Total liabilities | 6,671,756 | 7,067,592 | 5,845,556 | 19,584,904 | ||||||||||||
Total gap before risk management positions | 4,688,123 | (4,085,819 | ) | (707,914 | ) | (105,610 | ) | |||||||||
Off-balance sheet positions(3) | (179,307 | ) | 285,840 | (114,413 | ) | (7,880 | ) | |||||||||
Total gap after risk management positions | Rs. | 4,508,816 | Rs. | (3,799,979 | ) | Rs. | (822,327 | ) | Rs. | (113,490 | ) |
(2) | Includes cash and balances with the Reserve Bank of India, balances with banks and money at call and short notice and other assets. |
(3) Off-balance sheet positions comprises net notional amount of derivatives, including foreign exchange forward contracts.
134
At March 31, 2022(1) | ||||||||||||||||
Less than or equal to one year | Greater than one year and up to five years | Greater than five years | Total | |||||||||||||
(in millions) | ||||||||||||||||
Advances (loans), net | Rs. | 7,937,695 | Rs 1,189,111 | Rs. | 76,275 | Rs. | 9,203,081 | |||||||||
Investments | 1,271,030 | 1,362,786 | 3,037,161 | 5,670,977 | ||||||||||||
Other assets(2) | 1,246,050 | 158,385 | 1,145,081 | 2,549,516 | ||||||||||||
Total assets | 10,454,775 | 2,710,282 | 4,258,517 | 17,423,574 | ||||||||||||
Capital | .. | .. | 1,820,525 | 1,820,525 | ||||||||||||
Borrowings | 739,947 | 613,594 | 262,486 | 1,616,027 | ||||||||||||
Deposits | 5,133,624 | 5,764,171 | 15,863 | 10,913,658 | ||||||||||||
Other liabilities(3) | 96,553 | 7,084 | 3,072,527 | 3,176,164 | ||||||||||||
Total liabilities | 5,970,124 | 6,384,849 | 5,171,401 | 17,526,373 | ||||||||||||
Total gap before risk management positions | 4,484,651 | (3,674,567 | ) | (912,884 | ) | (102,799 | ) | |||||||||
Off-balance sheet positions(4) | (88,581 | ) | 26,799 | 42,866 | (18,917 | ) | ||||||||||
Total gap after risk management positions | Rs. | 4,396,070 | Rs. | (3,647,768 | ) | Rs. | (870,018 | ) | Rs. | (121,716 | ) |
(1) | Includes investments in the nature of equity, cash and balances with the Reserve Bank of India, balances with banks and money at call and short notice and miscellaneous assets and liabilities. 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, including behavioral studies, as per local policy/regulatory norms of the entities. Items other than current and savings account deposits that neither re-price nor have a defined maturity are included in the ‘greater than five years’ category. Fixed assets (other than leased assets) have been excluded from the above table. Current and savings account deposits are classified based on behavior study. |
(2) | Includes cash and balances with the Reserve Bank of India, balances with banks and money at call and short notice and other assets. |
(3) | Includes minority interest, liabilities on policy in force, and other liabilities and provisions. |
(4) | Off-balance sheet positions comprises net notional amount of derivatives, including foreign exchange forward contracts. |
Loan portfolio - fixed-floating interest rate
The following table sets forth, at the date indicated, the amount of our loans with residual contractual maturities greater than one year that had fixed and variable interest rates.
At March 31, 2023 | ||||||||||||
Fixed rate loans | Variable rate loans | Total | ||||||||||
(in millions) | ||||||||||||
Commercial loans | Rs. | 111,986 | Rs. | 1,420,577 | Rs. | 1,532,563 | ||||||
Consumer loans and credit card receivable | 1,412,339 | 3,352,737 | 4,765,076 | |||||||||
Lease financing | 33 | .. | 33 | |||||||||
Total loans | Rs. | 1,524,358 | Rs. | 4,773,314 | Rs. | 6,297,672 |
At March 31, 2022 | ||||||||||||
Fixed rate loans | Variable rate loans | Total | ||||||||||
(in millions) | ||||||||||||
Commercial loans | Rs. | 133,270 | Rs. | 1,273,869 | Rs. | 1,407,139 | ||||||
Consumer loans and credit card receivable | 1,126,546 | 2,817,494 | 3,944,040 | |||||||||
Lease financing | 187 | .. | 187 | |||||||||
Total loans | Rs. | 1,260,003 | Rs. | 4,091,363 | Rs. | 5,351,366 |
135
Impact of interest rate movement on loan portfolio
The following table sets forth, using the balance sheet at year-end fiscal 2023 as the base, one possible prediction of the impact of adverse changes in interest rates on net interest income for fiscal 2024, assuming a parallel shift in the yield curve at year-end fiscal 2023.
At March 31, 2023 | ||||||||||||||||
Change in interest rates (in basis points) | ||||||||||||||||
(100) | (50) | 50 | 100 | |||||||||||||
(in millions) | ||||||||||||||||
Rupee portfolio | Rs. | (38,337 | ) | Rs. | (19,169 | ) | Rs. | 19,169 | Rs. | 38,337 | ||||||
Foreign currency portfolio | (1,737 | ) | (869 | ) | 869 | 1,737 | ||||||||||
Total | Rs. | (40,075 | ) | Rs. | (20,037 | ) | Rs. | 20,037 | Rs. | 40,075 |
The following table sets forth, using the balance sheet at year-end fiscal 2022 as the base, one possible prediction of the impact of adverse changes in interest rates on net interest income for fiscal 2023, assuming a parallel shift in the yield curve at year-end fiscal 2022.
At March 31, 2022 | ||||||||||||||||
Change in interest rates (in basis points) | ||||||||||||||||
(100) | (50) | 50 | 100 | |||||||||||||
(in millions) | ||||||||||||||||
Rupee portfolio | Rs. | (35,655 | ) | Rs. | (17,827 | ) | Rs. | 17,827 | Rs. | 35,655 | ||||||
Foreign currency portfolio | (1,893 | ) | (946 | ) | 946 | 1,893 | ||||||||||
Total | Rs. | (37,548 | ) | Rs. | (18,774 | ) | Rs. | 18,774 | Rs. | 37,548 |
Sensitivity analysis, which is based upon 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)
The following table sets forth, using the fixed income portfolio at year-end fiscal 2023 as the base, one possible prediction of the impact of changes in interest rates on the value of our fixed income held-for-trading portfolio, assuming a parallel shift in interest rate curve.
At March 31, 2023 | ||||||||||||||||||||
Change in interest rates (in basis points) - Rupee | ||||||||||||||||||||
Portfolio Size | (100) | (50) | 50 | 100 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Indian government securities | Rs. | 270,091 | Rs. | 4,667 | Rs. | 2,344 | Rs. | (2,323 | ) | Rs. | (4,630 | ) | ||||||||
Rupee corporate debt securities | 112,437 | 1,620 | 815 | (810 | ) | (1,613 | ) | |||||||||||||
Total | Rs. | 382,528 | Rs. | 6,287 | Rs. | 3,159 | Rs. | (3,133 | ) | Rs. | (6,243 | ) |
136
At March 31, 2023 | ||||||||||||||||||||
Change in interest rates (in basis points) – Foreign currency | ||||||||||||||||||||
Portfolio Size | (100) | (50) | 50 | 100 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Foreign government securities | Rs. | 38,802 | Rs. | 53 | Rs. | 26 | Rs. | (26) | Rs. | (53) | ||||||||||
Foreign corporate debt securities | 483 | 1 | .. | .. | (1) | |||||||||||||||
Total | Rs. | 39,285 | Rs. | 54 | Rs. | 26 | Rs. | (26) | Rs. | (54) |
The following table sets forth, using the fixed income portfolio at year-end fiscal 2022 as the base, one possible prediction of the impact of changes in interest rates on the value of our fixed income held-for-trading portfolio, assuming a parallel shift in interest rate curve.
At March 31, 2022 | ||||||||||||||||||||
Change in interest rates (in basis points) - Rupee | ||||||||||||||||||||
Portfolio Size | (100) | (50) | 50 | 100 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Indian government securities | Rs. | 176,474 | Rs. | 2,421 | Rs. | 1,206 | Rs. | (1,206 | ) | Rs. | (2,421 | ) | ||||||||
Rupee corporate debt securities | 60,011 | 677 | 339 | (339 | ) | (675 | ) | |||||||||||||
Total | Rs. | 236,485 | Rs. | 3,099 | Rs. | 1,545 | Rs. | (1,544 | ) | Rs. | (3,096 | ) |
At March 31, 2022 | ||||||||||||||||||||
Change in interest rates (in basis points) – Foreign currency | ||||||||||||||||||||
Portfolio Size | (100) | (50) | 50 | 100 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Foreign government securities | Rs. | 90,181 | Rs. | 157 | Rs. | 78 | Rs. | (78 | ) | Rs. | (157 | ) | ||||||||
Foreign corporate debt securities | 1,491 | 93 | 46 | (46 | ) | (93 | ) | |||||||||||||
Total | Rs. | 91,672 | Rs. | 250 | Rs. | 124 | Rs. | (124 | ) | Rs. | (250 | ) |
Value at risk on equity shares (Proprietary trading book)
ICICI Bank computes value-at-risk using historical simulation model for limit monitoring purposes. The value-at-risk is calculated using the previous one-year market data at a 99% confidence level and a holding period of one day.
The following table sets forth the high, low, average and period-end value-at-risk for the equities portfolio of the proprietary trading group of ICICI Bank for fiscal 2022 and fiscal 2023.
Rs. in million
Fiscal 2022 | At March | Fiscal 2023 | At March | |||||||||||||||||||||||||||||
High | Low | Average | 31, 2022 | High | Low | Average | 31, 2023 | |||||||||||||||||||||||||
Value-at-risk | 234.9 | 6.8 | 90.9 | 54.1 | 149.0 | 0.0 | 34.0 | 0.0 |
137
We monitor the effectiveness of the value-at-risk model by regularly back-testing its performance. Statistically, we would expect to see losses in excess of value-at-risk only 1% of the time over a one-year period. During fiscal 2023, there were three instances of hypothetical loss exceeding the value-at-risk estimates for the equities portfolio of the proprietary trading group.
The following table sets forth a comparison of the hypothetical daily profit/(loss), computed on the assumption of no intra-day trading, and value-at-risk calculated using the historical simulation model during fiscal 2022 and fiscal 2023.
Rs. in million | ||||||||||||||||
Fiscal 2022 | At March | Fiscal 2023 | At March | |||||||||||||
Average | 31, 2022 | Average | 31, 2023 | |||||||||||||
Hypothetical daily profit(loss) | 9.0 | 14.8 | (0.1 | ) | 0.0 | |||||||||||
Value-at-risk | 90.9 | 54.1 | 34.0 | 0.0 |
The high and low hypothetical daily profit/(loss) during fiscal 2023 was Rs. 37.4 million and Rs. (88.8) million respectively.
While value-at-risk is an important tool for measuring market risk under normal market conditions, it has inherent limitations that should be taken into account, including its inability to accurately predict future losses when extreme events are affecting the markets, because it is based on the assumption that historical market data is indicative of future market performance. Moreover, different value-at-risk calculation methods use different assumptions and hence may produce different results, and computing value-at-risk at the close of the business day would exclude intra-day risk. There is also a general possibility that the value-at-risk model may not fully capture all the risks present in the portfolio.
Derivative and Foreign Exchange Risk (Trading)
The following table sets forth, using the outstanding notional principal of trading derivatives and foreign exchange portfolio at year-end as the base, one possible prediction of the impact of changes in interest rates on the value of our trading derivatives and foreign exchange portfolio, assuming a parallel shift in interest rate curve.
At March 31, 2023 | ||||||||||||||||||||
Change in interest rates (in basis points) | ||||||||||||||||||||
Portfolio Size(1) | (100) | (50) | 50 | 100 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Interest rate derivatives | Rs. | 30,733,302 | Rs. | (13,657 | ) | Rs. | (6,828 | ) | Rs. | 6,828 | Rs. | 13,656 | ||||||||
Currency derivatives(2) | 1,661,178 | 1,176 | 588 | (588 | ) | (1,176 | ) | |||||||||||||
Foreign exchange | 14,512,948 | (3) | (2 | ) | 2 | 3 | ||||||||||||||
Total | Rs. | 46,907,428 | Rs. | (12,484 | ) | Rs. | (6,242 | ) | Rs. | 6,242 | Rs. | (12,483 | ) |
1. | Notional principal |
2. | Includes futures, options and cross currency interest rate swaps |
138
At March 31, 2022 | ||||||||||||||||||||
Change in interest rates (in basis points) | ||||||||||||||||||||
Portfolio Size(1) | (100) | (50) | 50 | 100 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Interest rate derivatives | Rs. | 31,560,088 | Rs. | (8,341 | ) | Rs. | (4,170 | ) | Rs. | 4,170 | Rs. | 8,339 | ||||||||
Currency derivatives(2) | 1,193,153 | 2,313 | 1,156 | (1,156 | ) | (2,313 | ) | |||||||||||||
Foreign exchange | 9,769,228 | (42 | ) | (21 | ) | 21 | 42 | |||||||||||||
Total | Rs. | 42,522,469 | Rs. | (6,070 | ) | Rs. | (3,035 | ) | Rs. | 3,035 | Rs. | 6,068 |
1. | Notional principal |
2. | Includes futures, options and cross currency interest rate swaps |
The following table sets forth the possible prediction of the impact of change in foreign exchange rates on the value of the net open position of the Group.
At March 31, 2023 | ||||||||||
Change in forex rates on the value of the net open position (in basis points) | ||||||||||
Net open position | (100) | 100 | ||||||||
(in millions) | ||||||||||
Total open position for the Group | Rs. | 6,221 | Rs. | 3,862 | Rs. | 492 |
At March 31, 2022 | ||||||||||
Change in forex rates on the value of the net open position (in basis points) | ||||||||||
Net open position | (100) | 100 | ||||||||
(in millions) | ||||||||||
Total open position for the Group | Rs. | 6,654 | Rs. | (1,294 | ) | Rs. | 7,653 |
Credit spread risk
The following table sets forth, using our held-for-trading portfolio at year-end as the base, one possible prediction of the impact of changes in credit spreads on the value of the trading portfolio, assuming a parallel shift in credit spreads.
At March 31, 2023 | |||||||||||||||||||
Change in credit spread (in basis points) | |||||||||||||||||||
Portfolio Size | (100) | (50) | 50 | 100 | |||||||||||||||
(in millions) | |||||||||||||||||||
Corporate debt securities | Rs. | 112,920 | Rs. | 1,621 | Rs. | 815 | Rs. | (810 | ) | Rs. | (1,614 | ) | |||||||
At March 31, 2022 | |||||||||||||||||||
Change in credit spread (in basis points) | |||||||||||||||||||
Portfolio Size | (100) | (50) | 50 | 100 | |||||||||||||||
(in millions) | |||||||||||||||||||
Corporate debt securities | Rs. | 61,502 | Rs. | 770 | Rs. | 386 | Rs. | (385 | ) | Rs. | (768 | ) | |||||||
139
Loan Concentration
We follow a policy of portfolio diversification and evaluate our total financing exposure to a particular industry in the light of our forecasts of growth and profitability for that industry. ICICI Bank’s policy is to limit its portfolio to any particular industry (other than retail loans) to 15.0% of its total exposure. In addition, we have a framework for managing concentration risk with respect to single borrower and group exposures, based on the internal rating and track- record of the borrowers. See also -“Risk Management—Credit Risk”. The exposure limits for lower rated borrowers and groups are substantially lower than the regulatory limits.
The following table sets forth, at the dates indicated, the composition of our gross advances.
At March 31, | ||||||||||||||||||||
2022 | 2023 | |||||||||||||||||||
Amount | As a % | Amount | Amount | As a % | ||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||
Retail finance(1) | Rs. | 5,040,347 | 53.2 | % | Rs. | 6,013,563 | US$ 73,167 | 54.2 | % | |||||||||||
Rural finance | 795,064 | 8.4 | 902,084 | 10,976 | 8.1 | |||||||||||||||
Services—finance | 716,294 | 7.6 | 804,240 | 9,785 | 7.2 | |||||||||||||||
Wholesale/retail trade | 296,358 | 3.1 | 448,962 | 5,462 | 4.0 | |||||||||||||||
Roads, port, telecom, urban development & other infrastructure | 308,905 | 3.3 | 329,564 | 4,010 | 3.0 | |||||||||||||||
Services—non finance | 202,096 | 2.1 | 245,057 | 2,982 | 2.2 | |||||||||||||||
Power | 202,294 | 2.1 | 188,950 | 2,299 | 1.7 | |||||||||||||||
Construction | 155,286 | 1.6 | 178,219 | 2,168 | 1.6 | |||||||||||||||
Manufacturing products (excluding metal) | 121,190 | 1.3 | 173,477 | 2,111 | 1.6 | |||||||||||||||
Iron and steel (including iron and steel products) | 150,757 | 1.6 | 162,007 | 1,971 | 1.5 | |||||||||||||||
Electronics & engineering | 130,558 | 1.4 | 154,612 | 1,881 | 1.4 | |||||||||||||||
Crude petroleum/ refining & petrochemicals | 132,908 | 1.4 | 137,118 | 1,668 | 1.2 | |||||||||||||||
Textile | 100,791 | 1.1 | 124,967 | 1,520 | 1.1 | |||||||||||||||
Others(2) | 1,122,259 | 11.8 | 1,232,134 | 14,992 | 11.2 | |||||||||||||||
Gross advances (loans) | 9,475,107 | 100.0 | % | 11,094,954 | 134,992 | 100.0 | % | |||||||||||||
Allowance for advances (loan) losses | (272,025 | ) | (256,291 | ) | (3,118 | ) | ||||||||||||||
Net advances (loans) | Rs. | 9,203,082 | Rs. | 10,838,663 | US$ 131,873 |
______________________
(1) | Includes home loans, automobile loans, commercial business loans, dealer financing and personal loans, credit cards, two wheeler loans and loans against securities. |
(2) | Primarily include developer financing portfolio, gems and jewellery, mining, cement, drugs and pharmaceuticals, shipping metal and metal products (excluding iron and steel), food & beverages, chemicals and fertilizers, automobiles and fast moving consumer goods. |
Our capital allocation is focused on building a granular portfolio and sustainably improving our portfolio quality. We are focused on capitalizing on opportunities in retail lending, including cross-selling additional products to our existing customers and growing our lending to small businesses, while adopting a selective approach to corporate lending. Given the focus on the above priorities, gross retail finance advances increased by 19.3% in fiscal 2023 compared to an increase of 17.1% in total gross advances in fiscal 2023. As a result, retail finance increased from 53.2% of gross loans at year-end fiscal 2022 to 54.2% of gross loans at year-end fiscal 2023.
140
At year-end fiscal 2023, our 20 largest borrowers accounted for 6.9% of our gross loan portfolio, with the largest borrower accounting for 1.9% of our gross loan portfolio. The largest group of companies under the same management control accounted for 1.3% of our gross loan portfolio at year-end fiscal 2023.
At year-end fiscal 2023, our exposure to largest single counterparty accounted for 12.8% of our Tier I capital fund. The exposure to largest group of connected counterparties accounted for 27.1% of our Tier I capital fund at year-end fiscal 2022.
Maturity profile of loans
The following table sets forth, for the periods indicated, the maturity profile of loans
March 31, 2023 Due within 1 year Due between 1 to 5 year Due between 5 to 15 years Due in more than 15 years Total (in millions) Commercial loans Rs. 2,951,977 Rs. 1,017,840 Rs. 512,516 Rs. 2,207 Rs. 4,484,540 Consumer loans 1,588,996 2,100,469 1,714,291 950,316 6,354,072 Lease financing 18 33 .. .. 51 Total Rs. 4,540,991 Rs. 3,118,342 Rs. 2,226,807 Rs. 952,523 Rs. 10,838,663
March 31, 2022 | ||||||||||||||||||||
Due within 1 year | Due between 1 to 5 year | Due between 5 to 15 years | Due in more than 15 years | Total | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Commercial loans | Rs. | 2,221,031 | Rs. | 881,662 | Rs. | 523,871 | Rs. | 1,606 | Rs. | 3,628,170 | ||||||||||
Consumer loans | 1,630,457 | 1,948,475 | 1,670,240 | 325,325 | 5,574,497 | |||||||||||||||
Lease financing | 230 | 187 | .. | .. | 417 | |||||||||||||||
Total | Rs. | 3,851,718 | Rs. | 2,830,324 | Rs. | 2,194,111 | Rs. | 326,931 | Rs. | 9,203,084 |
Directed Lending
The Reserve Bank of India requires banks to lend to certain sectors of the economy. Such directed lending comprises priority sector lending and export credit. ICICI Bank is required to comply with the priority sector lending requirements prescribed by the Reserve Bank of India from time to time. As prescribed in the Reserve Bank of India guideline, the Bank’s priority sector lending achievement is computed on quarterly average basis. During fiscal 2023, the Bank purchased Priority Sector Lending Certificates amounting to Rs. 716.5 billion (fiscal 2022: Rs. 715.1 billion) and sold Priority Sector Lending Certificates amounting to Rs. 741.3 billion (fiscal 2022: Rs. 1,014.4 billion). See also “Supervision and Regulation—Regulations Relating to Advancing Loans—Directed Lending—Priority Sector Lending”.
141
The following table sets forth, for the periods indicated, ICICI Bank’s average priority sector lending:
- Small and marginal farmers Fiscal 2022 Fiscal 2023 Amount % of adjusted net bank credit Amount % of adjusted net bank credit Target (% of adjusted net bank credit) (in billions, except percentages) Agriculture Sector Rs. 1,226.5 17.80% Rs. 1,423.6 US$ 17.3 17.74% 18.00% 636.4 9.20 794.7 9.7 9.90 9.50 - Non-corporate farmers 873.8 12.70 1,068.2 13.0 13.31 13.78 Micro, small and medium enterprises 1,473.7 .. 1,729.0 21.0 .. .. - Micro enterprises 550.7 8.00 661.2 8.0 8.24 7.50 Other priority sector 145.2 .. 178.3 2.2 .. .. Total priority sector lending Rs. 2,845.4 41.30% Rs. 3,330.9 US$ 40.5 41.50% 40.00% - Weaker sections Rs. 762.0 11.10% Rs. 910.2 US$ 11.1 11.34% 11.50%
1. | The above includes the impact of Priority Sector Lending Certificate purchased/sold by the Bank. |
The priority sector lending master circular issued by the Reserve Bank of India requires that banks having any shortfall in lending to priority sector shall be allocated amounts for contribution to the Rural Infrastructure Development Fund established with National Bank for Agriculture and Rural Development and other Funds as decided by the Reserve Bank of India from time to time. The Bank may be required by the Reserve Bank of India to deposit with the Rural Infrastructure Development Fund and other related funds, certain amounts as specified by the Reserve Bank of India in the coming year due to the shortfall in the above-mentioned sub-categories of priority sector lending targets. At year-end fiscal 2023, our total investment in funds of government sponsored development banks due to shortfall in lending to priority sectors was Rs. 216.2 billion, which was fully eligible for consideration in overall priority sector achievement.
Export Credit
The Reserve Bank of India requires banks to make loans to exporters at concessional interest rates, as part of directed lending. Export credit is provided for pre-shipment and post-shipment requirements of exporter borrowers in rupees and foreign currencies. Export credit in the agriculture, micro, small and medium enterprises sectors is permitted to be categorised as priority sector lending. Additionally, the Export credit is extended as priority sector lending basis the classification criteria specified by the Reserve Bank of India. The interest income earned on export 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. As at March 31, 2023, ICICI Bank’s export credit was Rs. 147.0 billion, which amounted to 1.75% of the Bank’s adjusted net bank credit.
142
Non-performing loans
The following table sets forth, at the dates indicated, gross (net of write-offs, interest suspense and derivatives income reversal) non-performing loans by borrowers’ industry or economic activity and as a percentage of total non-performing loans.
At March 31, | ||||||||||||||||||||
2022 | 2023 | |||||||||||||||||||
Amount | As a percentage of non-performing loans | Amount | Amount | As a percentage of non-performing loans | ||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||
Retail finance(1) | Rs. | 87,383 | 25.3 | % | Rs. | 76,738 | US$ 934 | 24.6 | % | |||||||||||
Construction | 55,217 | 16.0 | 51,538 | 627 | 16.5 | |||||||||||||||
Rural Retail | 37,080 | 10.7 | 37,294 | 454 | 11.9 | |||||||||||||||
Crude petroleum/ refining and petrochemicals | 25,051 | 7.3 | 25,066 | 305 | 8.0 | |||||||||||||||
Power | 31,671 | 9.2 | 22,044 | 268 | 7.1 | |||||||||||||||
Roads, ports, telecom, urban development & other infrastructure | 14,488 | 4.2 | 12,727 | 155 | 4.1 | |||||||||||||||
Electronics and engineering | 16,045 | 4.6 | 12,705 | 155 | 4.1 | |||||||||||||||
Services—non finance | 14,203 | 4.1 | 12,402 | 151 | 4.0 | |||||||||||||||
Mining | 10,934 | 3.2 | 11,781 | 143 | 3.8 | |||||||||||||||
Wholesale/retail trade | 6,501 | 1.9 | 7,908 | 96 | 2.5 | |||||||||||||||
Manufacturing products (excluding metal) | 5,311 | 1.5 | 5,827 | 71 | 1.9 | |||||||||||||||
Iron/steel and products | 5,918 | 1.7 | 5,236 | 64 | 1.7 | |||||||||||||||
Gems & jewellery | 3,154 | 0.9 | 4,028 | 49 | 1.3 | |||||||||||||||
Other Industries(2) | 32,558 | 9.4 | 27,176 | 330 | 8.5 | |||||||||||||||
Gross non-performing loans (3) | Rs. | 345,514 | 100.0 | % | Rs. | 312,470 | US$ 3,802 | 100.0 | % | |||||||||||
Aggregate provision for loan losses | (269,105 | ) | (254,507 | ) | (3,097 | ) | ||||||||||||||
Net non-performing loans | Rs. | 76,409 | Rs. | 57,963 | US$ 705 |
_____________________
(1) Includes home loans, commercial business loans, rural loans, automobile loans, business banking, credit cards, personal loans, loans against securities and dealer financing portfolio.
(2) Other industries primarily include developer financing portfolio, automobiles, cement, shipping, food and beverages, chemical and fertilizers, textile, drugs and pharmaceuticals, metal and products (excluding iron and steel) services – finance and fast moving consumer goods.
See“Operating and Financial Review and Prospects—Executive Summary—Certain Factors Affecting Our Results of Operations—Trends in fiscal 2022”.
143
Restructurd loans
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.
At March 31, | ||||||||||||||||||||
2022 | 2023 | |||||||||||||||||||
Amount | As a percentage of restructured loans | Amount | Amount | As a percentage of restructured loans | ||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||
Retail finance | Rs. | 69,073 | 74.1 | % | Rs. | 44,643 | US$ 543 | 85.0 | % | |||||||||||
Power | 6,106 | 6.5 | .. | .. | .. | |||||||||||||||
Roads, port, telecom, urban development & other infrastructure | 2,851 | 3.1 | 2,793 | 34 | 5.3 | |||||||||||||||
Construction | 1,924 | 2.1 | 1,599 | 19 | 3.0 | |||||||||||||||
Others(1) | 13,312 | 14.2 | 3,479 | 43 | 6.7 | |||||||||||||||
Gross restructured loans | Rs. | 93,266 | 100.0 | % | Rs. | 52,514 | US$ 639 | 100.0 | % | |||||||||||
Aggregate provision for loan losses | (2,914 | ) | (1,779 | ) | (22 | ) | ||||||||||||||
Net restructured loans | Rs. | 90,352 | Rs. | 50,735 | US$ 617 |
(1) | Others primarily include automobile, textiles, food and beverages, wholesale/retail trade, services-non finance, manufacturing products (excluding metal) and gems and jewellery. |
(2) | In addition, the Bank holds general provision amounting to Rs. 12.8 billion at year-end fiscal 2023 (year-end fiscal 2022: Rs. 23.6 billion) on these restructured loans, subject to minimum provisioning requirement as per the guidelines issued by the Reserve Bank of India. |
Key ratios-Asset quality
The following table sets forth, for the periods indicated, our key ratios on asset quality.
At or for the year ended March 31, | ||||||||
2022 | 2023 | |||||||
(Rs. in millions, except percentages) | ||||||||
Gross restructured loans as a percentage of gross loans | 0.98% | 0.47% | ||||||
-Gross restructured loans | 93,266 | 52,514 | ||||||
-Total gross loans | 9,475,107 | 11,094,954 | ||||||
Gross non-performing loans as a percentage of gross loans | 3.65 | 2.82 | ||||||
-Gross non-performing loans | 345,514 | 312,470 | ||||||
-Total gross loans | 9,475,107 | 11,094,954 | ||||||
Net restructured loans as a percentage of net loans | 0.98 | 0.47 | ||||||
-Net restructured loans | 90,352 | 50,735 | ||||||
-Total net loans | 9,203,081 | 10,838,663 | ||||||
Net non-performing loans as a percentage of net loans (1) | 0.83 | 0.53 | ||||||
-Net non-performing loans | 76,409 | 57,963 | ||||||
-Total net loans | 9,203,081 | 10,838,663 | ||||||
Provision on restructured loans as a percentage of gross restructured loans (2) | 3.12 | 3.39 | ||||||
-Provision on restructured loans | 2,914 | 1,779 | ||||||
-Gross restructured loans | 93,266 | 52,514 | ||||||
Provision on non-performing loans as a percentage of gross non-performing loans | 77.89 | 81.45 | ||||||
-Provision on non-performing loans | 269,105 | 254,507 | ||||||
-Gross non-performing loans | 345,514 | 312,470 | ||||||
Provision as a percentage of gross loans(3) | 4.45% | 4.08% | ||||||
-Provisions | 421,315 | 452,185 | ||||||
-Total gross loans | 9,475,107 | 11,094,954 | ||||||
_______________________
(1) | Includes loans identified as non-performing/impaired in line with the guidelines issued by regulators of the respective subsidiary. |
(2) | In addition, the Bank holds 25% general provision on restructured assets (including general provision required as per the guidelines issued by the Reserve Bank of India). |
(3) | Includes general provision on standard assets. |
144
Net loan write-offs and Provision on non-performing loans
The table presents net loan write-offs and percentage of average loans for the periods indicated.
March 31, 2022 | March 31, 2023 | |||||||||||||||
Average loan portfolio | Net loan charge-offs1 | % of average gross loans | Net loan charge-offs1 | % of average gross loans | ||||||||||||
(in millions, except percentages) | ||||||||||||||||
Commercial loans | Rs. | 42,528 | 1.17 | % | Rs. | 8,287 | 0.20 | % | ||||||||
Consumer loans | 52,712 | 1.03 | 19,076 | 0.31 | ||||||||||||
Lease financing | 1 | 0.10 | .. | .. | ||||||||||||
Total loans | Rs. | 95,241 | 1.09 | % | Rs. | 27,363 | 0.27 | % |
(1) | Net loan write offs is the difference between gross loan write-offs and recoveries from write-offs. |
Net loan write-offs as a percentage of our average total loan portfolios were 0.27% in the fiscal 2023 as compared to 1.09% in the fiscal 2022.
The following table shows an allocation of the Group’s total provision on non-performing loans and the percentage of loans in each category to total gross loans for the periods indicated.
March 31, 2022 | March 31, 2023 | |||||||||||||||
Amount | % of loans in each category to total gross loans | Amount | % of loans in each category to total gross loans | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Commercial loans | Rs. | 203,023 | 41.8 | % | 189,176 | 39.6 | % | |||||||||
Consumer loans | 66,082 | 58.2 | 65,331 | 60.4 | ||||||||||||
Lease financing | .. | 0.0 | .. | 0.0 | ||||||||||||
Total loans | Rs. | 269,105 | 100 | % | 254,507 | 100 | % |
145
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 audited consolidated financial statements. The following discussion is based on our audited consolidated financial statements and accompanying notes prepared in accordance with Indian GAAP, which varies in certain significant respects from U.S. GAAP. For a reconciliation of net income and stockholders’ equity to U.S. GAAP, a description of significant differences between Indian GAAP and U.S. GAAP and certain additional U.S. GAAP information, see notes 21 and 22 to our consolidated financial statements included herein.
Executive Summary
Introduction
We are a diversified financial services group offering a wide range of banking and financial services to corporate and retail customers through a variety of delivery channels. Apart from banking products and services, we offer life and general insurance, asset management, securities broking and private equity products and services through specialized subsidiaries and affiliates. Our consolidated total assets at year-end fiscal 2023 were Rs. 19,584.9 billion. Our consolidated capital and reserves and surplus including employees’ stock options outstanding at year-end fiscal 2023 were Rs. 2,145.0 billion and our consolidated net profit (after minority interest) for fiscal 2023 was Rs. 340.4 billion.
Our primary business consists of commercial banking operations for retail and corporate customers. Our commercial banking operations for retail customers consist of retail lending, deposit taking, distribution of insurance and investment products and other fee-based products and services. We provide a range of commercial banking products and services, including loan products, fee and commission-based products and services, deposit products and foreign exchange and derivatives products to India’s leading corporations, middle market companies and small and medium enterprises. We also offer agricultural and rural banking products.
Our international franchise focusses on non-resident Indians for deposits, wealth and remittances businesses and on deepening relationships with well-rated Indian corporates in international markets and multinational companies for maximizing the India-linked trade, transaction banking and lending opportunities within our risk management framework. Our overseas banking subsidiaries continue to serve local markets selectively with a focus on risk and granularity of business.
Our treasury operations include the maintenance and management of regulatory reserves, proprietary trading in equity and fixed income and a range of foreign exchange and derivatives products and services for corporate customers, such as forward contracts and interest rate and currency swaps.
We are also engaged in insurance, asset management, securities broking business and private equity fund management through specialized subsidiaries and affiliates. Our subsidiaries, ICICI Prudential Life Insurance Company and ICICI Prudential Asset Management Company, provide a wide range of life insurance and asset management products respectively. Our associate ICICI Lombard General Insurance Company provides a wide range of general insurance products. In May 2023, the Board of the Bank approved acquisition of up to 4.0% of ICICI Lombard General Insurance Company Limited's shareholding, to make it a subsidiary of the Bank, subject to receipt of necessary regulatory approvals.
Our subsidiaries ICICI Securities Limited and ICICI Securities Primary Dealership Limited are engaged in equity underwriting and securities broking and primary dealership in government securities and fixed income market operations, respectively. Our private equity fund management subsidiary ICICI Venture manages funds that make private equity investments.
146
Certain Factors Affecting Our Results of Operations
Our loan portfolio, financial condition and results of operations have been and, in the future would be, influenced by economic conditions in India, global economic developments affecting our customers such as changes in commodity prices and geo-political risks, conditions in global financial markets, economic conditions in the United States and in foreign countries where we have a significant presence or which impact the Indian economy and global markets, evolving global and domestic regulations, and global and regional natural calamities and health epidemics such as COVID-19. For ease of understanding the following discussion of our results of operations, you should consider these macroeconomic factors and other key developments.
Trends in fiscal 2023
The global gross domestic product grew by 2.7% in calendar year 2022 compared to a 5.9% increase in calendar year 2021. The gross domestic product of advanced economies grew by 2.6% and the gross domestic product of emerging economies grew by 2.8% in calendar 2022, compared to 5% growth in advanced economies and 6.5% for emerging economies in calendar year 2021. The fall in global growth reflected the adverse effects of the commodity price shock that took place in response to the Russia-Ukraine war, monetary tightening delivered by global central banks and stringent lockdowns that were imposed in China to combat the spread of COVID-19. Global energy prices rose sharply in the first half of calendar year 2022 reflecting concerns about supply. However, a sharp correction occurred in the second half of calendar year 2022 in response to weakening global demand. Global inflation surged in calendar year 2022 which was more prominent in advanced economies such as the U.S., Euro-zone and the UK. Global central banks had to front-load interest rate hikes, led by the U.S. Federal Reserve and the European Central Bank as well as other central banks. Given the pressures on the exchange rate and elevated inflation levels, several emerging market central banks also tightened rates. The People’s Bank of China was an exception that kept monetary policy accommodative in response to weakening economic activity. At the same time, higher interest rates have had an impact on the U.S. regional banking sector which in-turn is likely to impact global growth. Overall, there are significant headwinds to global growth given that the lagged effect of monetary tightening should work to slow economic activity and uncertainty about the state of the U.S. regional banking sector could persist.
After India’s real gross domestic product contracted by 5.8% during fiscal 2021 due to the COVID-19 pandemic, growth bounced back strongly in fiscal 2022, supported by accommodative monetary and fiscal policies and vaccine coverage. India’s gross domestic product grew 7.2% in fiscal 2023 compared with the 9.1% first revised estimates in fiscal 2022. Growth is underpinned by government led investment. The services sector has rebounded with travel and hospitality along with financial services and real estate sectors witnessing growth momentum. While a weaker global growth environment will impact India’s goods exports, services exports have been resilient. With oil prices easing from the earlier highs, India’s external sector outlook has improved as seen in the reduction in the current account deficit.
Inflation in India as measured by Consumer Price index came down from 7.0% in March 2022 to 5.7% in March 2023. However, the average inflation during fiscal 2023 was higher at 6.7% as compared to 5.5% in fiscal 2022. Inflation momentum was primarily driven by higher global and domestic food prices (food and beverages inflation was approximately 6.7% in fiscal 2023). At the same time, the higher global commodity, energy and metal prices and incomplete pass-through of input costs led to elevated core inflation (6.1% in fiscal 2022).
147
As a measure to combat the impact of the first wave of COVID-19 pandemic, the Reserve Bank of India reduced the repo rate by 75 basis points to 4.40% in March 2020 and further by 40 basis points to 4.00% in May 2020. The policy rate was kept unchanged till April 2022. The Monetary Policy Committee maintained an accommodative stance through fiscal 2022 with a view to sustain growth and mitigate the impact of the pandemic on the economy. However, with inflationary pressures emerging due to geo-political developments, in fiscal 2023 there was a series of repo rate hikes and absorption of excess liquidity. Reserve Bank of India increased the repo rate by 250 basis points from April 2022 to February 2023 and thereafter, there has been a pause on repo rate.
On April 8, 2022, the Reserve Bank of India introduced the standing deposit facility rate as the floor of the liquidity adjustment facility corridor from reverse repo rate and narrowed the width of corridor to 50 basis points from 90 basis points earlier by raising the floor rate by 40 basis points to 3.75% from 3.35% earlier. The Reserve Bank of India indicated that the balances held by banks with it under the standing deposit facility shall be eligible for statutory liquidity ratio and shall not be eligible for cash reserve ratio maintenance. Notably, the stance was changed to ‘withdrawal of accommodation’ from ‘accommodative’.
On May 4, 2022, in an off-cycle meeting, the Monetary Policy Committee announced an increase in the repo rate by 40 basis points from 4.00% to 4.40%. Accordingly, the standing deposit facility rate was revised to 4.15% and the marginal standing facility rate to 4.65%. In line with the decision to withdraw liquidity, the cash reserve ratio was increased by 50 basis points from 4.00% to 4.50% of net demand and time liabilities. On June 8, 2022, the Monetary Policy Committee announced a further 50 basis point increase in the repo rate to 4.90%. Accordingly, the standing deposit facility rate was revised to 4.65% and the marginal standing facility rate to 5.15%.
Through the fiscal year, policy interest rates were raised as seen in the August 2022 meeting when the repo rate was increased by a larger quantum of 50 basis points to 5.4%. Accordingly, the Standing Deposit Facility rate was revised to 5.15% and the marginal standing facility rate was revised to 5.65%. Even in September 2022, the repo rate was raised by 50 basis points to 5.9%. Consequently, the standing deposit facility rate and marginal standing facility rate were revised to 5.65% and 6.15% respectively. The pace of rate hike was moderated to 35 basis points in December 2022 thus bringing the repo rate to 6.25%. In February 2023, the quantum of repo rate hike was reduced to 25 basis points to 6.5%. Consequently, the standing deposit facility rate and marginal standing facility rate was revised to 6.25% and 6.75% respectively. The stance in the fiscal year was maintained at ‘withdrawal of accommodation’.
However, in its April 2023 meeting, the Monetary Policy Committee kept the repo rate unchanged at 6.5%. Consequently, the standing deposit facility and marginal standing facility rates remained unchanged. The stance of ‘withdrawal of accommodation’ also remained unchanged.
In line with its policy stance, the Reserve Bank of India absorbed surplus liquidity during fiscal 2023, mainly through Open Market Operations such as Variable Reverse Repo Rate auctions and intervention in the foreign exchange market to support the rupee. Liquidity declined sharply to a surplus of approximately Rs. 1.5 trillion towards the end of the fiscal year from a surplus of approximately Rs. 7.2 trillion as on March 31, 2022.
India’s merchandise exports increased by 6.0% to US$ 447.5 billion in fiscal 2023 compared with US$ 422.0 billion in fiscal 2022. Merchandise imports too rose by 16.5% to US$ 714.2 billion in fiscal 2023 as compared to US$ 613.1 billion in fiscal 2022. The trade deficit widened to US$ 266.8 billion in fiscal 2023 compared with a trade deficit of US$ 191.1 billion in fiscal 2022. However, India’s services exports have seen a sharp rebound in fiscal 2023 at US$ 322.7 billion as compared to US$ 254.5 billion in fiscal 2022. This along with an increase in remittances has ensured that higher trade deficits are not resulting in equally high current account deficits. Thus, as a proportion of India’s gross domestic product, the current account deficit is estimated at 1.9% in fiscal 2023 (1.2% in fiscal 2022). Gross foreign direct investment inflows into India were US$ 70.7 billion during April to March 2023, while there was a net inflow of US$ 28.5 billion during the same period.
148
The equity market benchmark S&P BSE Sensex index increased by 2% in fiscal 2023. The rupee depreciated by 8.4% from Rs. 75.79 per U.S. dollar as on March 31, 2022 to Rs. 82.18 per U.S. dollar as on March 31, 2023. In fiscal 2023, the yields on the benchmark 10-year government securities increased from 6.84% as on March 31, 2022 to 7.31% as on March 31, 2023.
In the banking sector, non-food credit grew by 15.4% year-on-year as on March 24, 2023 compared to 8.7% as on March 25, 2022, with incremental credit off-take of approximately Rs. 18.2 trillion during fiscal 2023. Sector-wise deployment of credit as on March 24, 2023 shows broad-based growth. Retail loans grew by 20.6% year-on-year, credit to industry by 5.7%, credit to the services sector by 19.8% and to the agriculture sector by 15.4%. Deposit growth was relatively muted, with growth of 9.6% year-on-year as on March 24, 2023 compared to 8.9% as on March 25, 2022.
According to the Reserve Bank of India’s Financial Stability Report of December 2022, non-performing assets of scheduled commercial banks continued the declining trend, with the gross non-performing assets ratio at 5.0% and net non-performing assets ratio at 1.3% as on September 30, 2022 compared to gross non-performing assets ratio of 6.9% and net non-performing assets ratio of 2.3% as on September 30, 2021.
In the budget for fiscal 2024, the Indian government announced several banking sector specific measures including the revamped Credit Guarantee Trust for Micro and Small Enterprises scheme, promotion of the newly introduced Digital Rupee by the Reserve Bank of India and setting up of National Financial Information Registry and the Credit Guarantee Scheme for Micro and Small enterprises to receive an additional credit of Rs. 2.0 trillion. Additionally the budget included provisions for promotion of Gujarat International Finance Tech-City International Financial Services Centre including permitting acquisition financing by International Financial Services Centre Banking Units of foreign banks and establishing a subsidiary of EXIM Bank for trade re-financing. The budget also seeks to establish an Urban Infrastructure Development Fund through use of investments made by banks in lieu of priority sector lending shortfall, which will be managed by the National Housing Bank, and will be used by public agencies to create urban infrastructure in Tier 2 and Tier 3 cities.
Key regulatory measures announced in fiscal 2023 were:
· | The Reserve Bank of India through its circular dated |
· | The Reserve Bank of India also increased the limit under held to maturity category to 23% of net demand and time liabilities from 19.5% previously to enable banks to better manage their investment portfolios. It further allowed banks to include securities acquired between April 1, 2022 and March 31, 2023 under the enhanced limit. With a view to enable banks to better manage their investment portfolios, the Reserve Bank of India decided to extend the dispensation of enhanced held to maturity limit of 23% up to March 31, 2024. The held to maturity limits would be restored from 23% to 19.5% in a phased manner starting from the quarter ending June 30, 2024. |
· | Pursuant to an earlier discussion paper on climate-related financial risks, the Reserve Bank of India decided to issue guidelines for regulated entities on (i) a broad framework for acceptance of green deposits (ii) a disclosure framework on climate-related financial risks and (iii) guidance on climate scenario analysis and stress testing. |
149
Business Overview
While assessing our performance, we monitor key financial variables such as the movement in profit before tax, excluding treasury income and return on equity. We also look at movement in yield on assets, cost of funds and net interest margin, movement in fee income and cost ratios. We also monitor key business indicators such as deposit growth, funding mix, loan growth and loan delinquency trends. We re-evaluate underwriting norms and risk management on an ongoing basis, and assess the financial impact of events on our capital, revenue and credit costs. We analyze changes in economic indicators such as interest rates, liquidity, exchange rates and the performance of various sectors and sub-sectors of the economy. In addition to these indicators, we monitor other non-financial indicators such as quality of customer service and the extent and nature of customer complaints, cyber threats, data security and preparedness to address them and estimates of market share in key areas of business. We continue to evaluate impact of climate change risks on the portfolio and the environmental, social and governance profile of our large borrowers. We also continuously look at improving capabilities that may be required to respond to crisis related events.
The growth in India’s gross domestic product of 7.2% in fiscal 2023 reflects the continuous recovery in economic activity after a contraction in fiscal 2021 due to the COVID-19 pandemic. The improvement in underlying economic activity was visible across sectors ranging from higher electricity generation to fuel consumption to automobile sales and travel along with higher credit off-take. The government tax collections have been buoyant and so has been the case with services exports. Government led investment cycle has also continued in the year.
Financial conditions remained relatively stable as the Reserve Bank of India raised policy rates to bring down the inflationary pressures visible in the economy. It also intervened in the foreign exchange market to ensure that the rupee did not see any sharp volatility. The Indian banking sector maintained improvements in asset quality, profitability and capital adequacy ratios during fiscal 2023. Growth in banking system non-food credit saw substantial improvement during fiscal 2023, with growth being driven by retail and service sector loans. Growth in deposits was stable as interest rates on term deposits remained stable in the first half of fiscal 2023 with an increase in rates only towards the second half of fiscal 2023. Lending rates saw a substantial rise during fiscal 2023, with the average lending rate on fresh rupee loans approved by banks increased by 169 basis points.
During the three months ended March 31, 2023, the global business environment changed because of the U.S. regional banking crisis which resulted in risk aversion and concerns about a possible hit to credit markets. However, counterparty risk has been managed by ring-fencing the depositors by U.S. policymakers. Global central banks opened the U.S. dollar swap window. However, global merchandise trade remains weak reflecting subdued global growth. The re-opening of the Chinese economy has not had a substantial effect in terms of improving trade flows. At the same time, the central banks of advanced economies have indicated that they will keep policy in restrictive territory to tackle inflation pressures that will continue to work as a headwind for the global economy. Adverse global developments impact Indian economy via both trade and financial channels. India’s foreign exchange reserves and well capitalized financial sector should mitigate the impact of the global developments on domestic economy.
See also “—Executive Summary—Certain Factors Affecting Our Results of Operations—Trends in fiscal 2023”.
In this environment, we continue to focus on maintaining a resilient balance sheet and strong capital levels.
150
We believe that our healthy deposit franchise and competitive funding costs, along with strengthened risk management practices enable us to pursue growth opportunities profitably. In general, trends in systemic liquidity, interest rates and inflation influence deposit growth, especially with respect to low cost savings and current account deposits. Our ability to grow our deposit base may be impacted by increasing competition for such deposits from existing banks and new entrants. Regulatory developments like the introduction of a digital currency by the Reserve Bank of India may also impact our ability to raise low cost deposits in the medium to long term. We have focused on maintaining and enhancing our deposit franchise, including by leveraging technology. We have focused on capitalizing on opportunities in retail lending, including by cross-selling additional products to our existing customers, and growing our lending to small businesses, while adopting a selective approach to corporate lending, in order to build a more granular portfolio and sustainably improve portfolio quality. We aim to provide a complete range of financial products and services to meet personal and business needs of our customers and their ecosystems.
We continue to focus on maintaining capital adequacy ratios that are higher than regulatory requirements. We aim to grow the loan portfolio in a granular manner with a focus on risk and reward. Our provisioning policy for non-performing assets has been made more conservative, and as of March 31, 2023, we also held contingency provisions on a prudent basis, with a view to further strengthen the balance sheet.
A discussion of our financial performance in fiscal 2023 is given below:
Profit before tax excluding treasury income increased by 46.0% from Rs. 294.9 billion in fiscal 2022 to Rs. 430.6 billion in fiscal 2023.
Operating profit before provisions increased by 23.1% from Rs. 432.2 billion in fiscal 2022 to Rs. 532.0 billion in fiscal 2023 primarily due to an increase in net interest income and other income, offset, in part, by an increase in operating expenses.
Net interest income increased by 30.0% from Rs. 542.4 billion in fiscal 2022 to Rs. 705.2 billion in fiscal 2023 reflecting an increase of 15.4% in the average volume of interest-earning assets and an increase in net interest margin by 50 basis points.
Other income increased by 5.1% from Rs. 628.8 billion in fiscal 2022 to Rs. 661.1 billion in fiscal 2023 primarily due to an increase in commission, exchange and brokerage income and net earned premium and other operating income relating to insurance business, offset, in part, by a decrease in income from treasury related activities. Commission, exchange and brokerage income increased by 13.7% from Rs. 172.9 billion in fiscal 2022 to Rs. 196.5 billion in fiscal 2023. Premium and other operating income relating to insurance business increased by 5.6% from Rs. 389.6 billion in fiscal 2022 to Rs. 411.4 billion in fiscal 2023, primarily reflecting an increase in business volume. Income from treasury-related activities decreased from Rs. 55.1 billion in fiscal 2022 to Rs. 41.9 billion in fiscal 2023.
Operating expenses increased by 12.7 % from Rs. 731.5 billion in fiscal 2022 to Rs. 824.4 billion in fiscal 2023 due to an increase in payments to and provision for employees, other operating expenses and expenses related to insurance business.
151
Provisions and contingencies (excluding provision for tax) decreased by 22.7% from Rs. 89.8 billion in fiscal 2022 to Rs. 69.4 billion in fiscal 2023 primarily due to a decrease in provision on non-performing and other assets, offset, in part, by an increase in other provisions and contingencies. The provision on non-performing and other assets decreased from a provision of Rs. 63.8 billion in fiscal 2022 to a write-back of Rs. 3.7 billion in fiscal 2023. During fiscal 2023, there were higher recoveries and upgrades from non-performing assets resulting in net write-back of provision, offset, in part, by an increase in provisioning rate for certain non-performing asset categories. In fiscal 2022, the provision for non-performing and other assets also included provision for loans restructured under Resolution Framework for COVID-19-related Stress. The provision coverage ratio increased from 77.9% at March 31, 2022 to 81.5% at March 31, 2023. During fiscal 2023, the Bank made contingency provision amounting to Rs. 56.5 billion on a prudent basis, to further strengthen the balance sheet.
Gross non-performing loans (net of write-offs) decreased from Rs. 345.5 billion at year-end fiscal 2022 to Rs. 312.5 billion at year-end fiscal 2023. Net non-performing loans decreased from Rs. 76.4 billion at year-end fiscal 2022 to Rs. 58.0 billion at year-end fiscal 2023. The net non-performing loan ratio decreased from 0.8% at year-end fiscal 2022 to 0.5% at year-end fiscal 2023. See also, “Risk Factors—Risks Relating to Our Business—If the level of our non-performing assets increases and the overall quality of our loan portfolio deteriorates, our business will suffer.”
Income tax expense increased from Rs. 84.6 billion in fiscal 2022 to Rs. 117.9 billion in fiscal 2023 primarily due to an increase in profit before tax and an increase in effective tax rate. The effective tax rate increased from 24.2% in fiscal 2022 to 25.0% in fiscal 2023 due to change in composition of income.
As a result of the above, the profit after tax increased by 35.5% from Rs. 251.1 billion in fiscal 2022 to Rs. 340.4 billion in fiscal 2023.
Net worth (equity share capital and reserves and surplus) increased from Rs. 1,820.5 billion at year-end fiscal 2022 to Rs. 2,145.0 billion at year-end fiscal 2023 primarily due to accumulation of retained earnings. Total assets and liabilities increased by 11.7% from Rs. 17,526.4 billion at year-end fiscal 2022 to Rs. 19,584.9 billion at year-end fiscal 2023. Total advances increased by 17.8% from 9,203.1 billion at year-end fiscal 2022 to Rs. 10,838.7 billion at year-end fiscal 2023. Total deposits increased by 10.9% from Rs. 10,913.7 billion at year-end fiscal 2022 to Rs. 12,108.3 billion at year-end fiscal 2023.
The changes in capital adequacy ratios of ICICI Bank on an unconsolidated basis (after deducting the proposed dividend for fiscal 2023 from capital funds) in accordance with the Reserve Bank of India’s guidelines on Basel III were as follows: common equity Tier 1 risk-based capital ratio decreased from 17.60% in fiscal 2022 to 17.12% is fiscal 2023; Tier 1 risk-based capital ratio decreased from 18.35% in fiscal 2022 to 17.60% in fiscal 2023; and total risk-based capital ratio decreased from 19.16% in fiscal 2022 to 18.34% in fiscal 2023. The decrease in total risk-based capital ratio is primarily due to an increase in the credit risk exposure and market risk exposure. Credit risk exposure increased primarily due to an increase in advances and off balance sheet exposures. Market risk exposure increased primarily due to an increase in investment in government securities and an increase in notional amount of interest rate swaps and forward rate agreements during the year. The changes in our capital adequacy ratios on a consolidated basis in accordance with the Reserve Bank of India’s guidelines on Basel III, at year-end fiscal 2023 were as follows: common equity Tier 1 risk-based capital ratio decreased from 17.34% in fiscal 2022 to 16.88% in fiscal 2023; Tier 1 risk-based capital ratio decreased from 18.02% in fiscal 2022 to 17.33% in fiscal 2023; and total risk-based capital ratio decreased from 18.87% in fiscal 2022 to 18.09% in fiscal 2023.
Business Outlook
Uncertainties in the global economy have increased considerably following the global geo-political environment, stress in the United States regional banking sector and elevated inflation pressures in developed economies such as the United States, Euro-zone and the United Kingdom. As the Russia-Ukraine war continues, upside risks to the energy price outlook continue. At the same time, any further deterioration or signs of stress in the U.S. regional banking sector could pose substantial downside risks to the United States and, subsequently, global growth outlook. Elevated inflation in several developed economies would require continued tight monetary policy. This might restrict capital flows into India and other emerging economies. The spill-over of these risks to the Indian economy needs to be monitored carefully. Slower global growth is likely to pose a headwind to India’s growth by way of lower exports. However, lower global commodity prices are also likely to benefit India in several ways: by keeping inflation low, improving corporate profitability, lowering import bill and reducing pressure on Indian rupee.
152
Over the medium term, the outlook for Indian economy remains positive. India recently overtook China as the most populous country in the world, supporting its large domestic market and the potential for consumption growth. Investments are also likely to increase because of the strong infrastructure push by the government, improved balance sheets of corporations and banks, and rising capacity utilization. Lastly, the net imports, includes merchandise and services, which typically posed a headwind for the Indian economy could have less impact on growth if the recent momentum witnessed in services exports is sustained.
Our long-term strategy will continue to focus on growing our core operating profit less provisions within the guardrails of risk and compliance. We focus on creating holistic value propositions for our customers by adopting a 360-degree customer-centric approach and capturing opportunities across customer ecosystems, leveraging internal synergies, building partnerships and simplifying processes. Cross-functional collaboration among teams has been facilitated to tap into key customer and market segments, enabling 360-degree coverage of customers and increasing wallet share. We have also streamlined our organisation structure and empowered teams at the local level to create flexibility and agility in capturing business opportunities. This improves our ability to connect with customers and respond to their needs.
Technology is core to our business strategy. We are creating digital experiences and aim to offer personalised and customized solutions to customers to suit their life-stage and business needs. We partner with technology companies and platforms to leverage opportunities for growth and enhancing service delivery and customer experience. We leverage technology and analytics for deeper insights into market opportunities, customer needs and behavior. We continue to invest in technology to enhance our offerings to customers as well as the scalability, flexibility and resilience of our technology architecture.
We have over the years re-balanced our deposit profile, improved the credit rating profile of our portfolio and reduced concentration risks. We also improved cost efficiency, scaled up retail loan growth, calibrated corporate loan growth and maintained high capital adequacy ratios. We have repositioned our international franchise to focus on non-resident Indians for deposits, wealth and remittances businesses and deepen relationships with well-rated Indian corporates in international markets and multinational companies for maximizing the India-linked trade, transaction banking and lending opportunities within our risk management framework. Our gross non-performing loans ratio has decreased and the provisioning coverage on non-performing loans has increased in fiscal 2023. See also, “Business—Strategy.”
Our success will be determined by our ability to respond to the evolving economic environment, maintain a strong balance sheet with adequate buffers of liquidity and capital, strong risk management and business continuity planning, as well as the behavior of our loan portfolio vis-à-vis comparable banks and finance companies. Generally, the success of our strategy depends on several factors, including our ability to grow our deposit base, grow our loan book profitably, contain non-performing loans, resolve stressed assets at an early stage, maintain regulatory compliance in an evolving regulatory environment, address regulators’ assessments of and observations on our operations, and compete effectively in the Indian corporate and retail financial services market. Regulations governing the financial sector in India, including banking, insurance and asset management, continue to evolve, with a potential impact on the growth and profitability of financial services groups such as us. The success of our strategy is also subject to the overall regulatory and policy environment in which we operate including the direction of monetary policy. Our ability to execute our strategy will also depend on the liquidity and interest rate environment. See also “Risk Factors—Risks Relating to Our Business—Our banking and trading activities are 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, the quality of our loan portfolio and our financial performance”. With regard to our overseas banking subsidiaries, the impact on the global economy due to geopolitical factors, inflation and monetary policy and other global developments are expected to impact economic growth in Canada and the United Kingdom, which in turn could impact the business of our banking subsidiaries in these countries. See also “Risk Factors—Risks Relating to Our Business—The exposures of our international branches and banking subsidiaries could generally affect our business, financial condition and results of operations.”
For a detailed discussion of risks that we face in our business please refer to “Risk Factors”.
153
Operating Results Data
The following table sets forth, for the periods indicated, our summary results data.
Year ended March 31, | ||||||||||||
2022 | 2023 | 2023(1) | ||||||||||
(in millions, except per common share data) | ||||||||||||
Selected income statement data: | ||||||||||||
Interest earned(2) | Rs. | 954,069 | Rs. | 1,210,668 | US$ | 14,730 | ||||||
Interest expended | (411,667 | ) | (505,434 | ) | (6,150 | ) | ||||||
Net interest income | 542,402 | 705,234 | 8,580 | |||||||||
Other income | 621,295 | 651,120 | 7,922 | |||||||||
Net total income | 1,163,696 | 1,356,354 | 16,502 | |||||||||
Operating expenses | ||||||||||||
Payments to and provisions for employees | (123,416 | ) | (152,342 | ) | (1,854 | ) | ||||||
Expenses pertaining to insurance business | (398,763 | ) | (416,551 | ) | (5,068 | ) | ||||||
Other operating expenses(3) | (209,338 | ) | (255,497 | ) | (3,109 | ) | ||||||
Total operating expenses | (731,517 | ) | (824,390 | ) | (10,031 | ) | ||||||
Operating profit before provisions | 432,179 | 531,964 | 6,471 | |||||||||
Provisions and contingencies (excluding provision for tax) | (89,766 | ) | (69,399 | ) | (844 | ) | ||||||
Share of profit in associates | 7,544 | 9,983 | 121 | |||||||||
Profit before tax | 349,957 | 472,548 | 5,748 | |||||||||
Provision for tax | (84,574 | ) | (117,934 | ) | (1,435 | ) | ||||||
Profit after tax | 265,383 | 354,614 | 4,313 | |||||||||
Minority interest | (14,282 | ) | (14,248 | ) | (173 | ) | ||||||
Net profit (after minority interest) | 251,101 | 340,366 | 4,140 | |||||||||
Profitability: | ||||||||||||
Net profit (after minority interest) as a percentage of: | ||||||||||||
Average total assets | 1.57% | 1.87% | ||||||||||
Average stockholders’ equity | 15.05 | 17.22 | ||||||||||
Per common share: | ||||||||||||
Earnings-basic(4) | Rs. | 36.21 | Rs. | 48.86 | US$ | 0.59 | ||||||
Earnings-diluted(5) | 35.44 | 47.84 | 0.58 | |||||||||
Book value(6) | Rs. | 250.41 | Rs. | 296.12 | US$ | 3.6 | ||||||
Dividend payout ratio(7) | 13.84% | 16.41% | ||||||||||
Cost-to-income ratio(8) | 62.86 | 60.78 | ||||||||||
Cost-to-average assets ratio(9) | 4.59 | 4.52 | ||||||||||
Capital | ||||||||||||
Average stockholders’ equity as a percentage of average total assets(10) | 10.46% | 10.84% |
154
(1) | Rupee amounts for fiscal 2023 have been translated into U.S. dollars using the exchange rate of Rs. 82.19 = US$ 1.00 as set forth in the H.10 statistical release of the Federal Reserve Board at year-end fiscal 2023. |
(2) | Interest earned includes interest on |
(3) | Includes depreciation on fixed assets and other |
(4) | Earnings per share is computed based on the weighted average number of shares and represents net profit/(loss) per share before dilutive impact. |
(5) | Earnings per share is computed based on the weighted average number of shares and represents net profit/(loss) per share adjusted for full dilution. Options to purchase 24,643,450 and 24,312,910 equity shares granted to employees at a weighted average exercise price of Rs. 570.4 and Rs. 748.0 were outstanding at year-end fiscal 2022 and 2023 respectively, but were not included in the computation of diluted earnings per share as these options were anti-dilutive. |
(6) | Represents capital, employees’ stock options outstanding and reserves and surplus reduced by deferred tax asset and goodwill. |
(7) | Represents the ratio of total dividends paid on equity share capital as a percentage of net profit (after minority interest). Dividends for a fiscal year are normally paid in the following year. |
(8) | Represents the ratio of operating expenses to total income. Total income represents the sum of net interest income and non-interest income. |
(9) | Represents the ratio of operating expenses to average total assets. |
(10) | Represents the ratio of average stockholders’ equity to average total assets. Average stockholders’ equity represents average capital, employees’ stock options outstanding and reserves and surplus reduced by preference share capital. Average total assets represents total of average interest-earning assets and average non-interest earning assets. |
Consolidated Income Information
Net Interest Income
The following table sets forth, for the periods indicated, the principal components of net interest income.
Year ended March 31, | ||||||||||||||||
2022 | 2023 | 2023 | 2023/2022 | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Interest earned(1) | Rs. | 954,069 | Rs. | 1,210,668 | US$ | 14,730 | 26.9% | |||||||||
Interest expense | (411,667 | ) | (505,434 | ) | (6,150 | ) | 22.8 | |||||||||
Net interest income | Rs. | 542,402 | Rs. | 705,234 | US$ | 8,580 | 30.0% |
_______________________
(1) | Tax exempt income has not been |
155
Yields, Spreads and Margins
The following table sets forth, for the periods indicated, the yields, spreads and net interest margins on interest-earning assets.
Year ended March 31, | ||||||||||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | ||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||
Interest income(1) | Rs. | 451,516 | Rs. | 497,393 | Rs. | 552,291 | Rs. | 594,980 | 611,895 | |||||||||||
Average interest-earning assets | 5,272,489 | 5,830,625 | 6,449,192 | 7,246,635 | 7,911,740 | |||||||||||||||
Interest expense | 282,854 | 297,106 | 323,182 | 339,965 | 348,358 | |||||||||||||||
Average interest-bearing liabilities | 4,556,099 | 4,996,433 | 5,445,790 | 6,094,406 | 6,630,273 | |||||||||||||||
Average total assets | 6,394,436 | 7,037,002 | 7,689,402 | 8,490,942 | 9,361,464 | |||||||||||||||
Average interest-earning assets as a percentage of average total assets | 82.45 | % | 82.86 | % | 83.87 | % | 85.35 | % | 84.51 | % | ||||||||||
Average interest-bearing liabilities as a percentage of average total assets | 71.25 | 71.00 | 70.82 | 71.78 | 70.83 | |||||||||||||||
Average interest-earning assets as a percentage of average interest-bearing liabilities | 115.72 | 116.70 | 118.43 | 118.91 | 119.33 | |||||||||||||||
Yield | 8.56 | 8.53 | 8.56 | 8.21 | 7.73 | |||||||||||||||
Rupee | 9.95 | 9.95 | 9.97 | 9.53 | 8.85 | |||||||||||||||
Foreign currency | 4.52 | 4.41 | 4.34 | 4.10 | 3.69 | |||||||||||||||
Cost of funds | 6.21 | 5.95 | 5.93 | 5.57 | 5.25 | |||||||||||||||
Rupee | 7.57 | 7.34 | 7.16 | 6.76 | 6.13 | |||||||||||||||
Foreign currency | 3.32 | 3.16 | 3.41 | 3.05 | 2.97 | |||||||||||||||
Spread(2) | 2.35 | 2.58 | 2.63 | 2.64 | 2.48 | |||||||||||||||
Rupee | 2.38 | 2.61 | 2.81 | 2.77 | 2.72 | |||||||||||||||
Foreign currency | 1.20 | 1.25 | 0.93 | 1.05 | 0.72 | |||||||||||||||
Net interest margin(3) | 3.20 | 3.44 | 3.55 | 3.52 | 3.33 | |||||||||||||||
Rupee | 3.98 | 4.31 | 4.54 | 4.41 | 4.11 | |||||||||||||||
Foreign currency | 0.90 | 0.89 | 0.58 | 0.74 | 0.51 | |||||||||||||||
Year ended March 31, | ||||||||
2022 | 2023 | |||||||
(in millions, except percentages) | ||||||||
Interest earned(1) | Rs. | 954,115 | Rs. | 1,210,702 | ||||
Average interest-earning assets | 13,743,590 | 15,859,535 | ||||||
Interest expense | 411,666 | 505,434 | ||||||
Average interest-bearing liabilities | 11,234,035 | 12,851,469 | ||||||
Average total assets | 15,944,038 | 18,228,389 | ||||||
Average interest-earning assets as a percentage of average total assets | 86.20% | 87.00% | ||||||
Average interest-bearing liabilities as a percentage of average total assets | 70.46 | 70.50 | ||||||
Average interest-earning assets as a percentage of average interest-bearing liabilities | 122.34 | 123.41 | ||||||
Yield | 6.94 | 7.63 | ||||||
Rupee | 7.71 | 8.11 | ||||||
Foreign currency | 1.48 | 3.32 | ||||||
Cost of funds | 3.66 | 3.93 | ||||||
Rupee | 3.88 | 4.08 | ||||||
Foreign currency | 1.47 | 2.35 | ||||||
Spread(2) | 3.28 | 3.70 | ||||||
Rupee | 3.82 | 4.03 | ||||||
Foreign currency | 0.01 | 0.97 | ||||||
Net interest margin(3) | 3.95 | 4.45 | ||||||
Rupee | 4.42 | 4.75 | ||||||
Foreign currency | 0.59% | 1.71% |
___________________
(1) | We have re-calculated tax-exempt income on a tax-equivalent basis. The impact of re-calculation of tax-exempt income on a tax equivalent basis was Rs. |
(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 |
(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. |
Net Interest Income
The following table sets forth, for the periods indicated, the principal components of net interest income.
Year ended March 31, | ||||||||||||||||
2016 | 2017 | 2017 | 2017/2016 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Interest income(1) | Rs. | 592,937 | Rs. | 609,399 | US$ | 9,397 | 2.8 | % | ||||||||
Interest expense | (339,965 | ) | (348,358 | ) | (5,372 | ) | 2.5 | % | ||||||||
Net interest income | Rs. | 252,972 | Rs. | 261,041 | US$ | 4,025 | 3.2 | % | ||||||||
Net interest income increased by 3.2%30.0% from Rs. 253.0542.4 billion in fiscal 20162022 to Rs. 261.0705.2 billion in fiscal 2017,2023, reflecting an increase of 9.2%15.4% in the average volume of interest-earning assets offset, in part, by a decreaseand an increase in net interest margin by 1950 basis points.
156
Net interest margin
Net interest margin on the rupee portfolio decreasedincreased by 3033 basis points from 4.41%4.42% in fiscal 20162022 to 4.11%4.75% in fiscal 20172023 and net interest margin on the foreign currency portfolio decreasedincreased by 23112 basis points from 0.74%0.59% in fiscal 20162022 to 0.51%1.71% in fiscal 2017. The decrease in overall2023. Overall net interest margin was lower at 19increased by 50 basis points (from 3.52%from 3.95% in fiscal 20162022 to 3.33%4.45% in fiscal 2017) primarily due2023. The yield on average interest-earning assets increased by 69 basis points from 6.94% in fiscal 2022 to an increase7.63% in proportionfiscal 2023. The cost of the rupee portfolio, which has relatively higher margins,funds increased by 27 basis points from 3.66% in the total portfolio.fiscal 2022 to 3.93% in fiscal 2023.
The yield on the rupee portfolio decreasedincreased by 6841 basis points from 9.53%7.71% in fiscal 20162022 to 8.85%8.11% in fiscal 20172023 primarily due to the following:
· | The yield on rupee advances |
· | The yield on rupee advances |
The Reserve Bank of India increased the repo rate by 250 basis points from 4.00% in May 2022 to 6.50% in February 2023. The Bank increased the 1-year marginal cost of funds based lending rate by 150 basis points in phases during fiscal 2023. The impact of increase in repo rates from May 2022 started reflecting in overall yield through repricing of repo and treasury bill linked portfolio from second quarter of fiscal 2023. For marginal cost of funds based lending rate linked loans, the effect on the yields started reflecting from the respective reset dates of underlying loans. At March 31, 2023, of the total domestic loan book of ICICI Bank on a standalone basis, 30% had fixed interest rates, 45% had interest rates linked to repo rate, 20% had interest rates linked to the marginal cost of funds based lending rate and other older benchmarks and 5% had interest rates linked to other external benchmarks. See also “Business—Loan portfolio—Loan pricing”.
· | The yield on |
· | The yield on other interest-earning rupee assets decreased by |
· | Interest on income tax refunds |
157
The cost of funds for the rupee portfolio decreasedincreased by 6320 basis points from 6.76%3.88% in fiscal 20162022 to 6.13%4.08 % in fiscal 20172023 primarily due to the following factors:
· | The cost of rupee deposits |
The cost of rupee term deposits increased by 20 basis points from 4.64% in fiscal 2022 to 4.84% in fiscal 2023 primarily due to an increase in retail term deposits rates during fiscal 2023. The peak rate for retail term deposits of the Bank increased significantly from 5.75% in May 2022 to 7.10% in March 2023 in phases during fiscal 2023 on account of significant increase in repo rate by the Reserve Bank of India. The full impact of the rise in interest rates on deposits will be reflected in fiscal 2024. The cost of savings account deposits increased from 3.15% in fiscal 2022 to 3.17% in fiscal 2023. The average rupee current account and savings account deposits as a percentage of total average rupee deposits were 44.7% in fiscal 2023 as compared to 44.5% in fiscal 2022.
· | The cost of rupee borrowings |
The total average rupee deposits of the Bank as a percentage of total average rupee funding decreased from 92.7% in fiscal 2022 to 91.4% in fiscal 2023.
Net interest margin on the foreign currency portfolio increased by 112 basis points from 0.59% in fiscal 2022 to 1.71% in fiscal 2023. Average interest-earning foreign currency assets decreased by 6.2% from Rs. 1,688.2 billion in fiscal 2022 to Rs. 1,583.2 billion in fiscal 2023. Average interest-bearing foreign currency liabilities increased by 6.0% from Rs. 1,025.2 billion in fiscal 2022 to Rs. 1,086.4 billion in fiscal 2023. During fiscal 2022 and fiscal 2023, the Bank converted a part of the excess rupee liquidity into foreign currency and deployed the same in foreign currency placements/investments. This has resulted in average foreign currency assets being significantly higher than average foreign currency liabilities.
The yield on our foreign currency portfolio decreasedincreased by 41184 basis points from 4.10%1.48% in fiscal 20162022 to 3.69%3.32% in fiscal 20172023 primarily due to the following:
· | The yield on average |
· | The yield on average |
· | The yield on average |
158
The cost of funds for the foreign currency portfolio decreasedincreased by 888 basis points from 3.05%1.47% in fiscal 20162022 to 2.97%2.35% in fiscal 2017,2023, due to the following factors:
· | The cost of funds for ICICI Bank’s foreign currency funding |
· | The cost of funds of ICICI Bank UK |
· | The cost of funds of ICICI Bank Canada |
Our interest income, yield on advances, interest earned, net interest income and net interest margin are likelyimpacted by systemic liquidity conditions, movements in interest rates, the competitive environment, the level of additions to continuenon-performing loans, regulatory developments, monetary policy and economic and geo-political factors. These developments may have an adverse impact on the net interest margin. The timing and quantum of recoveries and interest on income tax refund is uncertain.
Interest rates on approximately 49.9% of ICICI Bank’s domestic loans are linked to be impacted going forward, due to the non-accrual of income on non-performing assets and loans under the strategic debt restructuring/change in management scheme and the scheme for sustainable structuring of stressed assets, the increased proportion of secured retail advances in total advances, focus on lending to higher rated corporates, changes in benchmark lending rates and competitiveexternal market conditions. Further, during November 2016-March 2017, there was a significant increase in savings and current account deposits following the government of India’s decision to withdraw high denomination currency notes resulting in a sharp increase in liquiditybenchmarks. The differential movements in the banking system. While this resulted in a decline in theexternal benchmark rates compared to cost of funds for us, the decline in lending rates have been higher as banks seek to deploy the excess liquidity in an environment with low credit demand. Further, existing customers with floating rate loans also repriced to the lower rate. This is likely to impact our interest income, yield on advances, net interest income and net interest margin.
Interest-earning assets
The average volume of interest-earning assets increased by 9.2%15.4% from Rs. 7,246.613,743.6 billion in fiscal 20162022 to Rs. 7,911.715,859.5 billion in fiscal 2017.2023. The increase in average interest-earning assets was primarily due to an increase in average advances by Rs. 323.81,697.7 billion and an increase in average interest-earning investments by Rs. 253.3612.6 billion, offset, in part, by a decrease in average other interest-earning assets by Rs. 194.4 billion.
Average advancesThe average volume of rupee interest-earning assets increased by 6.9%18.4% from Rs. 4,672.612,055.4 billion in fiscal 20162022 to Rs. 4,996.414,276.4 billion in fiscal 2017. Average rupee advances increased by 13.5% from Rs. 3,117.6 billion in fiscal 2016 to Rs. 3,539.2 billion in fiscal 20172023 primarily due to an increase in retail advances.average advances and average investments, offset, in part, by a decrease in average other interest-earning assets. Average foreign currencyrupee advances decreasedincreased by 6.3%23.4% from Rs. 1,555.07,334.0 billion in fiscal 20162022 to Rs. 1,457.29,059.7 billion in fiscal 20172023. Average rupee investments increased by 18.7% from Rs. 3,558.9 billion in fiscal 2022 to Rs. 4,223.4 billion in fiscal 2023 primarily due to an increase in average investments in Indian government securities. Average other rupee interest-earning assets decreased by 13.8% from Rs. 1,152.6 billion in fiscal 2022 to Rs. 993.3 billion in fiscal 2023 primarily due to a decrease in advanceslending to the Reserve Bank of ICICI Bank and ICICI Bank UK on account of prepayment and repayment of advances and maturities of loans against foreign currency non-resident deposits.
Average interest-earning investments increasedIndia under liquidity adjustment facility, offset, in part, by 12.9% from Rs. 1,969.4 billion in fiscal 2016 to Rs. 2,222.7 billion in fiscal 2017. Average rupee investments increased by 13.0% from Rs. 1,863.9 billion in fiscal 2016 to Rs. 2,105.7 billion in fiscal 2017 primarily due to an increase in investments in Indian government securities by 12.8% from Rs. 1,349.5 billion in fiscal 2016 to Rs. 1,521.6 billion in fiscal 2017. Average other rupee investments increased by 13.5% from Rs. 514.4 billion in fiscal 2016 to Rs. 584.1 billion in fiscal 2017.
Interest-earning rupee investments, other than Indian government securities include investments in corporate bonds and debentures, certificates of deposits, commercial paper, pass through certificates and liquid mutual funds. Average foreign currency investments increased by 10.9% from Rs. 105.5 billion in fiscal 2016 to Rs. 117.0 billion in fiscal 2017.
Average other interest-earning assets increased by 14.6% from Rs. 604.7 billion in fiscal 2016 to Rs. 692.7 billion in fiscal 2017 primarily due to an increase in balances with the Reserve Bank of India and call money lent,to maintain cash reserve ratio.
159
The average volume of foreign currency interest-earning assets decreased by 6.2% from Rs. 1,688.2 billion in fiscal 2022 to Rs. 1,583.2 billion in fiscal 2023. Average foreign currency advances decreased by 1.8% from Rs. 975.1 billion in fiscal 2022 to Rs. 957.1 billion in fiscal 2023. Average foreign currency investments decreased by 25.1% from Rs. 207.0 billion in fiscal 2022 to Rs. 155.1 billion in fiscal 2023 primarily due to a decrease in investments in treasury bills by ICICI Bank Canada, offset, in part, by an increase in investments in banker’s acceptances and bonds by ICICI Bank Canada. Average other foreign currency interest-earning assets decreased by 6.9% from Rs. 506.0 billion in fiscal 2022 to Rs. 470.9 billion in fiscal 2023 primarily due to a decrease in average investment in Rural Infrastructure Development Fund and other related deposits.balances with banks outside India.
Interest-bearing liabilities
Average interest-bearing liabilities increased by 8.8%14.4% from Rs. 6,094.411,234.0 billion in fiscal 20162022 to Rs. 6,630.312,851.5 billion in fiscal 20172023 primarily due to an increase in average deposits by Rs. 557.71,207.0 billion and average borrowings by Rs. 410.4 billion.
Average interest-bearing rupee liabilities increased by 15.5%15.2% from Rs. 4,155.710,208.8 billion in fiscal 20162022 to Rs. 4,798.711,765.1 billion in fiscal 2017.2023. Average rupee time deposits increased by 14.4%12.6% from Rs. 1,891.65,094.1 billion in fiscal 20162022 to Rs. 2,163.85,735.6 billion in fiscal 2017.2023. Average rupee current account and savings account deposits increased by 24.3%13.6% from Rs. 1,448.14,084.7 billion in fiscal 20162022 to Rs. 1,800.54,641.6 billion in fiscal 2017 which includes the impact of significantly higher current account and savings account deposits inflows in the second half of the fiscal 2017 following the withdrawal of legal tender status of high denomination currency notes by the government of India.2023. Average rupee borrowings increased by 2.3%34.8% from Rs. 815.91,030.0 billion in fiscal 20162022 to Rs. 834.51,387.9 billion in fiscal 2017.2023. Average borrowings of ICICI Bank increased primarily due to an increase in bond borrowings, refinance borrowings and repo borrowings.
Average interest-bearing foreign currency liabilities decreasedincreased by 5.5%6.0% from Rs. 1,938.71,025.2 billion in fiscal 20162022 to Rs. 1,831.51,086.4 billion in fiscal 2017.2023 due to an increase in borrowings. Average foreign currency borrowings increased by 10.5% from Rs. 497.8 billion in fiscal 2022 to Rs. 550.3 billion in fiscal 2023 primarily due to an increase in borrowings of ICICI Bank, offset, in part, by a decrease in borrowings of ICICI Bank UK PLC and ICICI Bank Canada. Average borrowings of ICICI Bank increased primarily due to an increase in term money borrowings. Average borrowings of ICICI Bank UK PLC decreased primarily due to maturity of long-term borrowings. Average borrowings of ICICI Bank Canada decreased primarily due to reduction in treasury and securitized borrowings. Average foreign currency deposits decreasedincreased by 11.1%1.6% from Rs. 600.7527.4 billion in fiscal 20162022 to Rs. 533.9536.1 billion in fiscal 2017.2023. Average foreign currency deposits of ICICI Bank decreasedincreased primarily due to redemption ofan increase in foreign currency non-resident (bank) deposits mobilized during fiscal 2014.deposits. Average deposits of ICICI Bank UK decreased primarily due to a decrease in corporate term deposits and saving deposits.
Average foreign currency borrowings decreased by 3.0% from Rs. 1,338.0 billion in fiscal 2016 to Rs. 1,297.6 billion in fiscal 2017. The foreign currency borrowings of ICICI BankPLC decreased primarily due to a decrease in term borrowings.deposits and retail savings deposits, offset, in part, by an increase in current deposits. Average borrowingsforeign currency deposits of ICICI Bank Canada increased primarily on account ofdue to an increase in borrowings through securitization of mortgages. Average borrowings of ICICI Bank UK decreased primarily due to a decrease in repo borrowings. term deposits.
See also “Risk Factors—Risks Relating to Our Business—Our banking and trading activities are 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, the quality of our loan portfolio and our financial performance”.
Non-Interest160
Other Income
The following table sets forth, for the periods indicated, the principal components of non-interestother income.
Year ended March 31, | ||||||||||||||||
2016 | 2017 | 2017 | 2017/2016 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Commission, exchange and brokerage | Rs. | 87,697 | Rs. | 96,344 | US$ | 1,486 | 9.9 | % | ||||||||
Profit/(loss) on treasury-related activities (net)(1) | 66,222 | 114,366 | 1,764 | 72.7 | ||||||||||||
Profit/(loss) on sale of land, buildings and other assets (net) | 264 | (14 | ) | (0)(2) | N/M | |||||||||||
Premium and other operating income from insurance business | 263,840 | 312,028 | 4,811 | 18.3 | ||||||||||||
Miscellaneous income | 2,998 | 1,853 | 28 | (38.2 | ) | |||||||||||
Total non-interest income | Rs. | 421,021 | Rs. | 524,577 | US$ | 8,089 | 24.6 | % | ||||||||
N/M- Not meaningful
Year ended March 31, | ||||||||||||||||
2022 | 2023 | 2023 | 2023/2022 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Commission, exchange and brokerage | Rs. | 172,884 | Rs. | 196,485 | US$ | 2,391 | 13.7% | |||||||||
Income from treasury-related activities (net) | 55,060 | 41,921 | 510 | (23.9 | ) | |||||||||||
- Profit/(loss) on exchange/derivative transactions (net) | 29,933 | 30,509 | 371 | 1.9 | ||||||||||||
-Profit/(loss) on other treasury-related activities(1) | 25,127 | 11,412 | 139 | (54.6 | ) | |||||||||||
Profit/(loss) on sale of land, buildings and other assets (net) | 57 | 543 | 7 | — | ||||||||||||
Premium and other operating income from insurance business | 389,596 | 411,368 | 5,005 | 5.6 | ||||||||||||
Miscellaneous income | 11,242 | 10,786 | 131 | (4.1 | ) | |||||||||||
- Share of profit in associates | 7,544 | 9,983 | 121 | 32.3 | ||||||||||||
-Others | 3,698 | 803 | 10 | (78.3 | ) | |||||||||||
Total other income (including share of profit in associates) | Rs. | 628,839 | Rs. | 661,103 | US$ | 8,044 | 5.1% |
_____________________
(1) | Includes profit/(loss) on the |
Non-interestOther income primarily includes income pertaining to our insurance business, commission, exchange and brokerage income, profit/(loss) on treasury-related activities and other miscellaneous income. This analysis of non-interestother income should be read against the backdrop of global and Indian economic developments, financial market activities, the competitive environment, client activity levels and our strategy, as detailed in earlier sections.
Non-interestOther income increased by 24.6%5.1% from Rs. 421.0628.8 billion in fiscal 20162022 to Rs. 524.6661.1 billion in fiscal 20172023 primarily due to an increase in commission, exchange and brokerage income and net earned premium and other operating income relating to insurance business, andoffset, in part, by a decrease in income from treasury-relatedtreasury related activities.
Commission, exchange and brokerage
Commission, exchange and brokerage income primarily includes fees from our banking business as well as fee and brokerage income of our securities broking, asset management and venture capitalprivate equity fund management subsidiaries. The fee income of our banking business primarily includes fees from corporate clients, such as loan processinglending linked fees, commercialand transaction banking fees such as fees on cash management services, commission on bank guarantees, letters of credit and structuring fees andbills discounting. The fee income of our banking business also includes fees from retail customers includes loan processingsuch as lending linked fees and transaction banking fee such as credit card related fees, debit card related fees and service charges on retail deposit accounts.
Commission, exchange and brokerage income increased by 9.9% from Rs. 87.7172.9 billion in fiscal 20162022 to Rs. 96.3196.5 billion in fiscal 2017. Commission, exchange2023 primarily due to an increase in transaction banking fees, lending linked fees, and brokerage income of ICICI Bankfund management fees. Transaction banking fees increased from Rs. 74.678.9 billion in fiscal 20162022 to Rs. 80.398.8 billion in fiscal 2017. The commission, exchange and brokerage income of ICICI Bank increased2023 primarily due to an increase in fee income from retail customers such as credit card fees, fees from retail deposit customerscards and lendingdebit cards. Lending linked fees on retail loans, offset,increased from Rs. 33.0 billion in part, by a decreasefiscal 2022 to Rs. 39.6 billion in commercial bankingfiscal 2023. Fund management fees and corporate lending linked fees.increased from Rs. 24.7 billion in fiscal 2022 to Rs. 27.5 billion in fiscal 2023. Securities brokerage income decreased from Rs. 15.5 billion in fiscal 2022 to Rs. 12.6 billion in fiscal 2023. Third party products distribution fees increased from Rs. 9.4 billion in fiscal 2022 to Rs. 10.3 billion in fiscal 2023.
Management fees161
Income from treasury-related activities (net)Treasury-Related Activities (Net)
Income from treasury-related activities includes income from the sale of investments and the revaluation of investments on account of changes in unrealized profit/(loss) in the fixed income, equity and preference share portfolio, units of venture capital and private equity funds, units of mutual funds and security receipts issued by asset reconstruction companies. Further, it also includes income from foreign exchange transactions, consisting of various foreign exchange and derivatives transactions with clients, including options and swaps.
Income from treasury-related activities increased by 72.7%decreased from Rs. 66.255.1 billion in fiscal 20162022 to Rs. 114.441.9 billion in fiscal 2017 primarily due to higher gains on sale of equity investments and government securities and other fixed income positions.2023.
Income from our equity portfolio increaseddecreased from Rs. 28.716.9 billion in fiscal 20162022 to Rs. 57.510.7 billion in fiscal 2017. Income from equity portfolio in fiscal 2016 primarily included a gain of Rs. 16.1 billion on sale of shares of ICICI Prudential Life Insurance Company Limited and Rs. 12.3 billion on sale of shares of ICICI Lombard General Insurance Company Limited. Income from our equity portfolio in fiscal 2017 primarily included a gain of Rs. 51.3 billion on sale of stake in ICICI Prudential Life Insurance Company Limited through an initial public offer.2023.
IncomeThere was a loss from our government securities portfolio and other fixed income positions increased fromof Rs. 14.91.5 billion in fiscal 20162023 due to unfavourable market conditions, as compared to a gain of Rs. 39.35.6 billion in fiscal 2017. Yields2022. The yields on the benchmark 10-year Governmentgovernment securities remained in the range of 7.0% to 7.5% during April-October 2016. Yields fell significantly following the withdrawal of legal tender status of Specified Bank Notes to around 6.2% in November 2016 resulting in increased market opportunities for profit-taking in fiscal 2017 compared to fiscal 2016. Thereafter yields increased to 6.7%from 6.84% at March 31, 2017.2022 to 7.31% at March 31, 2023.
Income from foreign exchange transactions, including transactions with clients and margins on derivatives transactions with clients, decreasedincreased from Rs. 22.929.9 billion in fiscal 20162022 to Rs. 14.630.5 billion in fiscal 2017. Till fiscal 2016, on the disposal/partial disposal of a non-integral foreign operation, the cumulative/proportionate
amount of the exchange differences which had been accumulated in the foreign currency translation reserve and which related to that operation were recognized as income or expenses in the same period in which the gain or loss on disposal was recognized. Accordingly, fiscal 2016 included a net exchange gain from repatriation of retained earnings from overseas operations of Rs. 9.4 billion. From fiscal 2017, the Bank does not recognize the cumulative/proportionate amount of such exchange differences as income or expenses, which relate to repatriation of accumulated retained earnings from overseas operations, based on guidelines issued by the Reserve Bank of India. Accordingly, the Bank did not recognize exchange gain of Rs. 2.9 billion on repatriation of retained earnings from its overseas operation in fiscal 2017.2023.
Income relating to ourPremium and other operating income from insurance business
IncomePremium and other operating income from our insurance business includes net premium income, fee and commission income, surrender charges and income on foreclosure of policies. Income from our insurance business increased by 18.3% from Rs. 263.8 billion in fiscal 2016 to Rs. 312.0 billion in fiscal 2017 due to an increase in income from both our life insurance and general insurance business.
IncomePremium and other operating income from our life insurance business increased by 5.6% from Rs. 210.0389.6 billion in fiscal 20162022 to Rs. 242.9411.4 billion in fiscal 2017.
2023. Net premium income of our life insurance subsidiary increased by 6.3% from Rs. 189.8362.1 billion in fiscal 20162022 to Rs. 221.0385.0 billion in fiscal 2017.2023. The premium income (gross of premium on reinsurance ceded) of ICICI Prudential Life Insurance Company increased by 16.6%6.6% from Rs. 191.6374.6 billion in fiscal 20162022 to Rs. 223.5399.3 billion in fiscal 20172023 primarily due to an increase in retail renewalgroup premium and retail new businessrenewal premium. Group premium increased by 28.1% from Rs. 67.3 billion in fiscal 2022 to Rs. 86.2 billion in fiscal 2023. Retail renewal premium increased by 18.5%4.4% from Rs. 120.0214.4 billion in fiscal 20162022 to Rs. 142.2223.8 billion in fiscal 2017.2023. Retail new business premium increaseddecreased by 29.4%3.8% from Rs. 54.593.0 billion in fiscal 20162022 to Rs. 70.789.4 billion in fiscal 2017. Group premium decreased from Rs. 17.1 billion in fiscal 2016 to Rs. 10.7 billion in fiscal 2017.
2023. Fee and other life insurance related income of our life insurance subsidiary increaseddecreased by 4.2% from Rs. 20.227.5 billion in fiscal 20162022 to Rs. 21.926.4 billion in fiscal 2017 primarily due to an increase in fund management charges and mortality charges.
Income from our general insurance business increased from Rs. 53.8 billion in fiscal 2016 to Rs. 69.1 billion in fiscal 2017. The net premium income of our general insurance subsidiary increased from Rs. 46.7 billion in fiscal 2016 to Rs. 60.1 billion in fiscal 2017 primarily due to an increase in crop/weather, motor and health insurance business. Commission income of our general insurance subsidiary increased from Rs. 7.1 billion in fiscal 2016 to Rs. 9.0 billion in fiscal 2017 primarily due to higher re-insurance commissions on crop/weather insurance business.2023.
Miscellaneous income
Miscellaneous income decreased from Rs. 3.011.2 billion in fiscal 20162022 to Rs. 1.910.8 billion in fiscal 2017.2023. The share of profit of ICICI Lombard General Insurance Company Limited, accounted as an affiliate, increased from Rs. 7.5 billion in fiscal 2022.to Rs. 10.0 billion in fiscal 2023. Other miscellaneous income decreased from Rs. 3.7 billion in fiscal 2022 to Rs. 0.8 billion in fiscal 2023.
Non-Interest162
Operating Expense
The following table sets forth, for the periods indicated, the principal components of non-interestoperating expense.
10,031 Year ended March 31, 2022 2023 2023 2023/2022
% change (in millions, except percentages) Payments to and provisions for employees Rs. 123,416 Rs. 152,342 US$ 1,854 23.4% Depreciation on own property 13,112 14,946 182 14 Auditor’s fees and expenses 220 249 3 13.2 Expenses pertaining to insurance business 398,763 416,551 5,068 4.5 Other operating expenses 196,007 240,302 2,924 22.6 Total operating expenses Rs. 731,518 Rs. 824,390 US$ 12.7%
Year ended March 31, | ||||||||||||||||
2016 | 2017 | 2017 | 2017/2016 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Payments to and provisions for employees | Rs. | 69,123 | Rs. | 78,933 | US$ | 1,217 | 14.2 | % | ||||||||
Depreciation on own property | 8,239 | 9,116 | 141 | 10.6 | ||||||||||||
Auditor’s fees and expenses | 230 | 251 | 4 | 9.1 | ||||||||||||
Depreciation on leased assets | 192 | 0 | (1) | 0 | (1) | (100.0 | ) | |||||||||
Expenses pertaining to insurance business | 232,710 | 276,982 | 4,271 | 19.0 | ||||||||||||
Other administrative expenses | 97,402 | 116,418 | 1,795 | 19.5 | ||||||||||||
Total non-interest expenses | Rs. | 407,896 | Rs. | 481,700 | US$ | 7,428 | 18.1 | % | ||||||||
Non-interest
Operating expense primarily includes expenses relating to our insurance business, payment to and provision for employees and other administrativeoperating expenses. Operating expenses increased by 18.1%12.7% from Rs. 407.9731.5 billion in fiscal 20162022 to Rs. 481.7842.4 billion in fiscal 20172023 primarily due to an increase in expenses related to insurance business, other administrative expenses and payments to and provisions for employees.employees and other operating expenses.
Payments to and provisions for employees
Employee expenses increased by 14.2%23.4% from Rs. 69.1123.4 billion in fiscal 20162022 to Rs. 78.9152.3 billion in fiscal 2017.2023. Our employee base, including sales executives, employees on fixed term contracts and interns, increased from 97,132130,542 at year-end fiscal 20162022 to 107,980157,799 at year-end fiscal 2017.2023.
The employee expenses of ICICI Bank increased by 14.6%24.7% from Rs. 50.096.7 billion in fiscal 20162022 to Rs. 57.3120.6 billion in fiscal 2017.2023. Employee expenses increased primarily due to higher salary on account of annual increments and promotions, an increase in average staff strength andsalary cost, higher provision for retirement benefit obligations and provision for performance bonus and performance-linked retention pay. Salary cost increased primarily due to movementannual increments and promotions and due to an increase in the discount rate linked to the yield on government securities.average staff strength. The average employee base of ICICI Bank, including sales executives, employees on fixed term contracts and interns, increased by 12.3% from 74,096101,233 employees at year-endin fiscal 20162022 to 82,841113,664 employees at year-endin fiscal 2017.2023.
EmployeeThe employee expenses of ICICI Bank Canada increased by 32.9% from Rs. 1.1 billion in fiscal 2022 to Rs. 1.5 billion in fiscal 2023. The employee expenses of ICICI Home Finance Company increased by 28.9% from Rs. 1.7 billion in fiscal 2022 to Rs. 2.3 billion in fiscal 2023. The employee expenses of ICICI Prudential Asset Management Company increased by 22.4% from Rs. 3.3 billion in fiscal 2022 to Rs. 4.0 billion in fiscal 2023. The employee expenses of ICICI Prudential Life Insurance Company increased by 9.3%20.6% from Rs. 7.512.0 billion in fiscal 20162022 to Rs. 8.214.5 billion in fiscal 2017. Employee expenses of ICICI Lombard General Insurance Company increased by 26.0% from Rs. 3.7 billion in fiscal 2016 to Rs. 4.7 billion in fiscal 2017.2023. The employee expenses of ICICI Securities Limited increased by 20.7%3.3% from Rs. 4.06.6 billion in fiscal 20162022 to Rs. 4.96.8 billion in fiscal 2017.2023.
Depreciation
Depreciation on owned propertyproperties increased by 10.6%14.0% from Rs. 8.213.1 billion in fiscal 20162022 to Rs. 9.114.9 billion in fiscal 2017 primarily due to an increase in fixed assets with higher depreciation rates.2023.
Other administrativeoperating expenses
163
Other administrativeoperating expenses primarily include rent, taxes and lighting, advertisement and publicity, repairs and maintenance, direct marketing agency expenses, premium on purchase of priority sector lending certificates and other expenditures. Other administrativeoperating expenses increased by 19.5%22.6% from Rs. 97.4196.0 billion in fiscal 20162022 to Rs. 116.4240.3 billion in fiscal 20172023.
Other operating expenses of ICICI Bank increased by 22.7% from Rs. 158.8 billion in fiscal 2022 to Rs. 194.8 billion in fiscal 2023 primarily due to an increase in expenses of ICICI Bank and our insurance subsidiaries. Other administrative expenses of ICICI Bank increased from Rs. 69.8 billion in fiscal 2016 to Rs. 82.6 billion in fiscal 2017 primarily due to an increase in the branch and ATM network and retail business volumes. The number of branches and extension counters (excluding foreign branches and offshore banking units) of ICICI Bank in India increased from 4,450 at year-end fiscal 2016 to 4,850 at year-end fiscal 2017. ICICI Bank also increased its ATM network from 13,766 ATMs at year-end fiscal 2016 to 13,882 ATMs at year-end fiscal 2017.
Other administrativeoperating expenses of our life insurance subsidiariessubsidiary increased from Rs. 24.5 billion in fiscal 2022 to Rs. 30.8 billion in fiscal 2023 primarily due to an increase in business supportadvertisement and sales related expenses.
Other operating expenses of our home finance subsidiary increased from Rs. 1.8 billion in fiscal 2022 to Rs. 2.7 billion in fiscal 2023 primarily due to increase in customer acquisition expenses, professional and legal expenses and advertisementother operating expenses which is in line with the increase in business volumes.on account of normalcy of business.
Other operating expenses of our asset management subsidiary increased from Rs. 3.3 billion in fiscal 2022 to Rs. 4.0 billion in fiscal 2023.
Other operating expenses of our securities subsidiary increased from Rs. 6.2 billion in fiscal 2022 to Rs. 6.5 billion in fiscal 2023.
Expenses related to our insurance business
Expenses related to our insurance business include claims and benefit payouts, commission expenses and reserves for actuarial liability (including the investible portion of the premium on unit-linked policies of our life insurance business). Expenses relating to our insurance business increased by 19.0%4.5% from Rs. 232.7398.8 billion in fiscal 20162022 to Rs. 277.0416.6 billion in fiscal 2017.2023.
The expenses related to our life insurance subsidiary increased by 4.4% from Rs. 190.4399.5 billion in fiscal 20162022 to Rs. 223.7417.0 billion in fiscal 20172023 primarily due to an increase in expenses relatedprovisions for policy holder liabilities (non-linked) from Rs. 135.0 billion in fiscal 2022 to reserves for actuarial liability (including the investible portion of the premium on unit-linked policies) and commission expenses, offset,Rs. 169.1 billion in part, by a decrease in claims and benefit payouts.fiscal 2023.
The reserves for the actuarial liability of the life insurance business (includingfor the investible portion of the premium on unit-linked policies) increasedpolicies decreased by 7.7% from Rs. 170.8194.0 billion in fiscal 20162022 to Rs. 209.2179.0 billion in fiscal 2017,2023 primarily due to an increasedecrease in the volume of our unit-linked insurance business.linked premium income. The investible portion of the premium on linked policies of our life insurance business represents the amount of premium, including renewal premium received on linked policies of life insurance business invested, after deducting charges and the premium for risk coverage, in the underlying fund. The claims and benefit payouts and commission expenses decreased from Rs. 19.6 billion in fiscal 2016 to Rs. 14.5 billion in fiscal 2017 primarily due to lower
surrenders, offset, in part, by an increase in death claims and maturity claims and higher commission expenses which is in line with the change in product-mix and an increase in total premium. In line with Indian accounting norms for insurance companies, we do not amortize the customer acquisition cost, but account for the expenses as incurred.
The expenses related to our general insurance subsidiary increased from Rs. 42.3 billion in fiscal 2016 to Rs. 53.3 billion in fiscal 2017 primarily due to an increase in claims and benefit payouts. Claims and benefit payouts increased from Rs. 39.3 billion in fiscal 2016 to Rs. 49.5 billion in fiscal 2017, reflecting an increase in business volume. The commission expenses increased from Rs. 3.0 billion in fiscal 2016 to Rs. 3.8 billion in fiscal 2017.
See also “Business—Overview of Our Products and Services—Insurance”.
Provisions and contingencies (excluding tax provisions)Contingencies (Excluding Provision For Tax)
Provisions for Non-performing AssetsNon-Performing Loans and Restructured Loans
ICICI Bank classifies its assets, including those in overseas branches, as performing and non-performing in accordance with the Reserve Bank of India guidelines. ICICI Home Finance CompanyThe Bank’s home finance subsidiary classifies its loans and other credit facilities in accordance with the guidelines of its regulator, the National Housing Bank. Our overseas banking subsidiaries classify a loanReserve Bank of India. Loans in the Bank’s United Kingdom subsidiary are classified as impaired only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition onof the loan (a loss event) and thethat loss event (or events) has an impact on the estimated future cash flows of the loans that can be reliably estimated. Loans in the Bank’s Canadian subsidiary are considered credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that loan have occurred. Under the Reserve Bank of India guidelines, non-performing assets are classified into sub-standard, doubtful and loss assets based on certain pre-defined criteria. Loans held at the overseas branches that are identified as impaired as per host country regulations for reasons other than record of recovery but which are standard as per the extant Reserve Bank of India guidelines are identified as non-performing assets to the extent the loan amount is outstanding in the host country. Our non-performing assets include
164
A loan is classified as restructuring, where a concessionary modification such as changes in repayment period, principal amount, repayment installment and reduction in rate of interest has been made and downgraded to non-performing. The restructuring of loans in the event of a natural calamity, restructuring involving deferment of date of commencement of commercial operations for projects under implementation and advancesrestructuring for certain medium and small medium enterprises continues to be classified as well as credit substitutes, which are funded credit exposures. Thestandard restructured loans. Further, the Reserve Bank of India has separate guidelinesthrough its guideline on ‘Resolution Framework for restructured loans. From April 1, 2015 onwards, loans that are restructured (other than dueCOVID-19-related Stress’ dated August 6, 2020 and May 5, 2021, provided a prudential framework to delay up toimplement a specified periodresolution plan in the infrastructure sector and non-infrastructure sector) are classifiedrespect of eligible borrowers, while classifying such exposures as non-performing, other than loans already restructured prior to March 31, 2015 or where the restructuring was proposed prior to April 1, 2015 and was effected subsequently within prescribed timelines. However, loans granted for implementation of projects in the infrastructure sector and the non-infrastructure sector that are restructured due to a delay in implementation of the project (up to a specified period) enjoy forbearance in asset classificationstandard, subject to the fulfillment of certain conditions stipulated by the Reserve Bank of India. See also “Business—Classification of Loans”.specified conditions.
The Bank has enhanced internal controls, relating to the review of loan accounts which satisfy certain threshold parameters, primarily relating to size, credit rating and days-past-due, for identification of non-performing assets.
ICICI Bank makes provisions on standard, sub-standard and doubtful and loss assets at rates prescribed byas per internal provisioning norms, subject to minimum provisioning requirements of the Reserve Bank of India. Loss assets and the unsecured portion of doubtful assets are fully provided for/For or written off as required by the Reserve Bank of India guidelines. For loans and advances of overseas branches, we makethe Bank makes provisions as per the Reserve Bank of India regulationsinternal provisioning norms or host country regulations, whichever is higher. We makeThe Bank holds specific provisions on retailagainst non-performing loans at the borrower leveland advances and against certain performing loans and advances in accordance with our retail assets provisioning policy, subject to the minimum provisioning levels prescribed by the Reserve Bank of India. We hold higher specific provisionsIndia directions. The Bank’s United Kingdom subsidiary maintains provision for loan losses at a level that management considers adequate to absorb identified credit related losses as well as losses that have occurred but are not yet identifiable. The Bank’s Canadian subsidiary maintains provision for all financial assets using expected credit loss model. The expected credit loss for impaired financial assets is computed based on individual assessment of expected cash flows from such assets.
In respect of non-retail loans reported as frauds to the Reserve Bank of India and classified in the doubtful category, the entire amount, without considering the value of security, is provided for over a period not exceeding four quarters starting from the quarter in which fraud has been detected. In respect of non-retail loans where there has been a delay in reporting the fraud to the Reserve Bank of India or which are classified as loss accounts, the entire amount is provided immediately. In the case of fraud in retail loans and advances thanaccounts, the minimum regulatory requirement.entire amount is provided immediately. We make provisions on restructured/rescheduled loans and advances in accordance with the applicable Reserve Bank of India guidelines on restructuring of loans and advances by banks.
In addition to the specific provision on non-performing assets, we maintain a general provision on standard loans and advances and restructured/rescheduled loans and advances at rates prescribed by the Reserve Bank of India. For standard loans and advances in overseas branches, we hold a general provision at the higher of host country regulatory requirements and the Reserve Bank of India requirements. The Bank also makes additional general provision on loans to specific borrowers in specific stressed sectors, exposures to step-down subsidiaries of Indian companies, incremental exposure to borrowers identified under the framework for large exposure of the Reserve Bank of India. The Bank may create floating provision for the year, in excess of the specific and general provision, as per Board approved policy. The floating provision can only be utilized, with the approval of the Board and the Reserve Bank of India. The Bank also holds provisions on loans under strategic debt restructuring, scheme for sustainable & stress assets and change in management outside strategic debt restructuring scheme ofFurther, the Reserve Bank of India guidelines on “Resolution Framework for COVID-19-related Stress” provide a prudential framework for resolution plan of certain loans. The Reserve Bank of India circular requires the banks to hold minimum 10% provision on these loans. The Bank makes general provision on such loans at rates equal or higher than requirements stipulated in Reserve Bank of India circulars.
165
The Bank, on a prudent basis, has made contingency provision on certain loan portfolios, including borrowers who had taken moratorium at any time during fiscal 2021 under the extant Reserve Bank of India guidelines related to the COVID-19 regulatory package. The Bank also makes additional contingency provision on certain standard assets. The contingency provision is included in ‘Other Liabilities and Provisions’.
Non-Performing Loans Strategy
In respect of unviable non-performing loans, where borrowers have lost financial viability, we adopt an aggressive approach aimed at out-of-court settlements, enforcing collateral, driving consolidation and seeking resolution under the Insolvency and Bankruptcy Code under specific circumstances, which among other measures includes recovery through the sale of a borrower’s assets in a time-bound manner. Our focus is on time value of recovery and a pragmatic approach towards settlements. The collateral against our loan assets is the critical factor towards the success of our recovery efforts. In certain accounts where the value of collateral against our loan has been eroded we undertake charge-offs against loan loss allowances held. However, we continue to pursue recovery efforts in these accounts, either jointly along with other lenders or individually through legal recourse and settlements. We are also adopting an online dispute resolution mechanism (entailing mediation, conciliation or arbitration or combination thereof administered by an independent institution) for speedy resolution of claims and disputes of certain retail assets and services as an alternative to approaching courts or tribunals. In addition, we focus on proactive management of accounts under supervision. Our strategy is aimed at early stage solutions to incipient problems.
The Bank’s strategy for the resolution of stressed corporate assets involves referring these cases for resolution under the Insolvency and Bankruptcy Code with the National Company Law Tribunal. The Insolvency and Bankruptcy Code, 2016, provides for a time-bound revival and rehabilitation mechanism to resolve stressed assets. Further, the filing for resolution by various stakeholders, including financial creditors and any other participant as may be eligible, could impact our provisioning and credit loss. In addition, the requirement to complete the resolution process within the stipulated timeline to avoid liquidation of the borrower, may impact recoveries from these stressed accounts. In the event borrowers go into liquidation, the additional credit losses may be significant. In April 2021, the Government of India passed another ordinance introducing a pre-packaged insolvency resolution process for micro, small and medium enterprises.
Our strategy for resolution of non-performing assets includes sales of financial assets to asset reconstruction companies in exchange for receipt of securities in the form of pass-through instruments issued by asset reconstruction companies, wherein payments to holders of the securities are based on the actual realized cash flows from the transferred assets. Under Indian GAAP, these instruments are valued at the net asset values as declared by the asset reconstruction companies in accordance with the Reserve Bank of India guidelines. Under U.S. GAAP, the assets we sell in exchange for security receipts are not accounted for as sales either because transfers do not qualify for sale accounting under FASB ASC Topic 860, “Transfers and servicing”, or transfers were impacted by FASB ASC Subtopic 810-10, “Consolidation – overall”, whereby, because the Bank is the ‘primary beneficiary’ of certain of these funds/trusts, it is required under U.S. GAAP to consolidate these entities. These assets are considered restructured assets under U.S. GAAP. “Supervision and Regulation—Loan Loss Provisions and Non-Performing Assets”.
166
We monitor trends in the credit ratings of our borrowers to enable us to take proactive remedial measures. We review the industry outlook and analyze the impact of changes in the regulatory and fiscal environment. Our periodic review system helps us to monitor the health of accounts and to take prompt remedial measures. We may seek to recover loans through enforcement of our rights in collateral. 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 may also take as security a pledge of financial assets, including marketable securities, and obtain corporate guarantees and personal guarantees of sponsors wherever appropriate. In certain cases, the terms of financing include covenants relating to sponsors’ shareholding in the borrower and restrictions on the sponsors’ ability to sell all or part of their shareholding. Covenants involving equity shares have top-up mechanisms based on price triggers. We maintain the non-performing assets on our books for as long as the enforcement process is ongoing. Accordingly, a non-performing asset may continue for a long time in our portfolio until the settlement of a loan account or realization of collateral, which may be longer than that for U.S. banks under similar circumstances. See also ““Business—Business—Loan portfolio—Classification of LoansCollateral—Completion, Perfection and Enforcement”.
Non-performing Assets
Secured loans to retail customers are secured by the assets financed (predominantly property and vehicles). We are entitled in terms of our security documents to repossess security comprising assets such as plants, 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. In respect of our retail loans, we adopt a standardized collection process designed to ensure prompt action for follow-up on overdue loans and recovery of defaulted amounts.
Non-performing Loans
The following table sets forth, atfor the datesperiods indicated, certain information regardingthe change in our gross (net of write-offs, interest suspense and derivatives income reversal) non-performing assets.loan portfolio(1).
At March 31, | ||||||||||||||||
2016 | 2017 | 2017 | 2017/2016 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Opening balance (gross non-performing assets) | Rs. | 173,870 | Rs. | 293,216 | US$ | 4,521 | 68.6 | % | ||||||||
Add: New non-performing assets during the year | 178,402 | 348,281 | 5,371 | 95.2 | ||||||||||||
Less: Loans upgraded to performing during the year | (11,504 | ) | (10,078 | ) | (155 | ) | (12.4 | ) | ||||||||
Less: Recoveries (excluding recoveries made from upgraded accounts) | (15,353 | ) | (46,401 | )(1) | (716 | ) | 202.2 | |||||||||
Less: Write-offs | (32,199 | ) | (126,157 | ) | (1,945 | ) | 291.8 | |||||||||
Gross non-performing assets(2) | Rs. | 293,216 | Rs. | 458,861 | US$ | 7,076 | 56.5 | |||||||||
Provisions for non-performing assets(2) | (145,431 | ) | (188,530 | ) | (2,907 | ) | 29.6 | |||||||||
Net non-performing assets(2) | Rs. | 147,785 | Rs. | 270,331 | US$ | 4,169 | 82.9 | |||||||||
Gross customer assets | Rs. | 5,718,339 | Rs. | 5,923,253 | US$ | 91,338 | 3.6 | |||||||||
Net customer assets | Rs. | 5,556,942 | Rs. | 5,720,375 | US$ | 88,209 | 2.9 | |||||||||
Gross non-performing assets as a percentage of gross customer assets | 5.1 | % | 7.7 | % | ||||||||||||
Net non-performing assets as a percentage of net customer assets | 2.7 | % | 4.7 | % | ||||||||||||
At March 31, | ||||||||||||
Particulars | 2022 | 2023 | 2023 | |||||||||
(in millions) | ||||||||||||
A. Consumer loans and credit card receivables(2) | ||||||||||||
Non-performing loans at the beginning of the fiscal year | Rs. | 142,923 | Rs. | 113,271 | US$ | 1,378 | ||||||
Addition: New non-performing loans during the year | 161,399 | 124,751 | 1,518 | |||||||||
Less: Upgrade(3) | (80,544 | ) | (54,558 | ) | (664 | ) | ||||||
Recoveries (excluding recoveries made from upgraded accounts) | (48,103 | ) | (43,226 | ) | (526 | ) | ||||||
Write-offs | (62,404 | ) | (37,697 | ) | (459 | ) | ||||||
Non-performing loans at the end of the fiscal year | Rs. | 113,271 | Rs. | 102,541 | US$ | 1,247 | ||||||
B. Commercial(4) | ||||||||||||
Non-performing loans at the beginning of the fiscal year | Rs. | 284,106 | Rs. | 232,243 | US$ | 2,826 | ||||||
Addition: New non-performing loans during the year | 41,815 | 67,050 | 816 | |||||||||
Less: Upgrade(3) | (24,406 | ) | (36,192 | ) | (440 | ) | ||||||
Recoveries (excluding recoveries made from upgraded accounts) | (22,930 | ) | (43,914 | ) | (534 | ) | ||||||
Write-offs | (46,342 | ) | (9,258 | ) | (113 | ) | ||||||
Non-performing loans at the end of the fiscal year | Rs. | 232,243 | Rs. | 209,929 | US$ | 2,555 | ||||||
C. Leasing and related activities | ||||||||||||
Non-performing loans at the beginning of the fiscal year | Rs. | — | Rs. | — | US$ | — | ||||||
Addition: New non-performing loans during the year | — | — | — | |||||||||
Less: Upgrade(3) | — | — | — | |||||||||
Recoveries (excluding recoveries made from upgraded accounts) | — | — | — | |||||||||
Write-offs | — | — | — | |||||||||
Non-performing loans at the end of the fiscal year | Rs. | — | Rs. | — | US$ | — | ||||||
D. Total non-performing loans (A+B+C) | ||||||||||||
Non-performing loans at the beginning of the fiscal year | Rs. | 427,029 | Rs. | 345,514 | US$ | 4,204 | ||||||
Addition: New non-performing loans during the year | 203,214 | 191,801 | 2,334 | |||||||||
Less: Upgrade(3) | (104,950 | ) | (90,750 | ) | (1,104 | ) | ||||||
Recoveries (excluding recoveries made from upgraded accounts) | (71,033 | ) | (87,140 | ) | (1,060 | ) | ||||||
Write-offs | (108,746 | ) | (46,955 | ) | (572 | ) | ||||||
Non-performing loans at the end of the fiscal year(4) | Rs. | 345,514 | Rs. | 312,470 | US$ | 3,802 |
167
____________________
(1) | Includes |
(2) | Includes home loans, automobile loans, commercial business loans, two-wheeler loans, personal loans, credit card receivables, jewel loans, farm equipment loans and other rural loan products. |
(3) | Represents accounts that were previously classified as non-performing but have been upgraded to performing. |
(4) | Includes working capital finance. |
From fiscal 2010, the Indian corporate sector undertook significant investments, including in the infrastructure and commodity sectors. This led to high loan growth in the banking sector, including for us. Subsequently, the Indian economy experienced challenges in terms of high inflation and consequently higher interest rates, currency depreciation and a sharp slowdown in economic growth. The corporate sector experienced a decline in sales and profit growth, an elongation of working capital cycles and a high level of receivables, including from the government, and significant challenges in project completion and cash flow generation, due to policy changes, delays in approvals like clearances on environment and land, and judicial decisions like the deallocation of coal mines. Indian corporations, especially in the infrastructure and industrial sectors, had limited ability to access capital in view of the economic scenario and volatility in global and domestic financial markets. Corporate investment activity declined. From fiscal 2014 onwards, these developments led to an increase in non-performing and restructured corporate loans in the Indian banking sector, including us, and a substantial moderation in overall loan growth, driven primarily by lower growth in credit to the corporate sector. The corporate sector continues to be impacted due to lower than anticipated cash flow generation and high leverage. The significant decline in global commodity prices in fiscal 2015 and fiscal 2016, including metals, coal and crude oil, negatively impacted borrowers in commodity-linked sectors. Capital investments in the economy remained subdued impacting corporations in investment-linked sectors like construction. Due to the lower than projected cash flows, the progress in reducing leverage in the corporate sector has been slow. Several companies were working with banks to restructure and reorganize their businesses and reduce their leverage through sales of businesses and assets, however progress remained slow. As a result, the level of non-performing loans increased significantly, including slippages from the restructured loan portfolio into non-performing status.
During the three months ended December 31, 2015, against the backdrop of continuing challenges in the corporate sector, the Reserve Bank of India articulated an objective of early and conservative recognition of stress and provisioning and held discussions with and asked a number of Indian banks, including us, to review certain loan accounts and their classification over the six months ended March 31, 2016. As a result of the challenges faced by the corporate sector and the discussions with and review by the Reserve Bank of India, the Indian banking system, including us, experienced a substantial increase in the level ofGross additions to non-performing consumer loans including slippagesdecreased from restructuredRs. 161.4 billion in fiscal 2022 to Rs. 124.8 billion in fiscal 2023. In fiscal 2023, we upgraded non-performing consumer loans into non-performing status during the second half of fiscal 2016. During fiscal 2017, the additions to non-performing loans, including slippages from restructured loans, and provisions remained elevatedRs. 54.6 billion as the corporate sector challenges continued due to the slowdown in economic growth, low corporate profitability and subdued investment activity. The slowdown in economic
growth was primarily in the industrial and services sectors, with growth in the industrial sector moderating to 5.6% during fiscal 2017 compared to 8.8% during fiscal 2016, and in the services sector to 7.7%Rs. 80.5 billion in fiscal 2017 compared to 9.7% in2022. In fiscal 2016. Further, during the second half2023, we made recoveries against non-performing consumer loans of fiscal 2017, there was a reduction in the availability of cash due to the withdrawal of high denomination currency notes by the government of India, which also impacted businesses. While several companies are working with banks to restructureRs. 43.3 billion (fiscal 2022: Rs. 48.1 billion) and reorganize their businesses and reduce their leverage through sales of businesses and assets, the process of resolution of stressed assets remained slower than expected due to delays in decision making at the Joint Lenders’ Forum that were set up to explore options for early resolution of stress in loan accounts. Several measures were announced by the Reserve Bank of India and the government, including the introduction of the Insolvency and Bankruptcy Code, during the year to enable early resolution of assets. However, the continued challenges in the operating and recovery environment adversely impacted the pace of resolution leading to a significant increase inwrote off non-performing loans during fiscal 2017.
At year-end fiscal 2016, ICICI Bank had disclosed its fund-based exposure and outstanding non-fund based facilities internally rated below investment grade (excluding borrowers classified as non-performing or restructured) to the iron and steel, mining, power, rigs and cement sectors and promoter entities internally rated below investment grade where the underlying was partly linked to these sectors, amounting to Rs. 440.7 billion. Of the Rs. 440.7 billion, Rs. 200.5 billion classified to non-performing category during fiscal 2017. Further, in fiscal 2017, restructured standard commercial loans amounting to Rs. 48.437.7 billion were classified as(fiscal 2022: Rs. 62.4 billion). Gross non-performing due to failure of the borrowers to perform as per the restructured debt terms. Inconsumer loans decreased from Rs. 113.3 billion at year-end fiscal 2017, there was a devolvement of non-fund facilities amounting2022 to Rs. 18.0102.5 billion related to accounts classified as non-performing in prior periods. As a result,at year-end fiscal 2023.
The gross additions to non-performing commercial loans increased significantly from Rs. 161.441.8 billion in fiscal 20162022 to Rs. 332.367.1 billion in fiscal 2017. During2023. In fiscal 2017,2023, we upgraded non-performing commercial loans amounting to Rs. 4.736.2 billion as compared to Rs. 24.4 billion in fiscal 2022 and made recoveries of non-performing commercial loans amounting to Rs. 39.2 billion. During43.9 billion in fiscal 2017,2023 as compared to Rs. 23.0 billion in fiscal 2022. In fiscal 2023, commercial loans amounting to Rs. 124.09.3 billion were written-off. Inwritten-off, as compared to Rs. 46.3 billion in fiscal 2017, the Bank undertook certain steps as part of its non-performing assets strategy during the year. Certain large value non-performing loans, were sold to debt aggregators such as securitization/reconstruction companies as part of the Bank’s recovery strategy and the differences between gross value of loans and the sale consideration was written-off, primarily against the allowances already held. Certain non-performing loans were written-off2022, based on borrower-specifica borrower- specific evaluation of the probability of recovery and collectability of the loans. This resulted in a higher level of write-off in fiscal 2017. Gross non-performing commercial loans increaseddecreased from Rs. 266.4232.2 billion at year-end fiscal 20162022 to Rs. 430.8209.9 billion at year-end fiscal 2017. There was an increase in2023.
168
As a result of the above, our gross non-performing assets in the cement sectorloans decreased by Rs. 53.8 billion, in the power sector by Rs. 46.5 billion, in the mining sector by Rs. 39.3 billion, in the iron & steel and products sector by Rs. 20.4 billion and in the construction sector by Rs. 14.7 billion.
The aggregate fund based exposure and outstanding non-fund based facilities to companies that were internally rated below investment grade in the above sectors and promoter entities decreased9.6% from Rs. 440.7345.5 billion at year-end fiscal 20162022 to Rs. 190.4312.5 billion at year-end fiscal 2017 primarily due to classification of2023. Our net non-performing loans to non-performing category, net reduction in exposure and upgrade of credit ratings of loans, offset, in part,decreased by a downgrade of credit ratings of loans. The fund based exposure and non-fund based facilities outstanding to below investment grade companies in the above sectors, amounted to Rs.190.424.1% from Rs. 76.4 billion at year-end fiscal 2017, including2022 to Rs. 58.0 billion at year-end fiscal 2023. The net non-performing loans ratio decreased from 0.8% at year-end fiscal 2022 to 0.5% at year-end fiscal 2023.
The total non-fund based facilities outstanding to companies where the fund-based facility outstanding was classified as non-performing asset in fiscal 2017. Apart from this, ICICI Bank’s non-fund based facilities outstanding to borrowers classified as non-performing was Rs. 19.337.8 billion at year-end fiscal 2017.
Gross additions to non-performing consumer loans were Rs. 15.9 billion in fiscal 2017March 31, 2023 as compared to Rs. 17.0 billion in fiscal 2016. During fiscal 2017, we upgraded non-performing consumer loans of Rs. 5.3 billion as compared to Rs. 6.3 billion in fiscal 2016. During fiscal 2017, we made recoveries against non-performing consumer loans of Rs. 7.2 billion and written-off loans of Rs. 2.1 billion. Gross non-performing consumer loans increased from Rs. 26.836.4 billion at year-end fiscal 2016 to Rs. 28.1 billion at year-end fiscal 2017.March 31, 2022.
In November 2016, the Reserve Bank of India extended the period for recognizing a loan account as non-performing by an additional period of 60 days, where dues were payable between November 1, 2016 and December 31, 2016. The guideline was applicable to working capital accounts/crop loans and term loans up to Rs. 10 million. Further, in December 2016, this benefit was extended by another 30 days, over and above the earlier period of 60 days, in case of working capital accounts/crop loans and term loans for business purposes of up to Rs. 10 million. Accordingly, at year-end fiscal 2017, the Bank has not classified Rs. 2.23 billion of such loans in the non-performing category that otherwise would have been classified as non-performing had these extensions not occurred.
As a result of above, our gross non-performing assets increased by 56.5% from Rs. 293.2 billion at year-end fiscal 2016 to Rs. 458.9 billion at year-end fiscal 2017. Our net non-performing assets increased by 82.9% from Rs. 147.8 billion at year-end fiscal 2016 to Rs. 270.3 billion at year-end fiscal 2017. The net non-performing asset ratio increased from 2.7% at year-end fiscal 2016 to 4.7% at year-end fiscal 2017.
See also “Business—Classification of Loans—Impact of Economic Environment on Commercial and Consumer Loan Borrowers—Non-performing Assets”.
Restructured Loans
The following table sets forth, at the dates indicated, information regarding roll-forward and average balances of standard restructured loans.
At March 31, | ||||||||||||||||
2016 | 2017 | 2017 | 2017/2016 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Opening balance (gross restructured loans) | Rs. | 130,787 | Rs. | 98,674 | US$ | 1,522 | (24.6 | )% | ||||||||
Add: Loans restructured during the year | 23,089 | 5,826 | 90 | (74.8 | ) | |||||||||||
Add: Increase in loans outstanding in respect of previously restructured loans/borrowers | 9,939 | 1,112 | 17 | (88.8 | ) | |||||||||||
Less: Loans upgraded to standard category during the year | (78 | ) | - | (-) | (100.0 | ) | ||||||||||
Less: Loans downgraded to non-performing category during the year | (53,002 | ) | (48,428 | ) | (747 | ) | (8.6 | ) | ||||||||
Less: Repayments during the year | (12,061 | ) | (6,329 | ) | (98 | ) | (47.5 | ) | ||||||||
Gross restructured loans | Rs. | 98,674 | Rs. | 50,855 | US$ | 784 | (48.5 | ) | ||||||||
Provisions for restructured loans | (7,581 | ) | (3,012 | ) | (46 | ) | (60.3 | ) | ||||||||
Net restructured loans | Rs. | 91,093 | Rs. | 47,843 | US$ | 738 | (47.5 | ) | ||||||||
Average balance of net restructured loans(1) | Rs. | 118,602 | Rs. | 70,350 | US$ | 1,085 | (40.7 | ) | ||||||||
Gross customer assets | Rs. | 5,718,339 | Rs. | 5,923,253 | US$ | 91,338 | 3.6 | |||||||||
Net customer assets | Rs. | 5,556,942 | Rs. | 5,720,375 | US$ | 88,209 | 2.9 | |||||||||
Gross restructured loans as a percentage of gross customer assets | 1.7 | % | 0.9 | % | ||||||||||||
Net restructured loans as a percentage of net customer assets | 1.6 | % | 0.8 | % | ||||||||||||
At March 31, | ||||||||||||||||
2022 | 2023 | 2023 | 2023/2022 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Opening balance (gross restructured loans) | Rs. | 38,776 | Rs. | 93,266 | US$ | 1,135 | 140.5% | |||||||||
Add: Loans restructured during the year | 81,546 | 766 | 9 | (99.1 | ) | |||||||||||
Add: Increase in loans outstanding in respect of previously restructured loans/borrowers | 352 | 1,379 | 17 | 290.1 | ||||||||||||
Less: Loans upgraded to standard category during the year | — | (3,956 | ) | (48 | ) | — | ||||||||||
Less: Loans downgraded to non-performing category during the year | (14,379 | ) | (20,717 | ) | (252 | ) | 44.1 | |||||||||
Less: Repayments/change in management/conversion to equity shares during the year | (13,029 | ) | (18,224 | ) | (222 | ) | 39.9 | |||||||||
Gross restructured loans | Rs. | 93,266 | Rs. | 52,514 | US$ | 639 | (43.7% | ) | ||||||||
Provisions for restructured loans | (2,914 | ) | (1,779 | ) | (22 | ) | (39.0% | ) | ||||||||
Net restructured loans | Rs. | 90,352 | Rs. | 50,735 | US$ | 617 | (43.8% | ) | ||||||||
Average balance of net restructured loans(1) | Rs. | 80,793 | Rs. | 72,506 | US$ | 882 | (10.3% | ) | ||||||||
Gross loans | Rs. | 9,475,107 | Rs. | 11,094,954 | US$ | 134,992 | 17.1% | |||||||||
Net loans | Rs. | 9,203,081 | Rs. | 10,838,663 | US$ | 131,873 | 17.8% | |||||||||
Gross restructured loans as a percentage of gross loans | 1.0% | 0.5% | ||||||||||||||
Net restructured loans as a percentage of net loans | 1.0% | 0.5% |
_________________
(1) | The average balance is the average of quarterly balances outstanding at the end of March of the previous year and June, September, December and March of the current year. |
(2) |
During169
In fiscal 2017,2023, we restructured loans of borrowers classified as standard, as well as made additional disbursements to borrowers whose loans had been restructured in prior years, aggregating Rs. 6.9 billion, as compared to Rs. 33.0 billion during0.8 billion. Further, in fiscal 2016. Further, during fiscal 2017,2023, restructured standard loans amounting to Rs. 48.420.7 billion were classified as non-performing due to failure of borrowers to perform as per restructured debt terms, compared to Rs. 53.0 billion during fiscal 2016.Restructured loans amounting to Rs. 6.3 billion were repaid in fiscal 2017 as compared to Rs. 12.1 billion in fiscal 2016.terms. The gross outstanding standard restructured loans decreased from Rs. 98.793.3 billion at year-end fiscal 20162022 to Rs. 50.952.5 billion at year-end fiscal 20172023 and the net outstanding restructured loans decreased from Rs. 91.190.4 billion at year-end fiscal 20162022 to Rs. 47.850.7 billion at year-end fiscal 2017.
Further,2023. In addition, the Bank holds general provision amounting to Rs. 12.8 billion at year-end fiscal 2017, 2023 on these restructured loans, subject to minimum provisioning requirement as per the guidelines issued by the Reserve Bank of India.
ICICI Bank’s outstanding non-fund based facilities to borrowers whose loans were classified as restructured were Rs. 16.9 billion.
The net standard restructured loans, as a percentage, decreased from 1.6% at year-end fiscal 2016 to 0.8% at year-end fiscal 2017. The outstanding provision on restructured loans (including the provision for funded interest) decreased from Rs. 7.63.3 billion at year-end fiscal 2016 to Rs. 3.0 billion at year-end fiscal 2017.See also“Operating and Financial Review and Prospects—Provisions for Non-performing Assets and Restructured Loans”.2023.
The aggregate gross non-performing assets and gross standard restructured loans increased by Rs. 117.8 billion, or 30.1%, from Rs. 391.9 billion at year-end fiscal 2016 to Rs. 509.7 billion at year-end fiscal 2017. The aggregate net non-performing assets and net restructured loans increased by Rs. 79.3 billion, or 33.2%, from Rs. 238.9 billion at year-end fiscal 2016 to Rs. 318.2 billion at year-end fiscal 2017.
In fiscal 2016, the Reserve Bank of India issued guidelines on strategic debt restructuring and change in management, which provide for a standstill period during which the loan continues to be classified as standard even if the default in payment of interest or principal would otherwise have required the loan to be classified as non-performing. At year-end fiscal 2017, we had implemented strategic debt restructuring in respect of standard loans aggregating Rs. 52.4 billion, including loans amounting to Rs. 16.6 billion classified as restructured. In addition, strategic debt restructuring had been invoked and was pending implementation for standard loans of Rs. 12.1 billion at year-end fiscal 2017, including loans amounting to Rs. 6.6 billion classified as restructured.
The Reserve Bank of India had issued guidelines in fiscal 2015 permitting banks to refinance long-term project loans to infrastructure and other core industries at periodic intervals without such refinancing being considered as restructuring. The amount of loans for which this refinancing scheme had been implemented was Rs. 48.9 billion at year-end fiscal 2017, out of which Rs. 26.8 billion was classified as standard. See also “Supervision and Regulation—Regulations Relating to Advancing Loans”.
Apart from the strategic debt restructuring scheme, the Reserve Bank of India has issued guidelines with respect to loans to borrowers, whose ownership is undergoing change outside the strategic debt restructuring framework. The Reserve Bank of India guidelines allow the stand-still benefit in line with strategic debt restructuring scheme. ICICI Bank had initiated the process of change of ownership outside strategic debt restructuring for a borrower with gross loans outstanding of about Rs. 51.1 billion at year-end fiscal 2017.
During fiscal 2017, the Reserve Bank of India has introduced the scheme for sustainable structuring of stressed assets (S4A) and issued guidelines which seek to strengthen banks’ ability to undertake resolution of large borrower accounts that are facing financial difficulties on account of delays in completing large projects. The scheme aims at enabling lenders to initiate deep financial restructuring, subject to fulfillment of certain conditions, for sustainable revival of projects. The scheme envisages bifurcation of the current dues of a borrower into sustainable debt and other than sustainable debt as per an independent study of the viability of the borrower’s operations. The scheme also envisages that the asset classification of the borrower as on a ‘reference date’ (date in which the lenders jointly decide to invoke the scheme) will continue for a period of 180 days (stand-still period). At year-end fiscal 2017, ICICI Bank implemented the scheme for sustainable structuring of stressed assets in two standard borrower accounts with an aggregate balance outstanding of about Rs. 2.9 billion, comprising Rs. 1.6 billion of sustainable debt and Rs. 1.4 billion of unsustainable debt.
In fiscal 2017, we sold commercial loans of 35 borrowers with aggregate book value (net of provision) of Rs. 37.1 billion to asset reconstruction companies. In fiscal 2016, we had sold commercial loans of seven borrowers with aggregate book value (net of provision) of Rs. 6.7 billion to asset reconstruction companies. See also “Business—Classification of Loans—Non-Performing Asset Strategy”.
Provisions and contingencies
The following table sets forth, for the periods indicated, the composition of provisions and contingencies, excluding provisions for tax.
Year ended March 31, | ||||||||||||||||
2016 | 2017 | 2017 | 2017/2016 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Provision for investments (net) | Rs. | 2,985 | Rs. | 9,364 | US$ | 144 | 213.7 | % | ||||||||
Provision for non-performing and other assets | 77,189 | 157,453 | 2,428 | 104.0 | ||||||||||||
Collective contingency and related reserve | 36,000 | - | - | (100.0 | ) | |||||||||||
Provision for standard assets | 3,176 | (3,734 | ) | (57 | ) | N/M | ||||||||||
Others | 3,704 | 2,742 | 42 | (26.0 | ) | |||||||||||
Total provisions and contingencies (excluding tax) | Rs. | 123,054 | Rs. | 165,825 | US$ | 2,557 | 34.8 | % |
N/M- Not meaningful
Provisions and contingencies increased by 34.8% from Rs. 123.1 billion in fiscal 2016 to Rs. 165.8 billion in fiscal 2017. This increase was primarily due to an increase in provisions for non-performing assets. Provisions for non-performing loans and other assets increased from Rs. 77.2 billion in fiscal 2016 to Rs. 157.5 billion in fiscal 2017 primarily due to significantly higher additions to non-performing assets in the corporate and small and medium enterprises loan portfolio including downgrades from the restructured loan portfolio, cases where strategic debt restructuring has been invoked/implemented and specific provision on certain standard loans. During fiscal 2017, the additions to non-performing loans, including slippages from restructured loans, and provisions remained elevated as the corporate sector challenges continued due to the slowdown in economic growth, low corporate profitability and subdued investment activity. While several companies are working with banks to restructure and reorganize their businesses and reduce their leverage through sales of businesses and assets, the process of resolution of stressed assets remained slower than expected due to delays in decision making at the Joint Lenders’ Forum that were set up to explore options for early resolution of stress in loan accounts. Several measures were announced by the Reserve Bank of India and the government, including the introduction of the Insolvency and Bankruptcy Code, during the year to enable early resolution of assets. However, the continued challenges in the operating and recovery environment adversely impacted the pace of resolution leading to a significant increase in non-performing loans and provisions during fiscal 2017.
During fiscal 2017, in accordance with the Reserve Bank of India guidelines, the Bank had created floating provisions aggregating to Rs. 15.2 billion which were subsequently utilized during the fiscal by allocating it to specific non-performing loans.
ICICI Bank had disclosed its fund-based exposure and outstanding non-fund based facilities internally rated below investment grade (excluding borrowers classified as non-performing or restructured) at year-end fiscal 2016 to certain sectors and promoter entities internally rated below investment grade where the underlying was partly linked to these sectors. In view of the uncertainties relating to these sectors and the time that it might take to resolve the Bank’s exposure to these sectors, the Bank had made a collective contingency and related reserve in fiscal 2016 amounting to Rs. 36.0 billion towards these exposures to these sectors. This reserve was over and above the provisions required for non-performing and restructured loans as per the Reserve Bank of India guidelines but, as a prudent matter, is permitted under the Reserve Bank of India guidelines and Indian GAAP. During fiscal 2017, ICICI Bank re-allocated the full amount of the collective contingency and related reserve towards the provisions for loans and fixed assets acquired in partial satisfaction of loans.
The Bank’s provisioning coverage ratio (specific provisions as a percentage of non-performing advances) at year-end fiscal 2017, computed in accordance with the Reserve Bank of India guidelines, was 40.2%.
See also “Business—Classification of Loans—Impact of Economic Environment on Commercial and Consumer Loan Borrowers—Non-Performing Assets” and “Business—Classification of Loans—Impact of Economic Environment on Commercial and Consumer Loan Borrowers—Restructured Loans”.
Provision for standard assets decreased from a provision of Rs. 3.2 billion in fiscal 2016 to a reversal of provision of Rs. 3.7 billion in fiscal 2017 primarily due to higher slippages from standard assets to non-performing assets and invocation of strategic debt restructuring in certain standard assets, where the Bank makes specific provision in accordance with the Reserve Bank of India guidelines. We held a cumulative general provision of Rs. 25.5 billion at year-end fiscal 2017 compared to Rs. 29.2 billion (excluding the collective contingency and related reserve) at year-end fiscal 2016.
Provision for investments increased from Rs. 3.0 billion in fiscal 2016 to Rs. 9.4 billion in fiscal 2017 primarily due to provisions on security receipts and equity shares acquired on conversion of loans.
Tax Expense
Income tax expense decreased by 26.9% from Rs. 33.8 billion in fiscal 2016 to Rs. 24.7 billion in fiscal 2017. The effective tax rate decreased from 23.6% in fiscal 2016 to 17.9% in fiscal 2017 primarily due to a
decrease in the effective tax rate of the Bank, offset, in part, by higher profit before taxes in domestic subsidiaries.
Income tax expense of the Bank decreased by 40.2% from Rs. 24.7 billion in fiscal 2016 to Rs. 14.8 billion in fiscal 2017. The effective tax rate of the Bank decreased from 20.3% in fiscal 2016 to 13.1% in fiscal 2017 primarily due to long-term capital gain from sale of shares of ICICI Prudential Life Insurance Company, which is exempt from income tax.
Income tax expenses of our asset management subsidiary increased from Rs. 1.7 billion in fiscal 2016 to Rs. 2.6 billion in fiscal 2017 and our securities dealership subsidiary from Rs. 1.1 billion in fiscal 2016 to Rs. 2.2 billion in fiscal 2017.
Financial Condition
Assets
The following table sets forth, at the dates indicated, the principal components of assets.
At March 31, | ||||||||||||||||
2016 | 2017 | 2017 | 2017/2016 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Cash and cash equivalents | Rs. | 650,359 | Rs. | 804,909 | US$ | 12,412 | 23.8 | % | ||||||||
Investments | 2,860,441 | 3,045,017 | 46,955 | 6.5 | ||||||||||||
Advances (net of provisions) | 4,937,291 | 5,153,173 | 79,463 | 4.4 | ||||||||||||
Fixed assets | 87,135 | 93,380 | 1,440 | 7.2 | ||||||||||||
Other assets | 652,336 | 763,948 | 11,780 | 17.1 | ||||||||||||
Total assets | Rs. | 9,187,562 | Rs. | 9,860,427 | US$ | 152,050 | 7.3 | % | ||||||||
Our total assets increased by 7.3% from Rs. 9,187.6 billion at year-end fiscal 2016 to Rs. 9,860.4 billion at year-end fiscal 2017 primarily due to an increase in net advances, investments and cash and cash equivalents. Net advances increased by 4.4% from Rs. 4,937.3 billion at year-end fiscal 2016 to Rs. 5,153.2 billion at year-end fiscal 2017. Investments increased by 6.5% from Rs. 2,860.4 billion at year-end fiscal 2016 to Rs. 3,045.0 billion at year-end fiscal 2017. Cash and cash equivalents increased by 23.8% from Rs. 650.4 billion at year-end fiscal 2016 to Rs. 804.9 billion at year-end fiscal 2017.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and balances with the Reserve Bank of India and other banks, including money at call and short notice. Cash and cash equivalents increased from Rs. 650.4 billion at year-end fiscal 2016 to Rs. 804.9 billion at year-end fiscal 2017 primarily due to an increase in money lent at call and short notice and balances with the Reserve Bank of India. Money at call and short notice increased primarily due to significantly higher inflows consequent to the withdrawal of legal tender status of high denomination currency notes by the government of India.
Investments
Total investments increased by 6.5% from Rs. 2,860.4 billion at year-end fiscal 2016 to Rs. 3,045.0 billion at year-end fiscal 2017. Investments of ICICI Bank increased from Rs. 1,604.1 billion at year-end fiscal 2016 to Rs. 1,615.1 billion at year-end fiscal 2017 primarily due to an increase in investments in pass through certificates, security receipts and commercial paper, offset, in part, by a decrease in investments in certificate of deposits and government securities.
Investments of ICICI Prudential Life Insurance Company increased from Rs. 1,023.3 billion at year-end fiscal 2016 to Rs. 1,204.1 billion at year-end fiscal 2017. Investments held to cover linked liabilities increased from Rs. 753.0 billion at year-end fiscal 2016 to Rs. 878.8 billion at year-end fiscal 2017 primarily due to an increase in investment in equity shares and corporate bonds. Investments, other than investments held to cover linked liabilities, increased from Rs. 270.3 billion at year-end fiscal 2016 to Rs. 325.3 billion at year-end fiscal 2017 primarily due to an increase in investment in government securities, equity shares and corporate bonds.
Investments of ICICI Lombard General Insurance Company increased from Rs. 112.8 billion at year-end fiscal 2016 to Rs. 148.0 billion in fiscal 2017 primarily due to an increase in investment in debentures, bonds and equity investments.
Investments of ICICI Securities Primary Dealership Limited decreased from Rs. 139.0 billion at year-end fiscal 2016 to Rs. 94.9 billion in fiscal 2017 primarily due to the sale of government securities to capture market opportunities.
Investments of ICICI Bank UK decreased by 10.0% from Rs. 49.3 billion at year-end fiscal 2016 to Rs. 44.3 billion at year-end fiscal 2017 primarily due to the maturity of certain investments in government securities. ICICI Bank Canada’s investment portfolio increased by 6.1% from Rs. 30.7 billion at year-end fiscal 2016 to Rs. 32.6 billion at year-end fiscal 2017 primarily due to deployment of additional liquidity in bankers’ acceptances.
Our total investment in Indian government securities decreased from Rs. 1,436.8 billion at year-end fiscal 2016 to Rs. 1,401.5 billion at year-end fiscal 2017.
At year-end fiscal 2017, the Bank had an outstanding net investment of Rs. 32.9 billion in security receipts issued by asset reconstruction companies in relation to sales of non-performing assets, compared to Rs. 7.9 billion at year-end fiscal 2016. See also “Business—Overview of Our Products and Services—Treasury”.
Advances
Net advances increased by 4.4% from Rs. 4,937.3 billion at year-end fiscal 2016 to Rs. 5,153.2 billion at year-end fiscal 2017 primarily due to an increase in retail advances.
Net advances of the Bank increased by 6.7% from Rs. 4,352.6 billion at year-end fiscal 2016 to Rs. 4,642.3 billion at year-end fiscal 2017. Net domestic retail advances of ICICI Bank increased by 18.5% from Rs. 2,027.9 billion at year-end fiscal 2016 to Rs. 2,403.1 billion at year-end fiscal 2017 primarily due to an increase in the home loans, rural loans, personal loans and automobile loan portfolios. Net advances of the overseas branches of ICICI Bank decreased by 20.1% from Rs. 938.1 billion at year-end fiscal 2016 to Rs. 749.9 billion at year-end fiscal 2017. Net advances of ICICI Home Finance increased by 2.9% from Rs. 86.3 billion at year-end fiscal 2016 to Rs. 88.8 billion at year-end fiscal 2017.
Advances of ICICI Bank UK decreased from Rs. 209.1 billion at year-end fiscal 2016 to Rs. 153.9 billion at year-end fiscal 2017 primarily due to a decrease in corporate loans on account of prepayment/sell-down and maturities of retail loans against Foreign Currency Non-Resident (Bank) deposits.
Advances of ICICI Bank Canada decreased from Rs. 295.5 billion at year-end fiscal 2016 to Rs. 272.0 billion at year-end fiscal 2017 primarily due to prepayment/repayment of corporate loans in fiscal 2017. See also “Business – Loan Portfolio”.
Fixed and other assets
Fixed assets include premises, furniture and fixtures, assets given on lease and other fixed assets. Fixed assets increased by 7.2% from Rs. 87.1 billion at year-end fiscal 2016 to Rs. 93.4 billion at year-end fiscal 2017. Other assets increased from Rs. 652.3 billion at year-end fiscal 2016 to Rs. 763.9 billion at year-end fiscal 2017 primarily due to an increase in trade receivables, deferred tax assets, non-banking assets acquired in satisfaction of claims and an increase in premium receivables of our general insurance subsidiary, offset, in part, by a decrease in rural infrastructure and development fund and related deposits. During fiscal 2017, the Bank acquired fixed assets amounting to Rs. 16.3 billion (fiscal 2016: Rs. 17.2 billion) in satisfaction of claims including debt-assets swap transactions.
Liabilities and Stockholders’ Equity
The following table sets forth, at the dates indicated, the principal components of liabilities and stockholders’ equity.
At March 31, | ||||||||||||||||
2016 | 2017 | 2017 | 2017/2016 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Deposits | Rs. | 4,510,774 | Rs. | 5,125,873 | US$ | 79,042 | 13.6 | % | ||||||||
Borrowings(1) | 2,203,777 | 1,882,868 | 29,034 | (14.6 | ) | |||||||||||
Other liabilities(2) | 1,498,348 | 1,756,713 | 27,089 | 17.2 | ||||||||||||
Minority interest | 33,556 | 48,653 | 750 | 45.0 | ||||||||||||
Total liabilities | 8,246,455 | 8,814,107 | 135,915 | 6.9 | ||||||||||||
Equity share capital | 11,632 | 11,651 | 180 | 0.2 | ||||||||||||
Reserves and surplus(3) | 929,475 | 1,034,669 | 15,955 | 11.3 | ||||||||||||
Total liabilities (including capital and reserves) | Rs. | 9,187,562 | Rs. | 9,860,427 | US$ | 152,050 | 7.3 | % | ||||||||
Our total liabilities (including capital and reserves) increased by 7.3% from Rs. 9,187.6 billion at year-end fiscal 2016 to Rs. 9,860.4 billion at year-end fiscal 2017, primarily due to an increase in deposits and other liabilities, offset, in part, by a decrease in borrowings.
Deposits
Deposits increased by 13.6% from Rs. 4,510.8 billion at year-end fiscal 2016 to Rs. 5,125.9 billion at year-end fiscal 2017. Deposits of ICICI Bank increased by 16.3% from Rs. 4,214.3 billion at year-end fiscal 2016 to Rs. 4,900.4 billion at year-end fiscal 2017 primarily due to significantly higher current account and saving account deposits inflows post the withdrawal of legal tender status of high denomination currency notes by the government of India, offset, in part, by redemption of about US$ 1.75 billion of foreign currency non-resident bank deposits mobilized during fiscal 2014. Savings account deposits increased by 28.0% from Rs. 1,342.3 billion at year-end fiscal 2016 to Rs. 1,718.4 billion at year-end fiscal 2017 and current account deposits increased by 27.4% from Rs. 588.7 billion at year-end fiscal 2016 to Rs. 749.8 billion at year-end fiscal 2017. Term deposits increased by 6.5% from Rs. 2,283.3 billion at year-end fiscal 2016 to Rs. 2,432.2 billion at year-end fiscal 2017. The current account and savings account deposits increased from Rs. 1,931.0 billion at year-end fiscal 2016 to Rs. 2,468.2 billion at year-end fiscal 2017. Deposits of overseas branches decreased by 37.1% from Rs. 110.0 billion at year-end fiscal 2016 to Rs. 69.2 billion at year-end fiscal 2017. At year-end fiscal 2017, deposits of the Bank formed 76.9% of the funding (i.e., deposits and borrowings, including subordinated debt and redeemable non-cumulative preference shares). See also“Business—Funding”.
Deposits of ICICI Bank Canada decreased from Rs. 140.0 billion at year-end fiscal 2016 to Rs. 124.2 billion at year-end fiscal 2017, primarily due to a decrease in term deposits, offset, in part, by an increase in current deposits. Term deposits decreased from Rs. 101.9 billion at year-end fiscal 2016 to Rs. 84.9 billion at year-end fiscal 2017. Current account deposits increased from Rs. 7.2 billion at year-end fiscal 2016 to Rs. 10.1 billion at year-end fiscal 2017.
Deposits of ICICI Bank UK decreased from Rs. 163.4 billion at year-end fiscal 2016 to Rs. 106.9 billion at year-end fiscal 2017, primarily due to a decrease in institutional deposits, retail term and saving deposits, offset, in part, by an increase in corporate term deposits.
Borrowings
Borrowings decreased by 14.6% from Rs. 2,203.8 billion at year-end fiscal 2016 to Rs. 1,882.9 billion at year-end fiscal 2017. Borrowings of ICICI Bank decreased by 15.6% from Rs. 1,748.1 billion at year-end fiscal 2016 to Rs. 1,475.6 billion at year-end fiscal 2017, primarily due to a decrease in call and term money borrowings, refinance borrowings, borrowings with the Reserve Bank of India under liquidity adjustment facility and subordinated bond borrowings, offset, in part, by an increase in bond borrowings. Net borrowings of overseas branches decreased by 16.3% from Rs. 959.8 billion at year-end fiscal 2016 to Rs. 803.5 billion at year-end fiscal 2017.
Borrowings of ICICI Bank UK decreased from Rs. 98.7 billion at year-end fiscal 2016 to Rs. 81.2 billion at year-end fiscal 2017 primarily due to a decrease in repo borrowings. Borrowings of ICICI Bank Canada decreased from Rs. 153.8 billion at year-end fiscal 2016 to Rs. 150.9 billion at year-end fiscal 2017. Borrowings of ICICI Bank Home Finance Company decreased marginally from Rs. 74.5 billion at year-end fiscal 2016 to Rs. 74.2 billion at year-end fiscal 2017. See also “Business—Funding”.
Other liabilities
Other liabilities primarily consist of liabilities on insurance policies in force pertaining to our insurance subsidiaries and proposed dividend including corporate dividend tax. Other liabilities increased by 17.2% from Rs. 1,498.3 billion at year-end fiscal 2016 to Rs. 1,756.7 billion at year-end fiscal 2017, primarily due to an increase in liabilities on policies in force of our life insurance business by Rs. 184.4 billion from Rs. 970.5 billion at year-end fiscal 2016 to Rs. 1,155.0 billion at year-end fiscal 2017.
Other liabilities in fiscal 2016 included proposed dividends (including corporate dividend tax) of Rs. 32.9 billion. Pursuant to amendment in Accounting Standard, AS 4 - ‘Contingencies and events occurring after balance sheet date’, the Bank has not accounted for proposed dividend for fiscal 2017, which was paid in fiscal 2018, in the financial statements for fiscal 2017. In India, dividends declared for a fiscal year are normally paid in the following year. We declared a dividend of Rs. 5.00 per equity share for fiscal 2016, which was paid in fiscal 2017. We declared a dividend of Rs. 2.50 per equity share for fiscal 2017, which has been paid in fiscal 2018.
Equity share capital and reserves
Stockholders’ equity increased from Rs. 941.1 billion at year-end fiscal 2016 to Rs. 1,046.3 billion at year-end fiscal 2017 primarily due to the annual accretion to reserves out of profit.
Pursuant to amendment in Accounting Standard, AS 4 - ‘Contingencies and events occurring after balance sheet date’, the Bank has not accounted for proposed dividend for fiscal 2017, which was paid in fiscal 2018, in the financial statements for fiscal 2017. Accordingly, the proposed dividend has not been reduced from the net worth at March 31, 2017.
Fiscal 2016 to Fiscal 2015
Summary
Operating profit before provisions increased by 16.3% from Rs. 228.7 billion in fiscal 2015 to Rs. 266.1 billion in fiscal 2016 primarily due to an increase in net interest income and non-interest income, offset, in part, by an increase in non-interest expenses.
Net interest income increased by 11.7% from Rs. 226.5 billion in fiscal 2015 to Rs. 253.0 billion in fiscal 2016 reflecting an increase of 12.4% in the average volume of interest-earning assets.
Non-interest income increased by 19.4% from Rs. 352.5 billion in fiscal 2015 to Rs. 421.0 billion in fiscal 2016 primarily due to an increase in income from treasury-related activities and premium and other operating income of our insurance subsidiaries. Income from treasury-related activities for fiscal 2016 included gains from sale of shares of ICICI Prudential Life Insurance Company Limited and ICICI Lombard General Insurance Company Limited amounting to Rs. 28.7 billion. Premium and other operating income of our insurance subsidiaries increased by 19.5% from Rs. 220.8 billion in fiscal 2015 to Rs. 263.8 billion in fiscal 2016 primarily reflecting an increase in business volume.
Non-interest expenses increased by 16.5% from Rs. 350.2 billion in fiscal 2015 to Rs. 407.9 billion in fiscal 2016, primarily due to an increase in expenses pertaining to insurance business and other operating expenses.
Provisions and contingencies (excluding provision for tax) increased from Rs. 45.4 billion in fiscal 2015 to Rs. 123.1 billion in fiscal 2016. This increase was primarily due to an increase in provisions for non-performing assets and collective contingency and related reserve. The net non-performing assets ratio increased from 1.5% at year-end fiscal 2015 to 2.7% at year-end fiscal 2016. Provisions for non-performing assets are likely to remain elevated in the near term due to high corporate sector leverage, slow improvement in corporate cash flows, the time required for resolution of stressed assets and the evolving regulatory approach.
There are uncertainties in respect of certain sectors due to the weak global economic environment, sharp downturn in the commodity cycle, gradual nature of the domestic economic recovery and high leverage by
borrowers. The key sectors that have been impacted include power, mining, iron & steel, cement and rigs. In view of the uncertainties relating to these sectors and the time that it may take to resolve the Bank’s exposure to these sectors, we made a collective contingency and related reserve at March 31, 2016 of Rs. 36.0 billion towards the Bank’s exposure to these sectors and certain promoter entities where the underlying is partly linked to these sectors. This reserve is over and above the provisions required for non-performing and restructured loans as per the Reserve Bank of India guidelines but, as a prudent matter, is permitted under the Reserve Bank of India guidelines and Indian GAAP.
The income tax expense (including wealth tax) decreased by 37.4% from Rs. 54.0 billion in fiscal 2015 to Rs. 33.8 billion in fiscal 2016 primarily due to lower tax applicable on sale of equity investments and set-off of capital losses carried forward from earlier periods.
As a result of the above, the profit after tax decreased by 16.9% from Rs. 122.5 billion in fiscal 2015 to Rs. 101.8 billion in fiscal 2016.
Net worth (equity share capital and reserves and surplus)increased from Rs. 847.0 billion at year-end fiscal 2015 to Rs. 941.1 billion at year-end fiscal 2016 primarily due to accretion to reserves from profit for the year and creation of revaluation reserves on fixed assets. Total assets increased by 11.2% from Rs. 8,260.8 billion at year-end fiscal 2015 to Rs. 9,187.6 billion at year-end fiscal 2016. Total deposits increased by 16.9% from Rs. 3,859.6 billion at year-end fiscal 2015 to Rs. 4,510.8 billion at year-end fiscal 2016. Savings account deposits increased by 18.3% from Rs. 1,221.1 billion at year-end fiscal 2015 to Rs. 1,444.6 billion at year-end fiscal 2016. Current account deposits increased by 19.6% from Rs. 504.6 billion at year-end fiscal 2015 to Rs. 603.4 billion at year-end fiscal 2016. Term deposits increased by 15.4% from Rs. 2,133.9 billion at year-end fiscal 2015 to Rs. 2,462.8 billion at year-end fiscal 2016. The current account and savings account ratio (ratio of current account and saving account deposit to total deposit) increased from 44.7% at year-end fiscal 2015 to 45.4% at year-end fiscal 2016. Total advances increased by 12.6% from Rs. 4,384.9 billion at year-end fiscal 2015 to Rs. 4,937.3 billion at year-end fiscal 2016. Our retail advances increased by 21.9% from Rs. 1,956.9 billion at year-end fiscal 2015 to Rs. 2,385.7 billion at year-end fiscal 2016.
ICICI Bank’s branch network in India increased from 4,050 branches at year-end fiscal 2015 to 4,450 branches at year-end fiscal 2016. The ATM network of the Bank increased from 12,451 ATMs at year-end fiscal 2015 to 13,766 ATMs at year-end fiscal 2016.
The capital adequacy ratios of ICICI Bank on an unconsolidated basis in accordance with the Reserve Bank of India’s guidelines on Basel III, at year-end fiscal 2016 were: common equity Tier 1 risk-based capital ratio of 13.0%; Tier 1 risk-based capital ratio of 13.1%; and total risk-based capital ratio of 16.6%. Our capital adequacy ratios on a consolidated basis in accordance with the Reserve Bank of India’s guidelines on Basel III, at year-end fiscal 2016 were: common equity Tier 1 risk-based capital ratio of 12.9%; Tier 1 risk-based capital ratio of 13.1%; and total risk-based capital ratio of 16.6%.
Net Interest Income
The following table sets forth, for the periods indicated, the principal components of net interest income.
Year ended March 31, | ||||||||||||||||
2015 | 2016 | 2016 | 2016/2015 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Interest income(1) | Rs. | 549,640 | Rs. | 592,937 | US$ | 9,143 | 7.9 | % | ||||||||
Interest expense | (323,182 | ) | (339,965 | ) | (5,242 | ) | 5.2 | % | ||||||||
Net interest income | Rs. | 226,458 | Rs. | 252,972 | US$ | 3,901 | 11.7 | % | ||||||||
Net interest income increased by 11.7% from Rs. 226.5 billion in fiscal 2015 to Rs. 253.0 billion in fiscal 2016, reflecting an increase of 13.2% in the average volume of interest-earning assets.
Net interest margin
Net interest margin decreased by three basis points from 3.55% in fiscal 2015 to 3.52% in fiscal 2016. Net interest margin on the rupee portfolio decreased by 13 basis points from 4.54% in fiscal 2015 to 4.41% in fiscal
2016 and net interest margin on foreign currency portfolio increased by 16 basis points from 0.58% in fiscal 2015 to 0.74% in fiscal 2016.
The yield on the rupee portfolio decreased by 44 basis points from 9.97% in fiscal 2015 to 9.53% in fiscal 2016 primarily due to the following:
The cost of funds for the rupee portfolio decreased by 40 basis points from 7.16% in fiscal 2015 to 6.76% in fiscal 2016 primarily due to the following factors:
The yield on our foreign currency portfolio decreased by 24 basis points from 4.34% in fiscal 2015 to 4.10% in fiscal 2016 primarily due to the following:
yields. The yield on average advances of overseas branches decreased primarily due to an increase in non-performing assets in fiscal 2016, as interest income is not accrued on non-performing assets.
This was, offset, in part, by an increase in yield on assets of ICICI Bank UK, which increased primarily due to an increase in higher yielding advances and a decrease in lower yielding call and term money lent.
The cost of funds for the foreign currency portfolio decreased by 36 basis points from 3.41% in fiscal 2015 to 3.05% in fiscal 2016, due to the following factors:
The increase in non-performing loans in fiscal 2016 and any further increase in non-performing loans in the future would have an adverse impact on our interest income, yield on advances, net interest income and net interest margin. Further, our focus on increasing the proportion of retail loans and higher rated corporate loans, which are lower-yielding, in our portfolio would also result in lower incremental yields on advances. Accordingly, we expect that ICICI Bank’s net interest margins for fiscal 2017 to be lower than the level of 3.37% reported during the three months ended March 31, 2016.
Interest-earning assets
The average volume of interest-earning assets increased by 12.4% from Rs. 6,449.2 billion in fiscal 2015 to Rs. 7,246.6 billion in fiscal 2016. The increase in interest-earning assets was primarily due to an increase in average advances by Rs. 623.3 billion and an increase in average interest-earning investments by Rs. 146.0 billion.
Average advances increased by 15.4% from Rs. 4,049.3 billion in fiscal 2015 to Rs. 4,672.6 billion in fiscal 2016. Average rupee advances increased from Rs. 2,655.8 billion in fiscal 2015 to Rs. 3,117.6 billion in fiscal 2016 primarily due to an increase in retail advances. Average foreign currency advances increased from Rs. 1,393.5 billion in fiscal 2015 to Rs. 1,555.0 billion in fiscal 2016, primarily due to the impact of the depreciation of the rupee against the U.S. dollar, an increase in the insured mortgage portfolio of ICICI Bank Canada and an increase in corporate advances of ICICI Bank UK.
Average interest-earning investments increased by 8.0% from Rs. 1,823.4 billion in fiscal 2015 to Rs. 1,969.4 billion in fiscal 2016. Average rupee investments increased from Rs. 1,746.9 billion in fiscal 2015 to Rs. 1,863.9 billion in fiscal 2016 primarily due to an increase in investments in Indian government securities by 9.0% from Rs. 1,238.1 billion in fiscal 2015 to Rs. 1,349.5 billion in fiscal 2016. Average other rupee investments increased from Rs. 508.8 billion in fiscal 2015 to Rs. 514.4 billion in fiscal 2016. Interest-earning rupee investments, other than Indian government securities include investments in corporate bonds and debentures, certificates of deposits, commercial paper, pass through certificates and liquid mutual funds. Average foreign currency investments increased from Rs. 76.5 billion in fiscal 2015 to Rs. 105.5 billion in fiscal
2016 primarily due to an increase in average investments of ICICI Bank UK on account of an increase in investment in corporate bonds and rupee depreciation.
Average other interest-earning assets increased by 4.9% from Rs. 576.6 billion in fiscal 2015 to Rs. 604.7 billion in fiscal 2016 primarily due to an increase in Rural Infrastructure Development Fund and other related deposits and balances with the Reserve Bank of India, offset, in part, by a decrease in foreign currency term money lent.
Interest-bearing liabilities
Average interest-bearing liabilities increased by 11.9% from Rs. 5,445.8 billion in fiscal 2015 to Rs. 6,094.4 billion in fiscal 2016 on account of an increase in average deposits by Rs. 401.0 billion and an increase in average borrowings by Rs. 247.6 billion.
Average interest-bearing rupee liabilities increased from Rs. 3,670.9 billion in fiscal 2015 to Rs. 4,155.7 billion in fiscal 2016. Average rupee time deposits increased from Rs. 1,693.7 billion in fiscal 2015 to Rs. 1,891.6 billion in fiscal 2016. Average rupee current account and savings account deposits increased from Rs. 1,259.2 billion in fiscal 2015 to Rs. 1,448.1 billion in fiscal 2016. Average rupee borrowings increased from Rs. 718.0 billion in fiscal 2015 to Rs. 815.9 billion in fiscal 2016 primarily due to an increase in refinance borrowings, offset, in part, by a decrease in borrowings under the liquidity adjustment facility of the Reserve Bank of India.
Average interest-bearing foreign currency liabilities increased from Rs. 1,774.9 billion in fiscal 2015 to Rs. 1,938.7 billion in fiscal 2016. Average foreign currency deposits increased from Rs. 586.5 billion in fiscal 2015 to Rs. 600.7 billion in fiscal 2016. Average deposits of ICICI Bank Canada increased primarily due to an increase in average term deposits. Average deposits of ICICI Bank UK increased primarily due to the impact of the depreciation of the rupee against the U.S. dollar.
Average foreign currency borrowings increased from Rs. 1,188.3 billion in fiscal 2015 to Rs. 1,338.0 billion in fiscal 2016. The foreign currency borrowings of ICICI Bank in rupee terms increased primarily due to the impact of depreciation of the rupee against the U.S. dollar. Average borrowings of ICICI Bank Canada increased primarily on account of an increase in borrowings through securitization of mortgages. Average borrowings of ICICI Bank UK increased primarily due to an increase in inter-bank borrowings, bond borrowings, syndicated borrowings and repo borrowings. See also “Risk Factors—Risks Relating to Our Business—Our banking and trading activities are 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, the quality of our loan portfolio and our financial performance”.
Non-Interest Income
The following table sets forth, for the periods indicated, the principal components of non-interest income.
Year ended March 31, | ||||||||||||||||
2015 | 2016 | 2016 | 2016/2015 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Commission, exchange and brokerage | Rs. | 83,939 | Rs. | 87,697 | US$ | 1,352 | 4.5 | % | ||||||||
Profit/(loss) on treasury-related activities (net)(1) | 46,694 | 66,222 | 1,021 | 41.8 | ||||||||||||
Profit/(loss) on sale of land, buildings and other assets (net) | 34 | 264 | 4 | N/M | ||||||||||||
Premium and other operating income from insurance business | 220,771 | 263,840 | 4,068 | 19.5 | ||||||||||||
Miscellaneous income | 1,085 | 2,998 | 46 | 176.3 | ||||||||||||
Total non-interest income | Rs. | 352,523 | Rs. | 421,021 | US$ | 6,491 | 19.4 | % | ||||||||
N/M- Not meaningful
Non-interest income primarily includes income pertaining to our insurance business, commission, exchange and brokerage income, profit/(loss) on treasury-related activities and other miscellaneous income. This analysis
of non-interest income should be read against the backdrop of global and Indian economic developments, financial market activities, the competitive environment, client activity levels and our strategy, as detailed in earlier sections.
Non-interest income increased by 19.4% from Rs. 352.5 billion in fiscal 2015 to Rs. 421.0 billion in fiscal 2016 primarily due to an increase in premium and other operating income relating to insurance business and income from treasury-related activities.
Commission, exchange and brokerage
Commission, exchange and brokerage income primarily includes fees from our banking business as well as fee and brokerage income of our securities broking, asset management and venture capital fund management subsidiaries. The fee income of our banking business primarily includes fees from corporate clients such as loan processing fees, commercial banking fees and structuring fees and fee income from retail customers includes loan processing fees, credit card fees and service charges on retail deposit accounts.
Commission, exchange and brokerage income increased by 4.5% from Rs. 83.9 billion in fiscal 2015 to Rs. 87.7 billion in fiscal 2016. Commission, exchange and brokerage income of ICICI Bank increased from Rs. 69.8 billion in fiscal 2015 to Rs. 74.6 billion in fiscal 2016. Management fees of our asset management subsidiary increased and brokerage income of our securities broking subsidiary decreased in fiscal 2016 as compared to fiscal 2015.
The commission, exchange and brokerage income of ICICI Bank increased primarily due to an increase in fee income from retail customers such as lending linked fees, credit card fees and fees from retail deposit customers. Lending related fee income from corporate clients remained muted during fiscal 2016, although there was an increase in commercial banking fees.
Management fees of our asset management subsidiary increased in fiscal 2016 primarily due to an increase in average assets under management and change in mix in favor of equity mutual funds which earns higher fees. Brokerage income of our securities broking subsidiary decreased in fiscal 2016 as compared to fiscal 2015 primarily due to lower trading volumes in Indian equity markets in fiscal 2016.
Income from treasury-related activities (net)
Income from treasury-related activities includes income from the sale of investments and the revaluation of investments on account of changes in unrealized profit/(loss) in the fixed income, equity and preference share portfolio, units of venture capital and private equity funds, units of mutual funds and security receipts issued by asset reconstruction companies. Further, it also includes income from foreign exchange transactions, consisting of various foreign exchange and derivatives transactions with clients, including options and swaps. Income from treasury-related activities increased by 41.8% from Rs. 46.7 billion in fiscal 2015 to Rs. 66.2 billion in fiscal 2016 primarily due to gains on sale of 6% share in ICICI Prudential Life Insurance Company Limited and 9% shareholding in ICICI Lombard General Insurance Company Limited, offset, in part, by lower gains on government securities and other fixed income positions.
Our profit on the equity portfolio increased from Rs. 3.3 billion in fiscal 2015 to Rs. 28.7 billion in fiscal 2016 primarily due to gains on sale of shares of ICICI Prudential Life Insurance Company Limited and ICICI Lombard General Insurance Company Limited.
Our profit on the government securities portfolio and other fixed income positions decreased from Rs. 16.1 billion in fiscal 2015 to Rs. 14.9 billion in fiscal 2016. In fiscal 2015, the yield on 10-year government securities declined by 107 basis points resulting in higher trading opportunities compared to a decrease of 28 basis points in fiscal 2016. Our income from foreign exchange transactions including transactions with clients and margins on derivatives transactions with clients increased from Rs. 18.5 billion in fiscal 2015 to Rs. 22.9 billion in fiscal 2016. This includes net exchange gain relating to overseas operations, which increased from Rs. 6.4 billion in fiscal 2015 to Rs. 9.4 billion in fiscal 2016. The exchange gain arose from repatriation of retained earnings from overseas branches.
Income relating to our insurance business
Income from our insurance business increased by 19.5% from Rs. 220.8 billion in fiscal 2015 to Rs. 263.8 billion in fiscal 2016 due to an increase in income from both our life insurance and general insurance business. Income from our life insurance business increased from Rs. 172.8 billion in fiscal 2015 to Rs. 210.0 billion in fiscal 2016. Income from our general insurance business increased from Rs. 48.0 billion in fiscal 2015 to Rs.
53.8 billion in fiscal 2016. Income from our insurance business includes net premium income, fee and commission income, surrender charges and income on foreclosure of policies.
Net premium income of our life insurance subsidiary increased from Rs. 151.5 billion in fiscal 2015 to Rs. 189.8 billion in fiscal 2016. The premium income (gross of premium on reinsurance ceded) of ICICI Prudential Life Insurance Company increased by 25.2% from Rs. 153.1 billion in fiscal 2015 to Rs. 191.6 billion in fiscal 2016 primarily due to an increase in retail renewal premium. Retail renewal premium increased by 25.3% from Rs. 95.7 billion in fiscal 2015 to Rs. 120.0 billion in fiscal 2016. Retail new business premium increased by 10.7% from Rs. 49.3 billion in fiscal 2015 to Rs. 54.5 billion in fiscal 2016. Group premium increased from Rs. 8.0 billion in fiscal 2015 to Rs. 17.1 billion in fiscal 2016.
Fee and other life insurance related income of our life insurance subsidiary decreased from Rs. 21.3 billion in fiscal 2015 to Rs. 20.3 billion in fiscal 2016 primarily due to a decrease in surrender charges, foreclosure income and policy fees, offset, in part, by an increase in fund management charges and mortality charges.
The net premium income of our general insurance subsidiary increased from Rs. 41.0 billion in fiscal 2015 to Rs. 46.7 billion in fiscal 2016 primarily due to an increase in weather and motor insurance business.
Commission income of our general insurance subsidiary increased marginally from Rs. 7.0 billion in fiscal 2015 to Rs. 7.1 billion in fiscal 2016.
Miscellaneous income
Miscellaneous income increased from Rs. 1.1 billion in fiscal 2015 to Rs. 3.0 billion in fiscal 2016.
Non-Interest Expense
The following table sets forth, for the periods indicated, the principal components of non-interest expense.
Year ended March 31, | ||||||||||||||||
2015 | 2016 | 2016 | 2016/2015 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Payments to and provisions for employees | Rs. | 65,683 | Rs. | 69,123 | US$ | 1,066 | 5.2 | % | ||||||||
Depreciation on own property | 7,632 | 8,239 | 127 | 8.0 | ||||||||||||
Auditor’s fees and expenses | 222 | 230 | 4 | 3.6 | ||||||||||||
Depreciation on leased assets | 351 | 192 | 3 | (45.3 | ) | |||||||||||
Expenses pertaining to insurance business | 191,640 | 232,710 | 3,588 | 21.4 | ||||||||||||
Other administrative expenses | 84,700 | 97,402 | 1,502 | 15.0 | ||||||||||||
Total non-interest expenses | Rs. | 350,228 | Rs. | 407,896 | US$ | 6,290 | 16.5 | % |
Non-interest expense primarily includes expenses relating to our insurance business, payment to and provision for employees and other administrative expenses. Operating expenses increased by 16.5% from Rs. 350.2 billion in fiscal 2015 to Rs. 407.9 billion in fiscal 2016 primarily due to an increase in expenses related to insurance business, other administrative expenses and payments to and provisions for employees.
Payments to and provisions for employees
Employee expenses increased by 5.2% from Rs. 65.7 billion in fiscal 2015 to Rs. 69.1 billion in fiscal 2016. Our employee base, including sales executives, employees on fixed term contracts and interns, increased from 90,486 at year-end fiscal 2015 to 97,132 at year-end fiscal 2016.
The employee expenses of ICICI Bank increased by 5.3% from Rs. 47.5 billion in fiscal 2015 to Rs. 50.0 billion in fiscal 2016. Employee expenses increased primarily on account of higher salary due to annual increments and promotions and an increase in average staff strength, offset, in part, by lower provision for retirement benefit obligations due to movement in the discount rate linked to the yield on government securities. The employee base of ICICI Bank, including sales executives, employees on fixed term contracts and interns, increased from 67,857 employees at year-end fiscal 2015 to 74,096 employees at year-end fiscal 2016.
Employee expenses of ICICI Prudential Life Insurance Company increased by 8.7% from Rs. 6.9 billion in fiscal 2015 to Rs. 7.5 billion in fiscal 2016. Employee expenses of ICICI Lombard General Insurance Company
increased by 8.8% from Rs. 3.4 billion in fiscal 2015 to Rs. 3.7 billion in fiscal 2016. The employee expenses of ICICI Securities Limited remained at the same level at Rs. 4.0 billion in both fiscal 2015 and in fiscal 2016.
Depreciation
Depreciation on owned property increased by 8.0% from Rs. 7.6 billion in fiscal 2015 to Rs. 8.2 billion in fiscal 2016 due to an increase in fixed assets with higher depreciation rates. Depreciation on leased assets decreased from Rs. 0.4 billion in fiscal 2015 to Rs. 0.2 billion in fiscal 2016.
Other administrative expenses
Other administrative expenses primarily include rent, taxes and lighting, advertisement and publicity, repairs and maintenance, direct marketing agency expenses and other expenditures. Other administrative expenses increased by 15.0% from Rs. 84.7 billion in fiscal 2015 to Rs. 97.4 billion in fiscal 2016, primarily due to an increase in expenses of ICICI Bank and our insurance subsidiaries. Other administrative expenses of ICICI Bank increased from Rs. 60.8 billion in fiscal 2015 to Rs. 69.8 billion in fiscal 2016 primarily due to an increase in the branch and ATM network and retail business volumes. The number of branches and extension counters (excluding foreign branches and offshore banking units) of ICICI Bank in India increased from 4,050 at year-end fiscal 2015 to 4,450 at year-end fiscal 2016. ICICI Bank also increased its ATM network from 12,451 ATMs at year-end fiscal 2015 to 13,766 ATMs at year-end fiscal 2016. Other administrative expenses of our insurance subsidiaries increased primarily due to an increase in advertisement expenses and other business support expenses.
Expenses related to our insurance business
Expenses related to our insurance business include claims and benefit payouts, commission expenses and reserves for actuarial liability (including the investible portion of the premium on unit-linked policies of our life insurance business). Expenses relating to our insurance business increased by 21.4% from Rs. 191.6 billion in fiscal 2015 to Rs. 232.7 billion in fiscal 2016.
The expenses related to our life insurance subsidiary increased from Rs. 154.6 billion in fiscal 2015 to Rs. 190.4 billion in fiscal 2016 primarily due to an increase in expenses related to reserves for actuarial liability (including the investible portion of the premium on unit-linked policies), claims and benefit payouts and commission expenses.
In fiscal 2016, the reserves for the actuarial liability of the life insurance business (including the investible portion of the premium on unit-linked policies) increased from Rs. 143.3 billion in fiscal 2015 to Rs. 170.8 billion in fiscal 2016, primarily due to an increase in the volume of our unit-linked insurance business. The investible portion of the premium on linked policies of our life insurance business represents the amount of premium, including renewal premium received on linked policies of life insurance business invested, after deducting charges and the premium for risk coverage, in the underlying fund. The claims and benefit payouts and commission expenses increased from Rs. 11.3 billion in fiscal 2015 to Rs. 19.6 billion in fiscal 2016, primarily due to an increase in surrender claims pertaining to group business and higher commission expenses which is in line with the increase in total premium. In line with Indian accounting norms for insurance companies, we do not amortize the customer acquisition cost, but account for the expenses as incurred.
The expenses related to our general insurance subsidiary increased from Rs. 37.0 billion in fiscal 2015 to Rs. 42.3 billion in fiscal 2016 primarily due to an increase in claims and benefit payouts. Claims and benefit payouts increased from Rs. 34.4 billion in fiscal 2015 to Rs. 39.3 billion in fiscal 2016, reflecting an increase in business and an increase in loss ratio of weather insurance business. The commission expenses increased from Rs. 2.6 billion in fiscal 2015 to Rs. 3.0 billion in fiscal 2016.
See also “Business—Overview of Our Products and Services—Insurance”.
Provisions and contingencies (excluding tax provisions)
Provisions for Non-performing Assets and Restructured Loans
We classify our assets, including those in our overseas branches, as performing and non-performing in accordance with the Reserve Bank of India guidelines, except in the case of ICICI Home Finance Company and our overseas banking subsidiaries. ICICI Home Finance Company classifies its loans and other credit facilities in accordance with the guidelines of its regulator, the National Housing Bank. Our overseas banking subsidiaries classify a loan as impaired only if there is objective evidence of impairment as a result of one or more events
that occurred after the initial recognition on the loan (a loss event) and the loss event has an impact on the estimated future cash flows of the loans that can be reliably estimated. Under the Reserve Bank of India guidelines non-performing assets are classified into sub-standard, doubtful and loss assets based on the criteria stipulated by the Reserve Bank of India. Loans held at the overseas branches that are identified as impaired as per host country regulations for reasons other than record of recovery but which are standard as per the extant Reserve Bank of India guidelines are identified as non-performing assets to the extent the loan amount is outstanding in the host country. Our non-performing assets include loans and advances as well as credit substitutes, which are funded credit exposures. The Reserve Bank of India has separate guidelines for restructured loans. From April 1, 2015 onwards, loans that are restructured (other than due to delay up to a specified period in the infrastructure sector and non-infrastructure sector) are classified as non-performing, other than loans already restructured prior to March 31, 2015 or where the restructuring was proposed prior to April 1, 2015 and was effected subsequently within prescribed timelines. However, loans granted for implementation of projects in the infrastructure sector and the non-infrastructure sector that are restructured due to a delay in implementation of the project (up to a specified period) enjoy forbearance in asset classification subject to the fulfillment of certain conditions stipulated by the Reserve Bank of India. See also “Business—Classification of Loans”.
We make provisions on standard, sub-standard and doubtful assets at rates prescribed by the Reserve Bank of India. Loss assets and the unsecured portion of doubtful assets are provided for/written off as required by the Reserve Bank of India guidelines. For loans and advances of overseas branches, we make provisions as per the Reserve Bank of India regulations or host country regulations, whichever is higher. We make provisions on retail non-performing loans at the borrower level in accordance with our retail assets provisioning policy, subject to the minimum provisioning levels prescribed by the Reserve Bank of India. We hold higher specific provisions on retail loans and advances than the minimum regulatory requirement. We make provisions on restructured/rescheduled loans and advances in accordance with the applicable Reserve Bank of India guidelines on restructuring of loans and advances by banks. In addition to the specific provision on non-performing assets, we maintain a general provision on standard loans and advances and restructured/rescheduled loans and advances at rates prescribed by the Reserve Bank of India. For standard loans and advances in overseas branches, we hold a general provision at the higher of host country regulatory requirements and the Reserve Bank of India requirements. See also “Business—Loan portfolio—Classification of Loans”.
Non-performing Assets
The following table sets forth, at the dates indicated, certain information regarding non-performing assets.
At March 31, | ||||||||||||||||
2015 | 2016 | 2016 | 2016/2015 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Opening balance (gross non-performing assets) | Rs. | 122,994 | Rs. | 173,870 | US$ | 2,681 | 41.4 | % | ||||||||
Add: New non-performing assets during the year | 90,945 | 178,402 | 2,751 | 96.2 | ||||||||||||
Less: Loans upgraded to performing during the year | (5,925 | ) | (11,504 | ) | (177 | ) | 94.2 | |||||||||
Less: Recoveries (excluding recoveries made from upgraded accounts) | (14,966 | ) | (15,353 | ) | (237 | ) | 2.6 | |||||||||
Less: Write-offs | (19,178 | ) | (32,199 | ) | (497 | ) | 67.9 | |||||||||
Gross non-performing assets(1) | Rs. | 173,870 | Rs. | 293,216 | US$ | 4,521 | 68.6 | |||||||||
Provisions for non-performing assets(1) | (96,655 | ) | (145,431 | ) | (2,242 | ) | 50.5 | |||||||||
Net non-performing assets(1) | Rs. | 77,215 | Rs. | 147,785 | US$ | 2,279 | 91.4 | |||||||||
Gross customer assets | 5,149,278 | 5,718,339 | 88,178 | 11.1 | ||||||||||||
Net customer assets | Rs. | 5,026,019 | Rs. | 5,556,942 | US$ | 85,689 | 10.6 | |||||||||
Gross non-performing assets as a percentage of gross customer assets | 3.4 | % | 5.1 | % | ||||||||||||
Net non-performing assets as a percentage of net customer assets | 1.5 | % | 2.7 | % | ||||||||||||
In fiscal 2010 and fiscal 2011, the Indian economy experienced high rates of growth. The Indian corporate sector undertook significant investments during this period, including in the infrastructure and commodity sectors. This also led to high loan growth in the banking sector, including for us. Subsequently, the Indian economy began to experience challenges in terms of high inflation and consequently higher interest rates, currency depreciation and a sharp slowdown in economic growth. Thereafter, the corporate sector experienced a decline in sales and profit growth, an elongation of working capital cycles and a high level of receivables, including from the government, and significant challenges in project completion and cash flow generation, due to policy changes, delays in approvals like clearances on environment and land, and judicial decisions like the deallocation of coal mines. Indian corporations, especially in the infrastructure and industrial sectors, had limited ability to access capital in view of the economic scenario, volatility in global and domestic financial markets and delays in project implementation. Corporate investment activity declined. From fiscal 2014 onwards, these developments led to an increase in non-performing and restructured corporate loans in the Indian banking sector, including us, and a substantial moderation in overall loan growth, driven primarily by lower growth in credit to the corporate sector.
From fiscal 2015, the Indian economy experienced an improvement in certain macro-economic indicators, with a reduction in inflation and interest rates, stability in the currency and a gradual increase in the rate of economic growth. However, the challenges in project completion continued, receivables remained high and the corporate sector continued to be impacted due to lower than anticipated cash flow generation and high leverage.
Further, during fiscal 2016, the corporate sector experienced additional challenges. The anticipated improvement in the performance of the corporate sector did not materialize due to the gradual domestic recovery, subdued corporate investment and continued global economic challenges. The global economic environment continued to be volatile, with a slowdown in growth globally, including in large emerging markets. The significant decline in global commodity prices, including metals, coal and crude oil, negatively impacted borrowers in commodity-linked sectors such as iron & steel, coal and petroleum oil related activities. Capital investments in the economy remained subdued impacting corporations in investment-linked sectors like construction. In view of the lower than projected cash flows, the progress in reducing leverage in the corporate sector remained slow. While several companies were working with banks to restructure and reorganize their businesses and reduce their leverage through sales of businesses and assets, these efforts were taking time to show results, resulting in an increase in the level of additions to non-performing loans, including slippages from the restructured loan portfolio into non-performing status. In addition, during the three months ended December 31, 2015, against the backdrop of continuing challenges in the corporate sector, the Reserve Bank of India articulated an objective of early and conservative recognition of stress and provisioning and held discussions with and asked a number of Indian banks, including us, to review certain loan accounts and their classification over the six months ended March 31, 2016. As a result of the challenges faced by the corporate sector and the discussions with and review by the Reserve Bank of India, the Indian banking system, including us, experienced a substantial increase in the level of additions to non-performing loans, including slippages from restructured loans into non-performing status, during fiscal 2016. Our provisioning costs are expected to remain elevated in the near term. See also “Business – Classification of Loans—Impact of Economic Environment on Commercial and Consumer Loan Borrowers” and “—Executive Summary—Business environment-Trends in fiscal 2016”.
The gross additions to non-performing assets, including classification of standard restructured loans as non-performing loans due to failure of the borrowers to perform as per the restructured debt terms, increased from Rs. 90.9 billion during fiscal 2015 to Rs. 178.4 billion during fiscal 2016. In fiscal 2016, restructured standard loans amounting to Rs. 53.0 billion were classified as non-performing due to failure of the borrowers to perform as per the restructured debt terms as compared to Rs. 45.1 billion in fiscal 2015. Non-performing assets amounting to Rs. 26.9 billion were upgraded/recovered in fiscal 2016 as compared to Rs. 20.9 billion in fiscal 2015. Non-performing assets amounting to Rs. 32.2 billion were written-off in fiscal 2016 as compared to Rs. 19.2 billion in fiscal 2015. Our gross non-performing assets increased by 68.6% from Rs. 173.9 billion at year-end fiscal 2015 to Rs. 293.2 billion at year-end fiscal 2016. Our net non-performing assets increased by 91.4% from Rs. 77.2 billion at year-end fiscal 2015 to Rs. 147.8 billion at year-end fiscal 2016. The net non-performing asset ratio increased from 1.5% at year-end fiscal 2015 to 2.7% at year-end fiscal 2016.
Gross additions to non-performing commercial loans including classification of restructured loans as non-performing due to failure of the borrowers to perform as per restructured debt terms, increased from Rs. 40.8 billion in fiscal 2014 to Rs. 77.9 billion in fiscal 2015 and further to Rs. 161.4 billion in fiscal 2016. In fiscal 2016, restructured standard commercial loans amounting to Rs. 53.0 billion were classified as non-performing due to failure of the borrowers to perform as per the restructured debt terms as compared to Rs. 45.1 billion in fiscal 2015. During fiscal 2016, we upgraded non-performing commercial loans amounting to Rs. 5.2 billion and made recoveries of non-performing commercial loans amounting to Rs. 8.7 billion. During fiscal 2016, based on
the borrower-specific evaluation of the possibility of further recovery, commercial loans amounting to Rs. 29.4 billion were written-off. See “Business—Classification of Loans—Provisioning and Write-Offs—Our policy”. Gross non-performing commercial loans increased from Rs. 148.3 billion at year-end fiscal 2015 to Rs. 266.4 billion at year-end fiscal 2016. During fiscal 2016, the corporate sector continued to experience challenges due to lower than anticipated cash flow generation and high leverage. Additionally, during the year, the significant decline in commodity prices adversely impacted commodity-based sectors such as iron & steel. The power sector continued to experience challenges with respect to project completion, capacity utilization and leverage. Further, subdued capital investments in the economy impacted sectors such as construction and iron & steel. During fiscal 2016, there was an increase in gross non-performing assets in the iron & steel and products sector by Rs. 55.3 billion, power sector by Rs. 16.8 billion and construction sector by Rs. 15.0 billion.
Gross additions to non-performing consumer loans were Rs. 17.0 billion in fiscal 2016 as compared to Rs. 13.0 billion in fiscal 2015. During fiscal 2016, we upgraded non-performing consumer loans of Rs. 6.3 billion as compared to Rs. 4.4 billion in fiscal 2015. During fiscal 2016, we made recoveries against non-performing consumer loans of Rs. 6.6 billion and written-off loans of Rs. 2.8 billion. Gross non-performing consumer loans increased from Rs. 25.5 billion at year-end fiscal 2015 to Rs. 26.8 billion at year-end fiscal 2016.
Further, at year-end fiscal 2016, ICICI Bank’s outstanding non-fund based facilities to borrowers whose loans were classified as non-performing were Rs. 28.2 billion.
See also “Business—Classification of Loans—Impact of Economic Environment on Commercial and Consumer Loan Borrowers—Non-performing Assets”.
Restructured Loans
The following table sets forth, at the dates indicated, information regarding roll-forward and average balances of standard restructured loans.
At March 31, | ||||||||||||||||
2015 | 2016 | 2016 | 2016/2015 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Opening balance (gross restructured loans) | Rs. | 133,448 | Rs. | 130,787 | US$ | 2,017 | (2.0 | )% | ||||||||
Add: Loans restructured during the year | 38,965 | 23,089 | 356 | (40.7 | ) | |||||||||||
Add: Increase in loans outstanding in respect of previously restructured loans/borrowers | 11,207 | 9,939 | 153 | (11.3 | ) | |||||||||||
Less: Loans upgraded to standard category during the year | (2,149 | ) | (78 | ) | (1 | ) | (96.4 | ) | ||||||||
Less: Loans downgraded to non-performing category during the year | (45,115 | ) | (53,002 | ) | (817 | ) | 17.5 | |||||||||
Less: Repayments during the year | (5,569 | ) | (12,061 | ) | (186 | ) | 116.6 | |||||||||
Gross restructured loans | Rs. | 130,787 | Rs. | 98,674 | US$ | 1,522 | (24.6 | ) | ||||||||
Provisions for restructured loans | (9,458 | ) | (7,581 | ) | (117 | ) | (19.8 | ) | ||||||||
Net restructured loans | Rs. | 121,329 | Rs. | 91,093 | US$ | 1,405 | (24.9 | ) | ||||||||
Average balance of net restructured loans(1) | 124,816 | 118,602 | 1,829 | (5.0 | ) | |||||||||||
Gross customer assets | 5,149,278 | 5,718,339 | 88,178 | 11.1 | ||||||||||||
Net customer assets | Rs. | 5,026,019 | Rs. | 5,556,942 | US$ | 85,689 | 10.6 | |||||||||
Gross restructured loans as a percentage of gross customer assets | 2.5 | % | 1.7 | % | ||||||||||||
Net restructured loans as a percentage of net customer assets | 2.4 | % | 1.6 | % | ||||||||||||
During fiscal 2016, we restructured loans of borrowers classified as standard, as well as made additional disbursements to borrowers whose loans had been restructured in prior years, aggregating Rs. 33.0 billion, as compared to Rs. 50.2 billion during fiscal 2015. Further, during fiscal 2016, restructured standard loans amounting to Rs. 53.0 billion were classified as non-performing due to failure of borrowers to perform as per restructured debt terms, compared to Rs. 45.1 billion during fiscal 2015.Restructured loans amounting to Rs. 12.1 billion were repaid in fiscal 2016 as compared to Rs. 5.6 billion in fiscal 2015. The gross outstanding standard restructured loans decreased by 24.6%Rs. 73.8 billion, or 16.8%, from Rs. 130.8438.8 billion at year-end fiscal 20152022 to Rs. 98.7365.0 billion at year-end fiscal 20162023. The aggregate net non-performing and the net outstanding restructured loans decreased by 24.9%Rs. 58.1 billion, or 34.8%, from Rs. 121.3166.8 billion at year-end fiscal 20152022 to Rs. 91.1108.7 billion at year-end fiscal 2016.Further, at year-end fiscal 2016, the ICICI Bank’s outstanding non-fund based facilities to borrowers whose loans were classified as restructured were Rs. 44.0 billion.
Outstanding amount of standard restructured loans in the power sector decreased by Rs. 11.3 billion, services -non finance sector by Rs. 7.8 billion, drugs and pharmaceuticals sector by Rs. 7.7 billion, others sector by Rs. 3.7 billion and services – finance sector by Rs. 2.8 billion. This decrease was primarily due to classification of standard restructured loans as non-performing category due to failure of the borrowers to perform as per restructured debt terms.
In fiscal 2016, we sold seven commercial loans with aggregate book value (net of provision) of Rs. 6.7 billion to an asset reconstruction company. In fiscal 2015, we sold 14 commercial loans with aggregate book value (net of provision) of Rs. 3.3 billion to an asset reconstruction company. See also “—Classification of Loans—Non-Performing Asset Strategy”.
The net standard restructured loans, as a percentage, decreased from 2.4% at year-end fiscal 2015 to 1.6% at year-end fiscal 2016. At year-end fiscal 2016, the outstanding provision on restructured loans (including the provision for funded interest) decreased from Rs. 9.5 billion at year-end fiscal 2015 to Rs. 7.6 billion at year-end fiscal 2016. See also “Operating and Financial Review and Prospects—Provisions for Non-performing Assets and Restructured Loans”.2023.
The aggregate gross non-performing assets and gross standard restructured loans increased by Rs. 87.2 billion, or 26.8%, from Rs. 304.7 billion at year-end fiscal 2015 to Rs. 391.9 billion at year-end fiscal 2016. The aggregate net non-performing assets and net restructured loans increased by Rs. 40.4 billion, or 20.4%, from Rs. 198.5 billion at year-end fiscal 2015 to Rs. 238.9 billion at year-end fiscal 2016.
In fiscal 2016, the Reserve Bank of India issued guidelines on strategic debt restructuring, for conversion of debt into equity, which results in majority ownership of the borrower by banks. At year-end fiscal 2016, we had implemented strategic debt restructuring in respect of loans aggregating Rs. 29.33 billion, including loans amounting to Rs. 25.56 billion classified as non-performing or standard restructured. Further, in fiscal 2015, the Reserve Bank of India had issued guidelines permitting banks to refinance long-term project loans to infrastructure and other core industries at periodic intervals without such refinancing being considered as restructuring. The outstanding portfolio of loans for which this refinancing scheme had been implemented was Rs. 42.39 billion atAt year-end fiscal 2016. These are2023, the loan amounting to Rs. 7.7 billion (at year-end fiscal 2022: Rs. 8.9 billion) was classified as standard loans. See also “Supervision andstandard.
Regulation—Regulations RelatingThe Bank’s Canadian subsidiary adopted International Financial Reporting Standards 9 (IFRS 9) – Financial instruments from April 1, 2018 and measures impairment loss on all financial assets using expected credit loss model based on a three-stage approach. At March 31, 2023, the Bank’s Canadian subsidiary classified exposure of Rs. 63.5 billion as Stage-2 (March 31, 2022: Rs. 14.0 billion) (financial assets, that are not credit impaired, but which have experienced significant increase in credit risk since origination), with allowance for expected credit loss of Rs. 0.9 billion (March 31, 2022: Rs. 0.8 billion) in fiscal 2023. The Stage-2 assets increased primarily in the mortgage portfolio due to Advancing Loans”.decline in bureau scores of borrowers.
Provisions and contingencies (excluding provision for tax)
The following table sets forth, for the periods indicated, the composition of provisions and contingencies, excluding provisions for tax.
Year ended March 31, | Year ended March 31, | |||||||||||||||||||||||||||||||
2015 | 2016 | 2016 | 2016/2015 % change | 2022 | 2023 | 2023 | 2023/2022 % change | |||||||||||||||||||||||||
(in millions, except percentages) | (in millions, except percentages) | |||||||||||||||||||||||||||||||
Provision for investments (net) | Rs. | 4,129 | Rs. | 2,985 | US$ | 46 | (27.7 | )% | Rs. | 5,412 | Rs. | 13,917 | US$ | 169 | — | |||||||||||||||||
Provision for non-performing and other assets | 36,307 | 77,189 | 1,190 | 112.6 | 63,775 | (3,654 | ) | (44 | ) | N/M | ||||||||||||||||||||||
Collective contingency and related reserve | - | 36,000 | 555 | N/M | ||||||||||||||||||||||||||||
Provision for standard assets | 3,928 | 3,176 | 49 | (19.1 | ) | 4,065 | 4,899 | 60 | 20.5% | |||||||||||||||||||||||
Others | 999 | 3,704 | 57 | 270.8 | ||||||||||||||||||||||||||||
Total provisions and contingencies (excluding tax) | Rs. | 45,363 | Rs. | 123,054 | US$ | 1,897 | 171.3 | % | ||||||||||||||||||||||||
Others(1) | 16,514 | 54,237 | 660 | — | ||||||||||||||||||||||||||||
Total provisions and contingencies (excluding provision for tax) | Rs. | 89,766 | Rs. | 69,399 | US$ | 845 | (22.7)% |
166
N/M-M – Not meaningful
(1) | Includes contingency provision amounting to Rs. 56.5 billion on a prudent basis for fiscal 2023. |
170
Provisions and contingencies increased(excluding provision for tax) decreased by 22.7% from Rs. 45.489.8 billion in fiscal 20152022 to Rs. 123.169.4 billion in fiscal 2016. This increase was primarily due to an increase in provisions for non-performing assets and creation of collective contingency and related reserve. Provision for non-performing loans and other assets increased from Rs. 36.3 billion in fiscal 2015 to Rs. 77.2 billion in fiscal 2016 primarily due to an increase in additions to non-performing loans in the corporate and small and medium enterprises loan portfolio, including reclassifications of restructured loans as non-performing loans due to the failure of the borrowers to perform as per the restructured terms.
There are uncertainties in respect of certain sectors due to the weak global economic environment, sharp downturn in the commodity cycle, gradual nature of the domestic economic recovery and high leverage by borrowers. The key sectors that have been impacted include power, mining, iron & steel, cement and rigs.At March 31, 2016, the Bank’s fund based exposure and outstanding non-fund based facilities to companies internally rated below investment grade (excluding borrowers classified as non-performing or restructured) was Rs. 119.6 billion (1.3% of the Bank’s total exposure) to power (excluding central public sector owned undertaking), Rs. 90.1 billion (1.0%) to mining, Rs. 77.8 billion (0.8%) to iron & steel, Rs. 66.4 billion (0.7%) to cement and Rs. 25.1 billion (0.3%) to rigs. Further, ICICI Bank’s fund based exposure and outstanding non-fund based facilities to promoter entities internally rated below investment grade where the underlying is partly linked to these sectors was Rs. 61.6 billion (0.7%).In view of the uncertainties relating to these sectors and the time that it may take to resolve our exposure to these sectors, we made a collective contingency and related reserve at March 31, 2016 of Rs. 36.0 billion towards the Bank’s exposure to these sectors and certain promoter entities where the underlying is partly linked to these sectors. This reserve is over and above the provisions required for non-performing and restructured loans as per the Reserve Bank of India guidelines but, as a prudent matter, is permitted under the Reserve Bank of India guidelines and Indian GAAP. There can be no assurance that this reserve would be adequate to cover any future provisioning requirements in respect of these exposures or that non-performing loans will not arise from other exposures in these sectors.
Our provisioning coverage ratio (specific provisions as a percentage of non-performing advances) at year-end fiscal 2016, computed in accordance with the Reserve Bank of India guidelines, was 50.6%.
See also “Business—Classification of Loans—Impact of Economic Environment on Commercial and Consumer Loan Borrowers—Non-performing Assets” and “Business—Classification of Loans—Impact of Economic Environment on Commercial and Consumer Loan Borrowers—Restructured Loans”.
Provision on standard assets decreased from Rs. 3.9 billion in fiscal 2015 to Rs. 3.2 billion in fiscal 2016. We held a cumulative general provision (excluding the collective contingency and related reserve) of Rs. 29.2 billion at year-end fiscal 2016 compared to Rs. 25.5 billion at year-end fiscal 2015.
Provision for investments decreased from Rs. 4.1 billion in fiscal 2015 to Rs. 3.0 billion in fiscal 2016.
Tax Expense
Income tax expense decreased by 37.4% from Rs. 54.0 billion in fiscal 2015 to Rs. 33.8 billion in fiscal 2016. The effective tax rate decreased from 29.4% in fiscal 2015 to 23.6% in fiscal 20162023 primarily due to a decrease in the effective tax rate of the Bank,provision on non-performing and other assets, offset, in part, by an increase in the effective tax rate of life insurance subsidiaryother provisions and general insurance subsidiary.contingencies.
Income tax expenseProvision for non-performing and other assets decreased from a provision of the Bank decreased by 46.8% from Rs. 46.563.8 billion in fiscal 20152022 to a write-back of Rs. 24.73.7 billion in fiscal 2016.2023. During fiscal 2023, there were lower additions, higher recoveries and upgrades from non-performing assets resulting in net write-back of provision, offset, in part, by an increase in provisioning rate for certain non-performing asset categories. During fiscal 2023, the Bank changed its provisioning norms on non-performing assets to make them more conservative. In fiscal 2022, the provision for non-performing and other assets also included provision for loans restructured under Resolution Framework for COVID-19-related Stress. The provision coverage ratio (i.e., specific provisions against non-performing loans as a percentage of gross non-performing loans) increased from 77.9% at March 31, 2022 to 81.5 % at March 31, 2023.
Provision for investments increased from a provision of Rs. 5.4 billion in fiscal 2022 to Rs. 13.9 billion in fiscal 2023 primarily due to an increase in provision on debentures, equity shares and security receipts.
Provision for standard assets increased from Rs. 4.1 billion in fiscal 2022 to Rs. 4.9 billion in fiscal 2023 primarily due to an increase in provision for standard assets of ICICI Bank. Provision for standard assets of ICICI Bank increased from Rs. 4.5 billion in fiscal 2022 to Rs. 5.8 billion in fiscal 2023.
Other provisions increased from Rs. 16.5 billion in fiscal 2022 to Rs. 54.2 billion in fiscal 2023. Provision for non-fund outstanding of ICICI Bank decreased from a provision of Rs. 11.7 billion in fiscal 2022 to a write-back of Rs. 5.2 billion in fiscal 2023. During fiscal 2023, the Bank made a contingency provision amounting to Rs. 56.5 billion (fiscal 2022: write-back of Rs. 0.3 billion), on a prudent basis, to further strengthen the balance sheet.
Provision for Tax
The provision for income tax expense increased from Rs. 84.6 billion in fiscal 2022 to Rs. 117.9 billion in fiscal 2023 primarily due to an increase in profit before tax and an increase in effective tax rate. The effective tax rate of the Bank decreasedincreased from 29.4%24.2% in fiscal 20152022 to 20.3%25.0 % in fiscal 20162023 primarily due to lower tax applicable on profit on salechange in composition of equity investments and set-off of capital losses carried forward from earlier periods, which were adjusted against capital gains in fiscal 2016 for tax purpose.
The life insurance subsidiary had an aggregate tax charge of Rs. 1.9 billion in fiscal 2016 compared to an aggregate tax charge of Rs. 0.01 billion in fiscal 2015. The lower tax expense in fiscal 2015 were primarily due to tax benefit on carried forward business losses of earlier years, which were adjusted fully against the profit for fiscal 2015 for tax purposes. The income tax expense of our general insurance subsidiary increased from Rs. 1.6 billion in fiscal 2015 to Rs. 2.0 billion in fiscal 2016. The lower tax expense in fiscal 2015 were primarily due to tax benefit on carried forward business losses of earlier years, which were fully adjusted against the profit for fiscal 2015 for tax purposes and a higher proportion of tax exempt investment income.
171
Financial ConditionPosition
Assets
The following table sets forth, at the dates indicated, the principal components of assets.
At March 31, | ||||||||||||||||
2015 | 2016 | 2016 | 2016/2015 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Cash and cash equivalents | Rs. | 476,372 | Rs. | 650,359 | US$ | 10,029 | 36.5 | % | ||||||||
Investments(1) | 2,743,108 | 2,860,441 | 44,109 | 4.3 | ||||||||||||
Advances (net of provisions) | 4,384,901 | 4,937,291 | 76,134 | 12.6 | ||||||||||||
Fixed assets | 58,712 | 87,135 | 1,344 | 48.4 | ||||||||||||
Other assets(1) | 597,699 | 652,336 | 10,059 | 9.1 | ||||||||||||
Total assets | Rs. | 8,260,792 | Rs. | 9,187,562 | US$ | 141,675 | 11.2 | % | ||||||||
At March 31 | ||||||||||||||||
2022 | 2023 | 2023 | 2023/2022 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Cash and cash equivalents (1) | Rs. | 1,831,260 | Rs. | 1,364,565 | US$ | 16,602 | (25.5 | )% | ||||||||
Investments | 5,670,977 | 6,395,520 | 77,814 | 12.8 | ||||||||||||
Advances (net of provisions) | 9,203,082 | 10,838,663 | 131,873 | 17.8 | ||||||||||||
Fixed assets | 106,054 | 109,690 | 1,335 | 3.4 | ||||||||||||
Other assets | 713,988 | 875,454 | 10,652 | 22.6 | ||||||||||||
Goodwill on consolidation | 1,013 | 1,013 | 12 | — | ||||||||||||
Total assets | Rs. | 17,526,374 | Rs. | 19,584,905 | US$ | 238,288 | 11.7% |
_________________
(1) |
Our total assets increased by 11.2%11.7% from Rs. 8,260.817,526.4 billion at year-end fiscal 20152022 to Rs. 9,187.619,584.9 billion at year-end fiscal 20162023 primarily due to an increase in net advances and investments, offset, in part, by a decrease in cash and cash equivalent and investments. Net advances increased by 12.6% from Rs. 4,384.9 billion at year-end fiscal 2015 to Rs. 4,937.3 billion at year-end fiscal 2016. Investments increased by 4.3% from Rs. 2,743.1 billion at year-end fiscal 2015 to Rs. 2,860.4 billion at year-end fiscal 2016. Cash and cash equivalents increased by 36.5% from Rs. 476.4 billion at year-end fiscal 2015 to Rs. 650.4 billion at year-end fiscal 2016.equivalents.
Cash and cash equivalents
Cash and cash equivalents include cashdecreased by 25.5% from Rs. 1,831.3 billion at year-end fiscal 2022 to Rs. 1,364.6 billion at year-end fiscal 2023 primarily due to a decrease in handshort term lending to the Reserve Bank of India under liquidity adjustment facility and balances withterm money lent in foreign currency, offset, in part, by an increase in standing deposit facility lending to the Reserve Bank of India and other banks, including money at call and short notice. Cash and cash equivalents increased from Rs. 476.4 billion at year-end fiscal 2015 to Rs. 650.4 billion at year-end fiscal 2016 primarily due to an increase in money lent at call and short notice, balances with banks outside India and balances with the Reserve Bank of India.India to maintain cash reserve ratio.
Investments
Total investments increased by 4.3%12.8% from Rs. 2,743.15,671.0 billion at year-end fiscal 20152022 to Rs. 2,860.46,395.5 billion at year-end fiscal 2016. 2023.
Investments of ICICI Bank increased from Rs. 1,581.33,102.4 billion at year-end fiscal 20152022 to Rs. 1,604.13,623.3 billion at year-end fiscal 20162023 primarily due to an increase in investments in Indian government securities, commercial paperbonds and debentures and pass through certificates, offset, in part, by a decrease in investmentsinvestment in bonds and debentures.foreign government securities.
Investments of ICICI Prudential Life Insurance Company increased from Rs. 984.32,337.5 billion at year-end fiscal 20152022 to Rs. 1,023.32,426.6 billion at year-end fiscal 2016.2023. Investments held to cover linked liabilities increaseddecreased from Rs. 747.81,508.7 billion at year-end fiscal 20152022 to Rs. 753.01,440.6 billion at year-end fiscal 2016.2023 primarily attributable to unrealised losses due to equity market performance and net outflows during the year due to maturity/withdrawal of linked policies , offset, in part, by an increase in new linked policies. Investments, other than investments held to cover linked liabilities, increased from Rs. 236.5828.9 billion at year-end fiscal 20152022 to Rs. 270.3986.0 billion at year-end fiscal 2016, reflecting an increase2023 primarily attributable to net inflows into the fund.
Investments of ICICI Securities Primary Dealership Limited increased from Rs. 158.6 billion in business volumefiscal 2022 to Rs. 247.8 billion in fiscal 2023 primarily due to an increase in investmentinvestments in Indian government securities, equity shares and certificates of deposit, offset, in part, by a decrease in investment in corporate bonds and debentures.securities.
Investments of ICICI Lombard General Insurance CompanyBank UK PLC increased from Rs. 98.239.5 billion at year-end fiscal 20152022 to Rs. 112.852.1 billion at year-end fiscal 2023 primarily due to an increase in investments in treasury bills and corporate bonds.
Investments of ICICI Bank Canada decreased marginally from Rs. 35.8 billion at year-end fiscal 2022 to Rs. 34.7 billion at year-end fiscal 2023.
Our total investment in Indian government securities increased by 21.7 % from Rs. 3,255.0 billion at year-end fiscal 2022 to Rs. 3,960.6 billion at year-end fiscal 2023.
172
At year-end fiscal 2023, ICICI Bank had an outstanding net investment of Rs. 2.1 billion in security receipts issued by asset reconstruction companies as compared to Rs. 8.1 billion at year-end fiscal 20162022. See also “Business—Overview of Our Products and Services—Investment Banking—Treasury”.
Classification of investments
Held-to-maturity
The amortized cost of our held-to-maturity portfolio increased from Rs. 2,777.6 billion at year-end fiscal 2022 to Rs. 3,418.1 billion at year-end fiscal 2023 primarily due to an increase in investment in government securities and equity shares reflecting an increase in business volume.
Investments of ICICI Securities Primary Dealership Limited increasedsecurities. Net unrealized gain on the held-to-maturity portfolio decreased from Rs. 129.0311.9 billion at year-end fiscal 20152022 to Rs. 139.0193.0 billion at year-end fiscal 2023. Interest earned on the held-to-maturity debt portfolio increased from Rs. 165.5 billion in fiscal 20162022 to Rs. 204.4 billion in fiscal 2023 primarily due to an increase in average portfolio and yield of government securities.
Available-for-sale
The amortized cost of our available-for-sale portfolio increased from Rs. 1,065.1 billion at year-end fiscal 2022 to Rs. 1,131.1 billion at year-end fiscal 2023. The investment in government securities increased from Rs. 615.6 billion at year-end fiscal 2022 to Rs. 624.8 billion at year-end fiscal 2023. The investments in corporate debt securities increased from Rs. 167.9 billion at year-end fiscal 2022 to Rs. 217.2 billion at year-end fiscal 2023. Investments in other debt securities increased from Rs. 113.7 billion at year-end fiscal 2022 to Rs. 126.3 billion at year-end fiscal 2023. Investments in equity shares decreased from Rs. 124.1 billion at year-end fiscal 2022 to Rs. 123.7 billion at year-end fiscal 2023. At year-end fiscal 2023, equity shares classified as available for sale amounting to Rs. 75.9 billion were held by ICICI Prudential Life Insurance Company Limited and Rs. 40.4 billion were held by ICICI Bank. Other investments (primarily include mutual fund units, security receipts, venture fund units and preference shares) increased from Rs. 37.7 billion at year-end fiscal 2022 to Rs. 39.1 billion at year-end fiscal 2023.
Net unrealized gain on debt investments decreased from Rs. 5.5 billion at year-end fiscal 2022 to a net unrealized loss of Rs. 0.9 billion at year-end fiscal 2023 primarily due to net unrealized loss on corporate debt securities and government securities. Net unrealized gain on equity securities increased from Rs. 50.8 billion at year-end fiscal 2022 to Rs. 53.9 billion at year-end fiscal 2023.
Net unrealized gain on other investments decreased from Rs. 0.6 billion at year-end fiscal 2022 to a net unrealized loss of Rs. 1.0 billion at year-end fiscal 2023 primarily due to decrease in unrealized gain of Rs. 0.4 billion on equity mutual fund investments and increase in unrealized loss of Rs. 1.3 billion on security receipts.
Held-for-trading
Investments in held-for-trading debt securities increased from Rs. 307.8 billion at year-end fiscal 2022 to Rs. 400.1 billion at year-end fiscal 2023 primarily due to an increase in investment in government securities.
Our total investment in Indian government securities, wascertificate of deposits, commercial paper and corporate bonds. Net unrealized gain on the held-for-trading portfolio decreased from Rs. 1,436.81.9 billion at year-end fiscal 2016, compared2022 to Rs. 1,334.20.1 billion at year-end fiscal 2015.
Investments of ICICI Bank UK increased by 58.3% from Rs. 31.1 billion at year-end fiscal 2015 to Rs. 49.3 billion at year-end fiscal 20162023 primarily due to an increasea decrease in investmentunrealized gain on the trading portfolio of ICICI Securities Primary Dealership Limited in corporate bonds. ICICI Bank Canada’s investment portfolio increased by 5.2% from Rs. 29.2 billion at year-end fiscal 20152023 as compared to Rs. 30.7 billion at year-end fiscal 2016.2022.
At year-end fiscal 2016, the Bank had an outstanding net investment173
Advances
Net advances increased by 12.6%17.8% from Rs. 4,384.99,203.1 billion at year-end fiscal 20152022 to Rs. 4,937.310,838.7 billion at year-end fiscal 20162023 primarily due to an increase in retail advances.advances of ICICI Bank.
Net advances of the Bank increased by 12.3%18.7% from Rs. 3,875.28,590.2 billion at year-end fiscal 20152022 to Rs. 4,352.610,196.4 billion at year-end fiscal 2016.2023. Net retail advances of ICICIthe Bank increased by 23.3%22.7% from Rs. 1,664.44,546.4 billion at year-end fiscal 20152022 to Rs. 2,027.95,578.2 billion at year-end fiscal 2016 primarily due to an increase in the home loans and automobile loan portfolios.2023. Net advances of the Bank’s overseas branches of ICICI Bank in U.S. dollar terms decreased by 6.0%17.4% from US$ 15.1Rs. 412.7 billion at year-end fiscal 20152022 to US$ 14.2Rs. 341.1 billion at year-end fiscal 2016. However, net advances of the overseas branches of ICICI Bank in rupee terms decreased marginally from Rs. 941.2 billion at year-end fiscal 2015 to Rs. 938.1 billion at year-end fiscal 2016 primarily due to the impact of the depreciation of the rupee against the U.S. dollar. 2023. See also “Business – Loan Portfolio”.
Net advances of ICICI Home Finance increased by 13.3%20.6% from Rs. 76.2142.2 billion at year-end fiscal 20152022 to Rs. 86.3171.5 billion at year-end fiscal 2016 primarily due to an increase in retail loans.2023.
AdvancesNet advances of ICICI Bank UK increasedPLC decreased by 14.3% from Rs. 189.795.2 billion at year-end fiscal 20152022 to Rs. 209.181.5 billion at year-end fiscal 20162023 primarily due to an increase in the corporate loan book, offset, in part, by reduction in the portfolioprepayment and sell down of foreign currency convertible bonds on account of maturities.loans.
AdvancesNet advances of ICICI Bank Canada increased by 4.2% from Rs. 254.2302.0 billion at year-end fiscal 20152022 to Rs. 295.5314.9 billion at year-end fiscal 20162023 primarily due to an increase in the securitizedcorporate loans, offset, in part, by decrease in insured mortgages portfolio. See also “Business – Loan Portfolio”.mortgages.
Fixed and other assets
Fixed assets include premises, furniture and fixtures, assets given on lease and other fixed assets. Fixed assets increased by 48.4%3.4% from Rs. 58.7106.1 billion at year-end fiscal 20152022 to Rs. 87.1109.7 billion at year-end fiscal 2016. During fiscal 2016, the Bank carried out a revaluation of premises resulting in a revaluation gain of Rs. 28.2 billion. 2023.
Other assets increased from Rs. 597.7714.0 billion at year-end fiscal 20152022 to Rs. 652.3875.5 billion at year-end fiscal 20162023 primarily due to an increase in deferred tax assetsmark-to-market on foreign exchange and non-banking assets acquired in satisfaction of claims,derivative transactions, interest accrued on loans and investments and trade receivables, offset, in part, by a decrease in mark-to-marketrural infrastructure development fund and receivables onother related deposits. The Bank is an active participant in the interest and foreign exchange and derivative transactions. During fiscal 2016, ICICI Bank acquired fixed assets amounting to Rs. 17.2 billionmarket. While the positive mark-to-market on such transactions are accounted in satisfaction of claims under debt-asset swap‘Other Assets’, the negative mark-to-market on offsetting transactions with certain borrowers.are accounted in ‘Other Liabilities’.
Liabilities and Stockholders’ Equity
The following table sets forth, at the dates indicated, the principal components of liabilities and stockholders’ equity.
At March 31, | ||||||||||||||||
2015 | 2016 | 2016 | 2016/2015 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Deposits | Rs. | 3,859,552 | Rs. | 4,510,774 | US$ | 69,557 | 16.9 | % | ||||||||
Borrowings(1) | 2,112,520 | 2,203,777 | 33,983 | 4.3 | ||||||||||||
Other liabilities(2) | 1,416,616 | 1,498,348 | 23,105 | 5.8 | ||||||||||||
Minority interest | 25,058 | 33,556 | 517 | 33.9 | ||||||||||||
Total liabilities | 7,413,746 | 8,246,455 | 127,162 | 11.2 | ||||||||||||
Equity share capital | 11,597 | 11,632 | 179 | 0.3 | ||||||||||||
Reserves and surplus(3) | 835,449 | 929,475 | 14,333 | 11.3 | ||||||||||||
Total liabilities (including capital and reserves) | Rs. | 8,260,792 | Rs. | 9,187,562 | US$ | 141,674 | 11.2 | % | ||||||||
At March 31, | ||||||||||||||||
2022 | 2023 | 2023 | 2023/2022 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Deposits | Rs. | 10,913,658 | Rs. | 12,108,322 | US$ | 147,321 | 10.9% | |||||||||
Borrowings(1) | 1,616,027 | 1,890,618 | 23,003 | 17.0 | ||||||||||||
Other liabilities | 3,116,355 | 3,374,120 | 41,053 | 8.3 | ||||||||||||
Total liabilities | 15,646,040 | 17,373,060 | 211,377 | 11.0 | ||||||||||||
Minority interest | 59,809 | 66,867 | 813 | 11.8 | ||||||||||||
Capital | 13,900 | 13,968 | 170 | 0.5 | ||||||||||||
Reserves and surplus(2) | 1,806,625 | 2,131,010 | 25,928 | 18.0 | ||||||||||||
Total liabilities and stockholders’ equity | Rs. | 17,526,374 | Rs. | 19,584,905 | US$ | 238,288 | 11.7% |
_________________
(1) | Includes subordinated |
(2) |
Includes employees’ stock options outstanding. |
174
Our total liabilities (including capital and reserves)reserves and surplus) increased by 11.2%11.7% from Rs. 8,260.817,526.4 billion at year-end fiscal 20152022 to Rs. 9,187.619,584.9 billion at year-end fiscal 2016,2023, primarily due to an increase in deposits and borrowings.
Deposits
Deposits increased by 16.9%10.9% from Rs. 3,859.610,913.7 billion at year-end fiscal 20152022 to Rs. 4,510.812,108.3 billion at year-end fiscal 2016. 2023.
Deposits of ICICIthe Bank increased by 16.6%10.9% from Rs. 3,615.610,645.7 billion at year-end fiscal 20152022 to Rs. 4,214.311,808.4 billion at year-end fiscal 2016.2023. Term deposits of ICICI Bank increased by 15.8%17.1% from Rs. 1,971.85,461.4 billion at year-end fiscal 20152022 to Rs. 2,283.36,395.8 billion at year-end fiscal 2016.2023. Savings account deposits increased by 5.5% from Rs. 3,599.6 billion at year-end fiscal 2022 to Rs. 3,797.8 billion at year-end fiscal 2023 and current account deposits increased by 1.9% from Rs. 1,584.8 billion at year-end fiscal 2022 to Rs. 1,614.9 billion at year-end fiscal 2023. The current account and savings account deposits of ICICI Bank increased by 4.4% from Rs. 1,643.85,184.4 billion at year-end fiscal 20152022 to Rs. 1,931.05,412.6 billion at year-end fiscal 2016. Savings account deposits2023. Deposits of overseas branches increased by 16.9% from Rs. 1,148.698.1 billion at year-end fiscal 20152022 to Rs. 1,342.3147.8 billion at year-end fiscal 20162023. The total deposits of the Bank remained at a similar level at 90.8% of its funding (i.e., deposits and current account deposits increased by 18.9% from Rs. 495.2 billionborrowings) at year-end fiscal 2015 to Rs. 588.7 billion at year-end fiscal 2016. Deposits of overseas branches, in dollar terms, decreased by 5.6% from US$ 1.8 billion at year-end fiscal 2015 to US$ 1.7 billion at year-end fiscal 2016March 31, 2022 and in rupee terms, decreased by 2.2% from Rs. 112.5 billion at year-end fiscal 2015 to Rs. 110.0 billion at year-end fiscal 2016.March 31, 2023. See also “Selected Statistical Information—Funding”.
Deposits of ICICI Bank Canada increased from Rs. 109.3172.8 billion at year-end fiscal 20152022 to Rs. 140.0193.2 billion at year-end fiscal 2016,2023 primarily due to an increase in term and demand deposits.
Deposits of ICICI Bank UK PLC increased from Rs. 116.9 billion at year-end fiscal 2022 to Rs. 132.2 billion at year-end fiscal 2023 primarily due to an increase in term deposits and exchange rate movements.
Average savings account deposits increased by 12.3% from Rs. 78.93,108.9 billion in fiscal 2022 to Rs. 3,492.0 billion in fiscal 2023. Average current account deposits increased by 13.5% from Rs. 1,212.3 billion in fiscal 2022 to Rs. 1,376.2 billion in fiscal 2023. Average current account and savings account deposits increased by 12.7% from Rs. 4,321.2 billion in fiscal 2022 to Rs. 4,868.2 billion in fiscal 2023. The average current account and savings account ratio was at 44.6% at year-end fiscal 2023 as compared to 44.5% at year-end fiscal 2022. Average current account and savings account deposits were 37.9% of the funding (i.e., deposits and borrowings) for fiscal 2023 as compared to 38.5% for fiscal 2022.
Borrowings
Borrowings increased by 17.0% from Rs. 1,616.0 billion at year-end fiscal 20152022 to Rs. 101.91,890.6 billion at year-end fiscal 2016 and an increase in current account deposits2023.
Borrowings of ICICI Bank increased by 11.3% from Rs. 4.61,072.3 billion at year-end fiscal 20152022 to Rs. 7.21,193.3 billion at year-end fiscal 2016.
Deposits of ICICI Bank UK increased from Rs. 142.8 billion at year-end fiscal 2015 to Rs. 163.4 billion at year-end fiscal 2016,2023, primarily due to an increase in savings and current deposits, offset, in part, by a decrease in term deposits.
Our total term deposits increased from Rs. 2,133.9 billion at year-end fiscal 2015 to Rs. 2,462.8 billion at year-end fiscal 2016, while savings deposits increased from Rs. 1,221.1 billion at year-end fiscal 2015 to Rs. 1,444.6 billion at year-end fiscal 2016. At year-end fiscal 2016, deposits formed 67.2% of our funding (i.e., deposits and borrowings, including subordinated debt and redeemable non-cumulative preference shares). See also “Business—Funding”.
Borrowings
Borrowings increased by 4.3% from Rs. 2,112.5 billion at year-end fiscal 2015 to Rs. 2,203.8 billion at year-end fiscal 2016. Borrowings of ICICI Bank increased by 1.4% from Rs. 1,724.2 billion at year-end fiscal 2015 to Rs. 1,748.1 billion at year-end fiscal 2016, primarily due to an increase in foreign currency bond borrowings, refinance borrowings and foreign currency term money borrowing, offset, in part, by a decrease in borrowings from the Reserve Bank of India under the liquidity adjustment facility. Net borrowings of overseas branches increased by 2.3% from Rs. 880.2 billion at year-end fiscal 2015 to Rs. 959.8 billion at year-end fiscal 2016.
Borrowings of ICICI Bank UK increased from Rs. 71.5 billion at year-end fiscal 2015 to Rs. 98.7 billion at year-end fiscal 2016 primarily due to an increase in inter-bank borrowings, bond borrowings and syndicated borrowings, offset, in part, by a decrease in reposubordinated debt, foreign currency term money borrowings and foreign currency bond borrowings. Net borrowings of overseas branches decreased from Rs. 319.2 billion at year-end fiscal 2022 to Rs. 258.1 billion at year-end fiscal 2023.
175
Borrowings of ICICI Bank CanadaSecurities Primary Dealership Company increased from Rs. 133.8159.6 billion at year-end fiscal 20152022 to Rs. 153.8302.8 billion at year-end fiscal 2016,2023 primarily due to an increase in securitizationrepurchase borrowings.
Borrowings of insured mortgages.ICICI Home Finance Company increased from Rs. 126.4 billion at year-end fiscal 2022 to Rs. 147.3 billion at year-end fiscal 2023 primarily due to an increase in term, bond borrowing, fixed deposits and commercial papers, offset, in part, by prepayment of external commercial borrowings.
Borrowings of ICICI Securities Limited increased from Rs. 77.4 billion at year-end fiscal 2022 to Rs. 92.9 billion at year-end fiscal 2023 primarily due to an increase in short-term borrowings.
Borrowings of ICICI Bank Home Finance Company increasedUK PLC decreased from Rs. 64.125.5 billion at year-end fiscal 20152022 to Rs. 74.510.7 billion at year-end fiscal 20162023 primarily due to an increasematurity of long-term borrowings.
Borrowings of ICICI Bank Canada decreased from Rs. 148.8 billion at year-end fiscal 2022 to Rs. 140.1 billion at year-end fiscal 2023, primarily due to reduction in unsecured bondterm money and securitized borrowings. See also “Business—Funding”.
Other liabilities
Other liabilities primarily consist of sundry creditors, bills payable and liabilities on insurance policies in force pertaining to our insurance subsidiaries and proposed dividend including corporate dividend tax.subsidiary. Other liabilities increased by 5.8%8.3% from Rs. 1,416.63,116.4 billion at year-end fiscal 20152022 to Rs. 1,498.33,374.1 billion at year-end fiscal 2016, primarily due to an increase in liabilities2023. Liabilities on policies in force of our life insurance business increased by Rs. 34.3 billion4.4% from Rs. 936.22,288.3 billion at year-end fiscal 20152022 to Rs. 970.52,388.7 billion at year-end fiscal 2016 and creation2023. Other liabilities of collective contingency and related reserve ofthe Bank increased by 20.8% from Rs. 36.0689.8 billion offset,at year-end fiscal 2022 to Rs. 833.3 billion at year-end fiscal 2023 primarily due to an increase in part, by a decrease in mark-to-market amount and payables on foreign exchange and derivatives transactions.derivative transactions and contingency provision made on prudent basis, to further strengthen the balance sheet.
Other liabilities include proposed dividends (including corporate dividend tax) of Rs. 32.9 billion in fiscal 2016 compared to Rs. 32.7 billion in fiscal 2015. In India, dividends declared for a fiscal year are normally paid in the following year. We declared a dividend of Rs. 5.00 per equity share for fiscal 2015, which were paid in fiscal 2016. We declared a dividend of Rs. 5.00 per equity share for fiscal 2016, which has been paid in fiscal 2017.Capital and reserves and surplus
Equity share capitalCapital and reserves
Stockholders’ equity and surplus increased from Rs. 847.01,820.5 billion at year-end fiscal 20152022 to Rs. 941.12,145.0 billion at year-end fiscal 20162023 primarily due to the annual accretion to reserves and surplus out of profit, and creation of revaluation reserve on fixed assets, offset, in part, by dividend proposedpayment of dividend.
Consolidated Cash Flow Statement
Please refer to “Consolidated financial Statements—Consolidated cash flow statements”.
Cash and cash equivalents decreased by the Bank25.5% from Rs. 1,831.3 billion at year-end fiscal 2022 to Rs. 1,364.6 billion at year-end fiscal 2023.
There was a net cash outflow from operating activities of Rs. 37.7 billion in fiscal 2023 as compared to a net cash inflow of Rs. 581.1 billion in fiscal 2022 primarily due to an increase in advances, other assets and lower increase in deposits in fiscal 2023 as compared to fiscal 2022.
The net cash outflow from investing activities increased from Rs. 393.2 billion in fiscal 2022 to Rs. 680.1 billion in fiscal 2023 primarily due to higher net purchase of held-to-maturity securities.
The net cash inflow from financing activities increased from Rs. 174.5 billion in fiscal 2022 to Rs. 247.9 billion in fiscal 2023 primarily due to a net increase in proceeds in long-term borrowings, offset, in part, by net decrease in proceeds in short-term borrowings in fiscal 2023 as compared to fiscal 2022.
176
For a discussion of our results in fiscal 2022 compared to fiscal 2021 and certain comparative numbers in fiscal 2022, please refer to “Part I — Item 5. Operating and Financial Review and Prospects” contained in our Annual Report on Form 20-F for fiscal 2016. See also “Consolidated Financial Statements- Schedules- Schedule 18-Notes forming part of2022 filed with the accounts- 14. ProvisionU.S Securities and Exchange Commission on Funded Interest Term Loan”.July 29, 2022.
Off Balance Sheet Items, Commitments and ContingenciesArrangements
Foreign Exchange and Derivatives Contracts
We enter into foreign exchange forwards, options, swaps and other derivatives 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. For additional details, see also note 13 to our “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes” included herein.
The following table sets forth, at the dates indicated, the notional amount of foreign exchange and interest rate derivatives contracts.
Notional principal amounts | Balance sheet fair value(1) | |||||||||||||||||||||||||||||||
At March 31, | At March 31, | |||||||||||||||||||||||||||||||
2015 | 2016 | 2017 | 2017 | 2015 | 2016 | 2017 | 2017 | |||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||
Interest rate products: | ||||||||||||||||||||||||||||||||
Swap agreements | Rs. | 4,361,764 | Rs. | 4,825,926 | Rs. | 6,118,473 | US$ | 94,348 | Rs. | 15,838 | Rs. | 19,289 | Rs. | 3,795 | US$ | 59 | ||||||||||||||||
Others | 116,734 | 53,847 | 65,252 | 1,006 | 280 | (449 | ) | 150 | 2 | |||||||||||||||||||||||
Total interest rate products | Rs. | 4,478,498 | Rs. | 4,879,773 | Rs. | 6,183,725 | US$ | 95,354 | Rs. | 16,118 | Rs. | 18,840 | Rs. | 3,945 | US$ | 61 | ||||||||||||||||
Foreign exchange products: | ||||||||||||||||||||||||||||||||
Forward contracts | Rs. | 3,035,674 | Rs. | 3,770,911 | Rs. | 4,446,642 | US$ | 68,568 | Rs. | (7,599 | ) | Rs. | 1,534 | Rs. | (538 | ) | US$ | (8 | ) | |||||||||||||
Swap agreements | 534,420 | 468,883 | 411,069 | 6,339 | (340 | ) | 2,902 | 9, 062 | 140 | |||||||||||||||||||||||
Others | 535,252 | 462,022 | 518,974 | 8,003 | (2,013 | ) | (2,608 | ) | (2,131 | ) | (33 | ) | ||||||||||||||||||||
Total foreign exchange products | Rs. | 4,105,346 | Rs. | 4,701,816 | Rs. | 5,376,684 | US$ | 82,910 | Rs. | (9,951 | ) | Rs. | 1,828 | Rs. | 6,393 | US$ | 99 | |||||||||||||||
The notional principal amount of interest rate products increased from Rs. 4,879.8 billion at year-end fiscal 2016 to Rs. 6,183.7 billion at year-end fiscal 2017. The credit exposure on interest rate derivatives decreased from Rs. 79.4 billion at year-end fiscal 2016 to Rs. 78.5 billion at year-end fiscal 2017. The notional principal amount of foreign exchange products increased from Rs. 4,701.8 billion at year-end fiscal 2016 to Rs. 5,376.7 billion at year-end fiscal 2017. The credit exposure on foreign exchange derivatives increased from Rs. 206.5 billion at year-end fiscal 2016 to Rs. 218.9 billion at year-end fiscal 2017.Guarantees
An interest rate swap doesWe have issued bank guarantees to support business requirements of certain of our clients. Guarantees represent irrevocable assurances that the Bank will pay in the event a customer fails to fulfill its financial or performance obligations. The guarantees are generally for a period not entailexceeding 10 years. We enter into guarantee arrangements after conducting appropriate due diligence on our clients. We generally review these facilities on an annual basis. If a client’s risk profile deteriorates to an unacceptable level, we may choose not to renew the exchange of notional principal, andguarantee upon expiry or may require additional security sufficient to protect our exposure.
Upon default by a client under the cash flow arises becauseterms of the difference betweenguarantee, the interest rate paybeneficiary may exercise its rights under the guarantees, and we are obligated to honor payments to the beneficiaries. Banks and financial institutions are beneficiaries for some of our financial guarantees, so as to enable clients to receive portionsfinancial assistance from these banks and financial institutions. If our clients default on such loans, the banks and financial institutions may exercise their rights under the guarantee and we are obligated to honor payments to them.
For additional details, see also note 22(o) to our “Consolidated financial statements—Schedules forming part of the swap, which is generally much lower than the 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 the 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 counterparty, the net market risk of the two transactions will be zero whereas the notional principal amount of the portfolio will be the sum of both transactions. We had no funded credit derivatives instruments and non-funded credit derivatives instruments at year-end fiscal 2017.consolidated financial statements—Additional notes” included herein.
Commitments
Securitization
The Bank primarily securitizes retail loans through securitization transactions involving special purpose entities, usually constituted as trusts. Post securitization of the loans, we continue to act as the servicing agent and maintain customer account relationships and service these set of loans transferred to the securitization trusts. The securitization transactions can be either with or without credit enhancement. In accordance with the Reserve Bank of India guidelines for securitization of standard assets, the Bank accounts for any loss arising from securitization immediately at the time of sale and the profit/premium arising from securitization is amortized over the life of the transaction based on the method prescribed by the Reserve Bank of India guidelines.
The Bank acts in different capacities and under different contracts for a consideration including as originator, liquidity facility provider, servicing agent credit enhancement provider, underwriter, and senior contributor etc.
In a securitization transaction, the excess interest spreads from the underlying assets in securitization transactions are generally subordinated to provide credit enhancement. In addition to the subordination of excess interest spreads, the Bank in a separate capacity provides external credit enhancement facilities to mitigate cash flow shortfalls that may arise from the underlying asset delinquencies. These facilities include first loss credit enhancement representing the first or primary level of protection provided to bring the ratings accorded to the beneficial interests of senior contributors to investment grade. The Bank also provides second loss credit enhancement representing a subsequent level of protection provided to protect the beneficiaries against further cash flow shortfalls.contributor. The Bank has provided credit enhancementenhancements (first loss and second loss enhancement) on the securitized pools originated by the Bank and guarantees (second loss enhancement) provided to the pools originated by a third party. The Bank, in a separate capacity, provides liquidity facilities to help smoothen the timing differences faced by the special purpose vehicles between the receipt of cash flows from the underlying assets and the payments to be made to the investors. The liquidity facility enjoys a priority of claim over the future cash flows from the underlying assets, which is even senior to the claims of the senior contributors.
With respect to the securitized pools originated by the Bank, the first loss and second loss credit enhancements are provided either in the form177
The total outstanding first loss credit enhancements at year-end fiscal 20172023 were Rs. 2.20.7 billion and second loss credit enhancements were Rs. 1.80.7 billion for securitized pools originated by the Bank. With respect to the second loss guarantees provided to the third party originated pools, the outstanding at year-end fiscal 20172023 was Rs. 3.51.9 billion.
Our Canadian subsidiary has entered into securitization arrangements in respect of its self-originated and/or purchased (originated by third parties) insured residential mortgages, to issue National Housing Act Mortgage-backed Securities and also participates in Canada Mortgage Bonds program as a seller. The National Housing Act Mortgage-backed Securities are backed by pools of amortizing residential mortgages insured by the Canada Mortgage and Housing Corporation or approved third party insurers (which are generally guaranteed by the
federal Government of Canada). The Canada Mortgage Bonds, introduced by Canada Mortgage and Housing Corporation, is a guaranteed, semi-annual coupon, bullet-maturity bond. Canada Mortgage Bonds are issued by a special purpose trust, known as Canada Housing Trust.
As required under the Canada Mortgage Bonds program, our Canadian subsidiary, as an issuer, has undertaken to remit monthly to the Central Payor and Transfer Agent the payments of principal and interest accrued and due on the mortgage loans in the pools. ICICI Bank Canada has also undertaken to make the payments to the Central Payor and Transfer Agent on the due dates even if the corresponding amounts have not been received and collected by them in respect of the pools. At year-end fiscal 2017, the outstanding balance of such securitized insured mortgages were CAD 3.1 billion.
Loan Commitments
We have outstanding undrawn commitments to provide loans and financing to customers. These loan commitments aggregated to Rs. 1,364.1 billion (including fund-based commitments fungible with non-fund-based facilities) at year-end fiscal 2017, compared to Rs. 1,498.9 billion at year-end fiscal 2016. The interest rate on a significant portion of these commitments is dependent on the lending rates prevailing on the date of the loan disbursement. Further, the commitments have fixed expiration dates and are generally contingent upon the borrower’s ability to maintain specific credit standards. For additional details, see also note 11 to our “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes” included herein.
Capital Commitments
We are obligated under a number of capital contracts. Capital contracts are job orders of a capital nature, which have been committed. The estimated amountsFor additional details, see also note 12 to our “Consolidated financial statements—Schedules forming part of contracts remaining to be executed on capital projects decreased from Rs. 6.1 billion at year-end fiscal 2016 to Rs. 5.5 billion at year-end fiscal 2017.the consolidated financial statements—Additional notes” included herein.
Other ContractualLong-term Debt Obligations
The following table sets forth certain contractual obligations at year-end fiscal 2017.
Payments due by period | ||||||||||||||||||||
Contractual Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | |||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||
Long-term debt obligations | Rs. | 1,588,337 | Rs. | 293,736 | Rs. | 501,119 | Rs. | 284,606 | Rs. | 508,876 | ||||||||||
Time deposits | 2,567,875 | 2,037,943 | 424,621 | 83,951 | 21,360 | |||||||||||||||
Life-insurance obligations(1) | 1,629,530 | (51,705 | ) | (181,343 | ) | 36,514 | 1,826,064 | |||||||||||||
Gratuity obligations(2) | 16,518 | 1,779 | 3,269 | 3,327 | 8,143 | (3) | ||||||||||||||
Pension obligations(2) | 10,667 | 942 | 2,337 | 2,388 | 5,000 | (3) | ||||||||||||||
Operating lease obligations | 2,195 | 455 | 785 | 601 | 354 | |||||||||||||||
Guarantees(4),(5) | ||||||||||||||||||||
Financial guarantees | 388,779 | 285,721 | 68,216 | 22,638 | 12,204 | |||||||||||||||
Performance guarantees | 631,185 | 371,748 | 177,326 | 60,375 | 21,736 | |||||||||||||||
Total | Rs. | 6,835,086 | Rs. | 2,940,619 | Rs. | 996,330 | Rs. | 494,400 | Rs. | 2,403,737 | ||||||||||
Long-term debt obligations
Long-term debt represents debt with an original contractual maturity greater than one year. Maturity distribution is based on contractual maturity, or the date at which the debt is callable at the option of the holder, whichever is earlier.
For a detailed discussion on long-term debt,additional details, see also note 3 to our “Consolidated Financial Statements—financial statements—Schedules forming part of the consolidated financial statements—Additional Notes”notes” included herein.
Time depositsDeposits
Time deposits represent deposits with fixed maturity terms. Generally,Most of the time deposits can be withdrawn by the depositors any time before maturity, subject to certain prepayment charges.
For additional details, see also note 2 to our “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes” included herein.
Life insurance obligationsInsurance Obligations
Life insurance obligations primarily include liabilities for life insurance policies, including both unit-linked and non-linked policies.
A unit-linked life insurance policy is a policy in which the cash value of the policy varies according to the net asset value of units (i.e., shares) in investment assets chosen by the policyholder. The unit liability is equal to the net asset value of the units in each policy as of the valuation date. The non-unit liability for linked insurance policies and the liability for non-linked life insurance policies is calculated using the gross premium method using assumptions for interest, mortality, expense and inflation. For participating policies, the assumptions are also made for future bonuses, together with allowances for taxation and allocation of profits to shareholders. These assumptions are determined as prudent estimates at the date of valuation with allowances for adverse deviations.
Total life insurance obligation at year-end fiscal 2023 was amounting to Rs. 5,205.8 billion.
178
Gratuity obligationsObligations
We provide gratuity, a defined benefit retirement plan covering all employees who retire or resign after a minimum prescribed period of continuous service. The plan provides a lump sum payment to eligible employees at retirement or termination of employment based on the respective employee’s salary and years of employment with us.
The gratuity benefit is providedFor additional details, see also note 22(j) to employees through either an in-house fund or separate funds managed by Life Insurance Corporationour “Consolidated financial statements—Schedules forming part of India Limited and ICICI Prudential Life Insurance Company Limited. We are responsible for settling the gratuity obligation through contribution to these funds.consolidated financial statements—Additional notes” included herein.
Pension obligationsObligations
The Bank provides pensions—deferred retirement plans—covering certain employees of the former Bank of Madura, Sangli Bank and Bank of Rajasthan. The plans provide for monthly pension payments to these employees when they retire. These paymentsretire and are based on the respective employee’semployees’ years of service with the Bank and applicable salary and include a cost of living adjustment. Pension funds for employees in service who previously worked at the former Bank of Madura, Sangli Bank or Bank of Rajasthan are managed in an in-house trust and the liability is funded as per actuarial valuation.
PursuantFor additional details, see also note 22(j) to a master policy, the Bank purchases annuities from Life Insurance Corporation and ICICI Prudential Life Insurance Company Limited for the benefit of employees upon their retirement. These annuities provide the pension payments to retired employeesour “Consolidated financial statements—Schedules forming part of the former Bank of Madura, Sangli Bank and Bank of Rajasthan.consolidated financial statements—Additional notes” included herein.
Operating lease obligationsand Finance Lease Obligations
We have commitments under long-term operating leases and finance leases principally for premises. The following table sets forth a summary of future minimum lease rental commitments at year-end fiscal 2017.
Lease rental commitments for fiscal | (in millions) | |||
2018 | Rs. | 455 | ||
2019 | 410 | |||
2020 | 375 | |||
2021 | 350 | |||
2022 | 251 | |||
Thereafter | 354 | |||
Total minimum lease commitments | Rs. | 2,195 |
174
Guaranteespremises and office equipment.
As aFor additional details, see also note 22(k) to our “Consolidated financial statements—Schedules forming part of our project financing and commercial banking activities, we have issued bank guarantees to support business requirements of our clients. Guarantees represent irrevocable assurances that the Bank will pay in the event a customer fails to fulfill itsconsolidated financial or performance obligations. Financial guarantees are obligations to pay a third party beneficiary, when 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 risks, as well as the operating risks, associated with bank guarantees are similar to those relating to other types of unfunded facilities. We enter into guarantee arrangements after conducting appropriate due diligence on our clients. We generally review these facilities on an annual basis. If a client’s risk profile deteriorates to an unacceptable level, we may choose not to renew the guarantee upon expiry or may require additional security sufficient to protect our exposure. Guarantees decreased by 6.6% from Rs. 1,091.8 billion at year-end fiscal 2016 to Rs. 1,020.0 billion at year-end fiscal 2017.statements—Additional notes” included herein.
The following table sets forth, at the dates indicated, guarantees outstanding.
At year-end fiscal | ||||||||||||||||||||
2015 | 2016 | 2017 | 2017 | 2017/2016 % change | ||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||
Financial guarantees | Rs. | 461,262 | Rs. | 460,968 | Rs. | 388,779 | US$ | 5,995 | (15.6 | )% | ||||||||||
Performance guarantees | 611,080 | 630,784 | 631,185 | 9,733 | 0.1 | |||||||||||||||
Total guarantees | Rs. | 1,072,342 | Rs. | 1,091,752 | Rs. | 1,019,964 | US$ | 15,728 | (6.6 | )% |
Financial guarantees constituted approximately 38% of our guarantee exposure at year-end fiscal 2017. Of these financial guarantees, approximately 11 % were issued towards risk participation, syndication and favoring other lenders as beneficiaries to allow our clients to avail credit assistance or credit enhancement from other lenders. The remaining financial guarantees were issued to support other business requirements of our clients, such as guarantees for the procurement of goods or guarantees in lieu of security/cash deposits. Performance guarantees constituted 62% of our guarantee exposure at year-end fiscal 2017.
Illustrative examples of client business activities requiring guarantees include: contracts to procure goods from suppliers where guarantees are obtained by clients to provide suppliers with assurance of payment in case the clients fail to pay upon receipt of goods; submission of bids for projects where guarantees are obtained by clients to provide assurance of performance of contract obligations in case the bid is awarded to them; advances against goods or services to be supplied by clients to their own customers where guarantees are obtained by clients to assure their customers of a refund of the advance in case the clients are unable to supply goods or services; guarantees provided in lieu of security deposits or cash deposits that clients would otherwise be required to maintain with stock exchanges; commodity exchanges, regulatory authorities or other bodies, or for participating in tenders or in other business contracts; and guarantees obtained by clients in favor of lenders that enable the clients to receive credit assistance or credit enhancement from lenders by providing such lenders with assurance of payment.
Upon default by a client under the terms of the guarantee, the beneficiary may exercise its rights under the guarantees, and we are obligated to honor payments to the beneficiaries. Banks and financial institutions are beneficiaries for some of our financial guarantees, so as to enable clients to receive financial assistance from these banks and financial institutions. If our clients default on such loans, the banks and financial institutions may exercise their rights under the guarantee and we are obligated to honor payments to them. Amounts that we pay to the other banks and financial institutions and do not recover from clients are subject to the Reserve Bank of India’s prudential norms on income recognition, asset classification and provisioning pertaining to advances.
In some cases, we have collateral available to reimburse potential losses on our guarantees. Margins in the form of cash and fixed deposit available to us to reimburse losses realized under guarantees amounted to Rs. 85.7 billion at year-end fiscal 2017, compared to Rs. 78.7 billion at year-end fiscal 2016. Other property or security may also be available to us to cover losses under these guarantees.
Our related party guarantees amounted to Rs. 8 million at year-end fiscal 2017.
The following table sets forth the roll-forward of activity for guarantees at year-end fiscal 2017.
Particulars | Performance Guarantees | Financial Guarantees | ||||||
(in millions) | ||||||||
Opening balance at April 1, 2016 | Rs. | 630,784 | Rs. | 460,968 | ||||
Additions: Issued during the year | 229,548 | 331,607 | ||||||
Deletions: Closed due to expiry/termination during the year | (222,842 | ) | (358,880 | ) | ||||
Invoked and paid during the year | (6,305 | ) | (44,916 | ) | ||||
Closing balance at year-end fiscal 2017 | Rs. | 631,185 | Rs. | 388,779 |
Capital Resources
We actively manage our capital to meet regulatory norms and current and future business needs, considering the risks in itsour businesses, expectations of rating agencies, shareholders and investors, and the available options of raising capital. ItsOur capital management framework is administered by the Finance Group and the Risk Management Group under the supervision of the Board and the Risk Committee. The capital adequacy position and assessment is reported to the Board and the Risk Committee periodically.
Regulatory capitalCapital
ICICI Bank is subject to the Basel III capital adequacy guidelines stipulated by the Reserve Bank of India issued final Basel III guidelines, applicable with effecteffective from April 1, 2013, which iswas to begin to be implemented in a phased manner through tillby March 31, 2019 as per the transitional arrangement provided by the Reserve Bank of India. On January 10, 2019, the Reserve Bank of India extended the transition period for Basel III implementation. implementing the last tranche of 0.625% under Capital Conservation Buffer to March 31, 2020 and thereafter further extended to October 1, 2021.
The Basel III rules on capital consist of measures on improving the quality, consistency and transparency of capital, enhancing risk coverage, introducing a supplementary leverage ratio, reducing pro-cyclicality and promoting counter-cyclical buffers and addressing systemic risk and inter-connectedness.
179
At year-end fiscal 2017,2023, ICICI Bank was required to maintain a minimum Common Equity Tier-1 capital ratio of 6.80%8.20%, minimum Tier-1 capital ratio of 8.30%9.70% and minimum total capital ratio of 10.30%11.70%. The minimum total capital requirement includes a capital conservation buffer of 1.25%2.50% and a capital surcharge of 0.05%0.20% on account of the Bank being designated as a Domestic Systemically Important Bank. Under Pillar 1 of the Reserve Bank of India guidelines on Basel III, the Bank follows the standardized approach for measurement of credit risk, the standardized duration method for measurement of market risk and the basic indicator approach for measurement of operational risk.
Unconsolidated capital adequacy position
The following table sets forth, at the dates indicated, regulatory capital, risk-weighted assets and risk-based capital ratios computed in accordance with the Reserve Bank of India’s Basel III guidelines and based on ICICI Bank’s unconsolidated financial statements prepared in accordance with Indian GAAPs.GAAP.
As per the Reserve Bank of India’s Basel III guidelines | ||||||||||||
At year-end fiscal | ||||||||||||
2016 | 2017 | 20171 | ||||||||||
(in millions, except percentages) | ||||||||||||
Common equity Tier 1 capital | Rs. | 789,594 | 858,394 | US$ | 13,237 | |||||||
Tier 1 capital | 794,824 | 897,246 | 13,836 | |||||||||
Tier 2 capital | 215,127 | 189,409 | 2,920 | |||||||||
Total capital | Rs. | 1,009,951 | 1,086,655 | US$ | 16,756 | |||||||
Credit risk: risk-weighted assets | Rs. | 5,263,179 | 5,266,988 | US$ | 81,218 | |||||||
Market risk: risk-weighted assets | 310,412 | 420,249 | 6,480 | |||||||||
Operational risk: risk-weighted assets | 497,535 | 560,780 | 8,647 | |||||||||
Total risk-weighted assets | Rs. | 6,071,126 | 6,248,017 | US$ | 96,346 | |||||||
Common equity Tier 1 risk-based capital ratio | 13.0 | % | 13.7 | % | ||||||||
Tier 1 risk-based capital ratio | 13.1 | % | 14.4 | % | ||||||||
Tier 2 risk-based capital ratio | 3.5 | % | 3.0 | % | ||||||||
Total risk-based capital ratio | 16.6 | % | 17.4 | % |
176
As per the Reserve Bank of India’s Basel III guidelines | ||||||||||||
At year-end fiscal 2022(1) | 2023(1) | 2023 | ||||||||||
(in millions, except percentages) | ||||||||||||
Tier 1 capital | Rs. | 1,621,207 | 1,884,171 | US$ | 22,925 | |||||||
Of which: Common equity Tier 1 capital | 1,555,000 | 1,832,771 | 22,299 | |||||||||
Tier 2 capital | 71,923 | 78,652 | 957 | |||||||||
Total capital | Rs. | 1,693,130 | 1,962,823 | US$ | 23,882 | |||||||
Credit risk: risk-weighted assets | Rs. | 7,357,431 | 8,936,530 | US$ | 108,730 | |||||||
Market risk: risk-weighted assets | 550,360 | 688,087 | 8,372 | |||||||||
Operational risk: risk-weighted assets | 928,119 | 1,080,534 | 13,147 | |||||||||
Total risk-weighted assets | Rs. | 8,835,910 | 10,705,151 | US$ | 130,249 | |||||||
Common equity Tier 1 risk-based capital ratio | 17.6% | 17.1% | ||||||||||
Tier 1 risk-based capital ratio | 18.4% | 17.6% | ||||||||||
Tier 2 risk-based capital ratio | 0.8% | 0.7% | ||||||||||
Total risk-based capital ratio | 19.2% | 18.3% |
_________________
In fiscal 2017,2023, capital funds (net of deductions) increased by Rs. 76.7269.7 billion from Rs. 1,010.01,693.1 billion at year-end fiscal 20162022 to Rs. 1,086.71,962.8 billion at year-end fiscal 20172023 primarily due to inclusion ofan increase in retained earnings, issuance of Additional Tier-1 capital instruments of Rs. 34.3 billion, lower deduction for investment in subsidiaries due to repatriation of capital from an overseas banking subsidiary and sale of shareholding in insurance subsidiaries, offset, in part, by a decrease in amount of innovative perpetual debt instruments upon exercising the call option by the Bank and a decrease in eligible amount of non-common equity capital due to application of Basel III grandfathering rules.earnings.
Risk-weighted assets relating to credit risk increased by Rs. 3.81,579.1 billion from Rs. 5,263.27,357.4 billion at year-end fiscal 20162022 to Rs. 5,267.08,936.5 billion at year-end fiscal 20172023 primarily due to an increase of Rs. 149.91,319.6 billion in risk-weighted assets for on-balance sheet assets offset, in part, by a decreaseand an increase of Rs. 146.0259.5 billion in risk-weighted assets for off-balance sheet assets. Theexposures. On-balance sheet risk-weighted assets increased primarily due to growth in advances during the year and off-balance sheet risk-weighted assets at year-end fiscal 2015 was Rs. 1,063.3 billion which reducedincreased primarily due to Rs. 1,050.0 billion at year-end fiscal 2016 and further reduced to Rs. 903.9 billion at year-end fiscal 2017.an increase in non-fund exposures.
Risk-weighted assets relating to market risk increased by Rs. 109.8137.7 billion from Rs. 310.4550.4 billion at year-end fiscal 20162022 to Rs. 420.3688.1 billion at year-end fiscal 20172023 primarily due to an increase in the portfolio of fixed incomeinvestments in Government securities and equity investmentsnotional amount of interest rate swaps and forward rate agreements during the year.
Risk-weighted assets relating to operational risk increased by Rs. 63.3152.4 billion from Rs. 497.5928.1 billion at March 31, 20162022 to Rs. 560.81,080.5 billion at March 31, 2017.2023. The operational risk capital charge is computed based on 15% of the average of the previous three financial years’ gross income and is revised on an annual basis at June 30. Risk-weighted assets isare arrived at by multiplying the capital charge by 12.5.
180
Consolidated capital adequacy position
Consolidation for regulatory capital calculations is based on the consolidated financial statements of ICICI Bank and its subsidiaries, in line with the standards on consolidated prudential reporting issued by the Reserve Bank of India. The entities considered for consolidation for regulatory capital calculations include subsidiaries, associates and joint ventures of the Bank, which carry on activities of a banking or of a financial nature as stated in the reporting guidelines prescribed by the Reserve Bank of India. Entities engaged in the insurance business and businesses not pertaining to financial services are excluded from consolidation for capital adequacy calculation. As per Basel III guidelines stipulated by the Reserve Bank of India, equity and other regulatory capital investments in the unconsolidated insurance and non-financial subsidiaries will beare deducted from consolidated regulatory capital of the group.
At year-end fiscal 2017,2023, our total risk-based capital ratios at the consolidated level as per Basel III guidelines stipulated by the Reserve Bank of India were common equity Tier 1 risk-based capital ratio of 13.8%16.88%, Tier 1 risk-based capital ratio of 14.4%17.33% and total risk-based capital ratio of 17.3%18.09% against the current requirement of minimum common equity Tier 1 capital ratio of 6.80%8.20%, a minimum Tier 1 capital ratio of 8.30%9.70% and a minimum total capital ratio of 10.30%11.70% respectively.
Internal assessment of capital
Our capital management framework includes a comprehensive internal capital adequacy assessment process conducted annually which determines the adequate level of capitalization for usrequired to meet regulatory standardsnorms and current and future business needs, including underneeds. Adequate stress scenarios.testing, as determined by several stress scenarios, is also done. The internal capital adequacy assessment process is formulatedundertaken at both the stand alone bank level and the consolidated group level. The internal capital adequacy assessment process encompasses capital planning for a four-year time horizon, identification and measurementassessment of material risks and the relationship between risk and capital.
The capital management framework is complemented by theour risk management framework, which includes a comprehensive assessmentcovers the policies, processes, methodologies and frameworks established for the management of material risks. Stress testing, which is a key aspect of the internal capital adequacy assessment process and the risk management framework, provides an insight oninto the impact of extreme but plausible scenarios on the risk profile and capital position. Based on our Board-approved stress testing framework, we conduct stress tests on our various portfolios and assess the impact on our capital ratios and the adequacy of our capital buffers for current and future periods. We periodically assess and refine our stress teststesting framework in an effort to ensure that the stress scenarios capture material risks as well as reflect possible extreme market moves that
could arise as a result of market conditions.conditions and the operating environment. The business and capital plans and the stress testing results of the ICICI Bank entities are integrated into the internal capital adequacy assessment process.
Based on the internal capital adequacy assessment process, we determine the level of capital that needs to be maintained by considering the following in an integrated manner:
· | strategic focus, business plan and growth objectives; |
· | regulatory capital requirements as per the Reserve Bank of India guidelines; |
· | assessment of material risks and impact of stress testing; |
· | perception of shareholders and investors; |
· | future strategy with regard to investments or divestments in subsidiaries; and |
181
· | evaluation of options to raise capital from domestic and overseas markets, as permitted by the Reserve Bank of India from time to time. |
We continue to monitor relevant developments and believe that itsour current robust capital adequacy position and demonstrated track record of access to domestic and overseas markets for capital raising will enable us to maintain the necessary levels of capital as required by regulations while continuing to grow our business.
Liquidity Risk
Liquidity risk is the current and prospective risk arising out of an inability to meet financial commitments as they fall due, through available cash flows or through the sale of assets at fair market value. 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 We actively monitor our liquidity management isposition and attempt to ensure that the Bank is always in a position to efficiently meet both expected and unexpected current and future cash flow and collateral needs without negatively affecting either its daily operation or financial condition.
maintain adequate liquidity at all times. Most of our incremental funding requirements 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 corporate and project finance and home loan portfolio, have medium or long-term maturities, creating a potential for funding mismatches. We actively monitor our liquidity position and attempts to maintain adequate liquidity at all times to meet all the requirements of our depositors and bondholders, while also meeting the credit demand of its customers.
We seekThe Bank seeks to establish a continuous information flow and an active dialogue between the funding and borrowing divisions of the organizationBank to enable optimal liquidity management. A separate group is responsible for liquidity management. We areICICI Bank is required to submit agap reports in rupee gap reportsand other major currencies for domestic operations on a fortnightly basis to the Reserve Bank of India. Pursuant to the ReserveThe Bank of India guidelines, the liquidity gap (if negative) must not exceed 5.0%, 10.0%, 15.0% and 20.0% of cumulative outflows in the 1-day, up to 7-day, up to 14-day and up to 30-day time categories, respectively. We prepareprepares a daily maturity gap analysis for the overseas operations and rupee book for the domestic operations. Our static gap analysis is also supplemented by a short-term dynamic cash-flow analysis, in order to provide the liability raising units with a fair estimate of our funding requirements in the near-term. In addition, wethe Bank monitor certain liquidity ratios on a bi-monthlyfortnightly basis. WeICICI Bank also monitormonitors its liquidity coverage ratio whichon a daily basis. ICICI Bank has been applicable from January 1, 2015. We have a liquidity contingency plan in place, through which itthe Bank monitors key indicators that could signal potential liquidity challenges, to enable itus to take necessary measures to ensure sufficient liquidity.
We maintainSources of Funding and Liquidity
The Bank maintains diverse sources of liquidity to facilitate flexibility in meeting funding requirements. Incremental operations in India are principally funded by accepting deposits from retail and corporate depositors. TheThese deposits are augmented by issuance of Certificate of Deposits, borrowings in the short-term inter-bank market, through refinance agencies and through the issuance of bonds. WeThe Bank also havehas recourse to the liquidity adjustment facility and marginal standing facility, which are short-term funding arrangements provided by the Reserve Bank of India. WeThe Bank generally maintainmaintains a substantial portfolio of high quality liquid securities that may be sold on an immediate basis to meet our liquidity needs. WeICICI Bank also havehas 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 touchedreached highs of 100.0% and above. To curtail reliance on such volatile funding, our liquidity managementAsset Liability Management policy has stipulated daily limits for borrowing and lending in this market. Our limit on daily borrowing is more conservative than the limit set by the Reserve Bank
of India. ICICI Securities Primary Dealership, like us,also, relies for a certain proportion of its funding on the repo market and inter-bank market for overnight money andits funding requirements. It is therefore also exposed to similar risk of volatile interest rates. However, ICICI Securities Primary Dealership being a primary dealer, also has access to standing liquidity adjustment facility and standingterm liquidity adjustment facility from the Reserve Bank of India.
182
Our gross liquid assets consist of cash, nostro balances, overnight and other short-term money market placements, government bonds and treasury bills (including investments eligible for reserve requirements and net of borrowings on account of repurchase agreements, the liquidity adjustment facility and the marginal standing facility), corporate bonds (rated AA and above), other money market investments such as commercial paperpapers and certificates of deposits and mutual fund investments. We deductThe Bank deducts short-term money-market borrowings (borrowings with contractual maturity up to 30 days) from the aggregate of these assets to determine net liquid assets.
We maintainThe Bank maintains a significant portion of our demand and time liabilities in forms required pursuant to regulatory reserve requirements imposedlaid down by the Reserve Bank of India. The Reserve Bank of India stipulates a cash reserve ratio applicable to Indian banks, which requires us to maintain an average percentage of our demand and time liabilities as a cash balance deposited with the Reserve Bank of India over 14-day period. At year-end fiscal 2017,2023, the cash reserve ratio requirement percentage specified by the Reserve Bank of India was 4.00%.4.5% of a bank’s net demand and time liabilities. In addition, cash reserves may not fall below 90% (with effect from April 16, 2016) of the required cash reserve ratio on any day during any 14-day reporting period.
The Reserve Bank of India also stipulates a statutory liquidity ratio applicable to Indian banks, which requires us to maintain a certain percentage of demand and time liabilities in certain prescribed investments. At year-end fiscal 2017,2023, the statutory liquidity ratio requirement percentage was 20.5%18.0%. We generally hold moreBanks are permitted to avail liquidity facility against eligible securities under a special facility under the ‘Facility to Avail Liquidity for Liquidity Coverage Ratio’. Further, banks can borrow funds at their discretion by dipping into their statutory liquidity ratio eligible securities thanto the extent allowed under the marginal standing facility. As per the Reserve Bank of India guidelines, the carve-out from statutory liquidity ratio requirement. Statutoryunder facility to avail liquidity for liquidity coverage ratio eligible instruments include cash, gold or approved unencumbered securities.
At variouswas 15.0% of our overseas branches, certain reserves are maintained pursuantnet demand and time liabilities at year-end fiscal 2022 which was further increased to local regulations. We have complied with these local reserve requirements in fiscal 2017.16.0% of net demand and time liabilities from April 18, 2022. For marginal standing facility, it is 2.0% of net demand and time liabilities.
The Reserve Bank of India on June 9, 2014has issued final guidelines on the Basel III framework on liquidity standards including the liquidity coverage ratio, liquidity risk monitoring tools and liquidity coverage ratio disclosure standards. The liquidity coverage ratio promotes short-term resilience of banks to potential liquidity disruptions by ensuring that banks have sufficient high quality liquid assets to survive an acute stress scenario lasting for 30 days. As per the guidelines, the liquidity coverage ratio requirement was effective January 1, 2015 with a minimum requirement of 60.0% starting from January 1, 2015 (currently the minimum requirement is 80.0%), and will rise in equal steps to reach 100.0% on January 1, 2019. As per the Reserve Bank of India guidelines, effective January 1, 2016,the liquidity coverage ratio has been made applicable to Indian banks on a standalone as well as consolidated basis. We have been computing ourbasis with a minimum requirement of 100.0% at year-end fiscal 2023. The liquidity coverage ratio disclosure for the three months ended March 31, 2023, is based on monthly basis since January 2015 as per the Reserve Banka simple average of India guidelines.daily observations. The liquidity coverage ratio of the Group, based on daily values, for the three months ended March 31, 20172023 was 95.9%121.8%.
ICICIThe Reserve Bank of India has issued guidelines on the Basel III framework on liquidity standards – net stable funding ratio. These guidelines ensure reduction in funding risk over a longer time horizon by requiring banks to fund their activities with sufficiently stable sources of funding in order to mitigate the risk of future funding stress. As per the guidelines, the net stable funding ratio should be equal to at least 100% on an ongoing basis. The net stable funding ratio of the Group, at the year-end fiscal 2023 was 126.9%.
The Bank maintain liquid assets in addition to statutory liquidity ratio and cash reserve ratio requirement.requirements. Throughout fiscal 2017,2023, the Bank maintained adequate reserves as per thesethe regulatory requirements.requirements mentioned above.
183
The following table sets forth the components of the ICICI Bank’s average and balance sheet date liquid assets.
At March 31, 2016 | Fortnightly average for fiscal 2017 | At March 31, 2017 | ||||||||||
(in billions) | ||||||||||||
Statutory liquidity ratio eligible investments and other government securities, net of borrowings on account of repurchase agreement, liquidity adjustment facility and collateralized borrowings | Rs. | 1,091.2 | Rs. | 1,167.5 | Rs. | 1,129.4 | ||||||
Balance with central banks and current accounts with other banks | 299.8 | 270.2 | 331.7 | |||||||||
Other liquid assets | 471.6 | 321.7 | 559.0 | |||||||||
Gross liquid assets | 1,862.6 | 1,759.4 | 2,020.1 | |||||||||
(Less) Short-term borrowings | – | 3.5 | 0.5 | |||||||||
Net liquid assets | Rs. | 1,862.6 | Rs. | 1,755.9 | Rs. | 2,019.6 |
179
At March 31, 2022 | Fortnightly average for fiscal 2023 | At March 31, 2023 | ||||||||||
(in billions) | ||||||||||||
Statutory liquidity ratio eligible investments and other government securities, net of borrowings on account of repurchase agreement, liquidity adjustment facility and collateralized borrowings | Rs. | 2,671.2 | Rs. | 2,771.7 | Rs. | 3,105.5 | ||||||
Balance with central banks and current accounts with other banks | 832.9 | 906.1 | 883.8 | |||||||||
Other liquid assets | 935.7 | 404.1 | 593.6 | |||||||||
Gross liquid assets | 4,439.8 | 4,081.9 | 4,582.9 | |||||||||
(Less) Short-term borrowings | — | 0.7 | 10 | |||||||||
Net liquid assets | Rs. | 4,439.8 | Rs. | 4,081.2 | Rs. | 4,572.9 |
ICICI Bank held net liquid assets totaling to Rs. 2,019.64572.9 billion at year-end fiscal 2017,2023, compared to Rs. 1,862.64,439.8 billion at year-end fiscal 2016.2022. In fiscal 2017,2023, the Bank held fortnightly average net liquid assets of Rs. 1,755.94,081.1 billion. In addition to the amounts included in net liquid assets above, at year-end fiscal 2017,2023, the Bank also held other fixed income non-government securities totaling to Rs. 42.44.4 billion compared to Rs. 42.712.6 billion at year-end fiscal 2016.2022.
In compliance with local regulations, some overseas branches of the Bank are required to maintain a ‘net due to’due’ position with other group entities i.e. they can only(i.e., those branches need to be a net borrower up toabove a specified amount.amount or they cannot be a net lender beyond a specified amount). Accordingly, only thesurplus liquidity maintained in excess of such ‘net due to’ requirementsat those branches can be utilized at other group entities.entities only to the extent of buffer available in the ‘net due’ position. At year-end fiscal 2017,2023, such overseas branches of the Bank held net liquid assets of Rs. 75.9276.9 billion (equivalent), which are included in our overall net liquid assets of the Bank of Rs. 2,019.64,572.9 billion.
WeICICI Bank also havehas access to other reliable sources of liquidity. The Reserve Bank of India conducts repurchase and reverse repurchase transactions with banks through its liquidity adjustment facility and marginal standing facility to carry out monetary policy and manage liquidity for the Indian banking system. The Reserve Bank of India stipulates an interest rate applicable to fixed rate repurchase, fixed rate reverse repurchase agreements and marginal standing facility, known as the repo rate, reverse repo rate and marginal standing facility rate respectively. In addition, Reserve Bank of India also conducts variable rate repurchase or reverse repurchase auction,auctions, rates for which are arrived through competitive bidding. On April 8, 2022, the Reserve Bank of India operationalized a new standing deposit facility, which replaced the fixed rate reverse repo as the floor of the liquidity adjustment facility corridor at 25 basis points below the policy repo rate. At year-end fiscal 2017,2023, the Reserve Bank of India repo rate, fixed rate reverse repo rate, standing deposit facility and marginal standing facility rate were 6.25%6.5%, 5.75%3.35%, 6.25% and 6.75% respectively. The liquidity adjustment facility and marginal standing facility are available throughout the year. UnderAt year-end fiscal 2023, under the marginal standing facility, in addition to the eligible securities a bank holds in excess of the statutory requirement, the banks cancould borrow overnight up to 2.0% of their respective net demand and time liabilities outstanding at the end of the second preceding 14-day period. Further, there is a liquid market for repurchase transactions with other market counterparties. Banks may enter into repurchase transactions with the Reserve Bank of India or other market counterparties against the statutory liquidity ratio eligible securities that hold in excess of the statutory requirement.
At year-end fiscal 2017,2023, ICICI Bank had government securities amounting to Rs. 403.91,175.7 billion eligible for borrowings through the liquidity adjustment facility and marginal standing facility from the Reserve Bank of India.
184
The Reserve Bankloan portfolio at the Bank’s overseas branches as a proportion of India uses the liquidity adjustment facility and the marginal standing facility to implement monetary policy. The Reserve Bank of Indiatotal portfolio has the right to suspend the liquidity adjustment facility or reduce the amounts that Indian banks can access through the liquidity adjustment facility on any day on a proportionate basis for all banks. Such policy changes could affect the operations of these facilities and could restrict Indian banks, including us,declined from accessing these facilities. The Reserve Bank of India has restricted liquidity provision through the overnight liquidity adjustment facility to a specified ratio of net demand and time liabilities and increasingly provides liquidity through term repurchase agreements of various maturities. At4.8% at year-end fiscal 2017, the liquidity provision through the overnight liquidity adjustment facility was capped2022 to 3.3% at 0.25% of net demand and time liabilities of banks.
We haveyear-end fiscal 2023. ICICI Bank has a well-defined borrowing program for the overseas operations. In order to maximize borrowings at a reasonable cost through our branches, liquidity in different markets and currencies is targeted. The incremental wholesale borrowings are primarily in the form of bond issuances, syndicated loans from banks,inter-bank and money market borrowings and inter-bank bilateral loans. Weborrowings. The Bank also raise refinanceraises refinancing from other banks against buyer’s credit and othereligible trade assets. Those loans that meet the Export Credit Agencies’ criteria are refinanced as per the agreements entered into with these agencies. WeThe Bank also mobilize retailmobilizes deposit liabilities, in accordance with the regulatory framework in place inat the respective host country.
ICICI Bank has the ability to use its rupee liquidity in India to meet refinancing needs at its overseas branches, although this may be at a relatively high cost based on swap and exchange rates prevailing at the time of such refinancing. The Bank raised the equivalent of US$ 729 million through issuances of US$ denominated bonds in August 2016 (original maturity of three years), in September 2016 (original maturity of three years), in October 2016 (original maturity three years), in December 2016 (original maturity five years) and in March 2017 (original maturity 5.5 years); Hong Kong dollar (HKD) denominated bonds in July 2016 (original maturity of three years) and in September 2016 (original maturity of three years) and Japanese Yen (JPY) denominated bonds in December 2016 (original maturity of five years). The terms of the Bank’s bond issuances and loans from other financial institutions and export credit agencies contain cross-default clauses, restrictions on its ability to merge or amalgamate with another entity and restrictions on the Bank’s ability to prematurely redeem or repay such bonds or loans. The terms of the Bank’s subordinated debt issuances eligible for inclusion in Tier 1 or Tier 2 capital include the suspension of interest payments in the event of losses or capital deficiencies, and a
prohibition on redemption, even at maturity or on specified call option dates, without the prior approval of the Reserve Bank of India. The Bank is currently not, and does not expect to be, in breach of any material covenants of the Bank’s borrowings that would be construed as events of default under the terms of such borrowings.
The successful management of credit, market and operational risk is an important consideration in managing the liquidity 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.
Rating agencies can also decide to withdraw their ratings of the Bank, which may have the same effect as a reduction in our ratings. Any reduction in our ratings (or withdrawal of 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 transactions) and derivatives transactions, or retain our customers. See also “Risk Factors—Risks Relating to India and Other Economic and Market Risks—Any downgrade of India’s debt rating or the rating of our senior unsecured foreign currency debt by an international rating agency could adversely affect our business, our liquidity and the priceprices of our equity shares and ADSsADSs.”.
In respect of ourthe Bank’s domestic operations, weICICI Bank may enter into collateralized borrowings in the form of repurchase transactions with the Reserve Bank of India or through Clearing Corporation of India Limited, a centralized clearing counterparty or with the market counterparties, against the statutory liquidity ratio eligible securities to meet expected and unexpected borrowings requirements. In general, the market value of collateral given for any such loan is higher than the value of the loan, which isthe difference being referred to as a haircut. The Reserve Bank of India has stipulated the haircut for all such securities for borrowings from them.itself. In case of borrowings throughfrom products settled through Clearing Corporation of India Limited, the value of the collateral under repo/collateralized lending and borrowing obligations is computed after applying a haircut as stipulated by the Clearing Corporation of India Limited. Further, members of Clearing Corporation of India Limited’s collateralized lending and borrowing obligationsrepo segment are also required to maintain margin contributions in relation to their borrowing/lending obligation at any point of time, which actacts as a cushion against any fall in the value of the underlying collateral. We hold
Further, the Bank is also a member in the triparty repo segment and it may enter into collateralized borrowings in the form of repurchase transactions on the Triparty Repo Order Matching Platform provided by Clearcorp Dealing Systems (India) Ltd., a wholly owned subsidiary of Clearing Corporation of India Limited. Clearing Corporation of India Limited also performs the roles and responsibilities of a Triparty Repo Agent, in terms of Repurchase transactions (Repo) (Reserve Bank) Directions, 2018 as amended from time to time. The triparty repo agent has stipulated the haircuts for the eligible securities for borrowing through its platform and the market value of collateral required for any such loan is higher than the value of the loan.
185
The Bank holds sufficient securities in our account to meet additional collateral requirements if required and systems and processes are in place to ensure sufficient balance in our Principal-Securities General Ledger account, Repo Constituent - Securities General Ledger account, Clearing Corporation of India Limited Securities Guarantee Fund/collateralized lendingFund and borrowing obligationsTri-party repo margin account, resulting in smooth settlement of transactions.
Further, in case of any emergency requirement, additional securities may be transferred to our Securities Guarantee Fund/collateralized lendingborrowing and borrowinglending obligations margin account on a T+0 basis. In case of corporate bond repo, the value of the securities is computed after applying the minimum haircut as stipulated by the Reserve Bank of Indiaclearing house or bilaterally agreed upon by counterparties depending upon the credit rating of the underlying security. The Bank also deals with central counterparties for settlement of government securities outright and repo transactions, forexforeign exchange transactions, interest rate and currency derivatives for which it needs to contribute towards margin obligations. We willThe Bank may be required to post additional collateral in case of downgrade in the external credit rating of the Bank under letter of credit, stand bystand-by letter of credit, bank guarantee and unfunded risk participation agreements.
In respect of overseas branch operations, generally, the collateral requirements are applicable to banksfor transactions which have outstanding borrowings that are subject to margin-resetcleared through clearing houses, bilateral transactions executed under International Swaps and consequent collateral deposits are governed by global master repurchase agreement. We have anDerivatives Asoociation Credit Support Annex and International Swaps and Derivatives Asoociation Global Master Repo Agreement. The Asset Liability Management Committee has approved a framework for accepting covenants, linked to a credit rating downgrade of the Bank and a breach in thresholds of certain financial covenants as a part of borrowing agreements and aagreements. A stress scenario has been formulated, which is linked to potential outflows due to a breach of rating downgrade covenants.
UnderOff-balance sheet items including funding commitments impact the proposedliquidity of the Bank. The Bank analyzes the behavioral profile of various components of the off-balance sheet items. The behavioral analysis includes potential cash flows from off-balance sheet activities, such as draw down under loan commitments, contingent liabilities and market related transactions. The impact of the same is considered by us in various liquidity risk reports.
In view of the margin rules for non-centrally cleared derivative transactions issued by the Basel Committee on Banking Supervision and discussion paper issued by the Reserve Bank of India, which are currently in a draft stage, derivative transactions would beare subject to margin-reset and consequent collateral exchange would be asis governed by the Credit Support Annex. In overseas branch operations, we have not signed anyThe Bank has entered into a Credit Support Annex, with counterparties thatwhich would require the maintenance of collateral; whilecollateral. The Bank considers the increased liquidity requirement on account of valuation changes in the domestic operations, we have signedtransactions settled through qualified central counterparties including the clearing corporation of India and other exchange houses as well as for transactions covered under the Credit Support Annex with certain inter-bank counterparties which may require us to post/transfer collateral.Annex. The potential outflows on account of such transactions have been considered based on the look-back approach prescribed in the Reserve Bank of India guidelines.
We have certain borrowings that would be affected by a credit rating downgrade of the Bank. Such borrowings amount to around 3% of the total borrowings of the Bank at year-end fiscal 2017. If an international credit rating agency downgrades the Bank’s credit rating by one or more notches, we would be required to pay an increased interest rate on these borrowings. The liquidity impact is monitored on a fortnightly basis and is reported to relevant committees on a semi-annual basis. Volatility in the international debt markets may constrain our international borrowings. As of March 31, 2023, the Bank did not have any borrowing linked to credit downgrade covenants which would require the Bank to pay an increased interest rate on the borrowing.
There are restrictions on the use of liquidity maintained by the UK and Canada subsidiaries of the Bank to meet their overall liquidity needs. The Office of the Superintendent of Financial Institutions of Canada has prescribed a limit of 100% of Tier 1 and Tier 2 capital (as defined under Canadian regulations) on the credit exposure to any single entity or a group of connected entities. ICICI Bank Canada Bank’s Canadian subsidiary, has internally capped this credit exposure at 25%CAD 150 million (37.9% of the limit specified by the Office of the Superintendent of Financial Institutions, except with respect to exposure to the ICICI Bank.Bank). The limit of CAD 150 million can be increased to a maximum of 75% of capital depending on the credit quality of the Group or Connection. In fiscal 2016,2023, ICICI Bank Canada has complied with both regulatory and their internal limits on exposures to any single entity, including to ICICI Bank.
186
As per the extant regulatoryCapital Requirements Regulation guidelines in the United Kingdom,applicable for ICICI Bank UK is subjectPLC, a bank shall not incur an exposure, after taking into account the effect of the credit risk mitigation, to a limitclient or group of connected clients the value of which exceeds 25% of its Tier 1 capital. Where that client is an institution or where a group of connected clients includes one or more institutions, that value shall not exceed 25% of the capital base on the exposure to an individual counterparty (or a group of related counterparties). The capital base is calculated as the sum of eligiblebank’s Tier 1 and Tier 2 capital less any deductions as peror GBP 130 million, whichever the Basel III guidelines.higher. ICICI Bank UK PLC has a total capital base of US$ 616372 million at year-end fiscal 2017, resulting in a limit of US$ 154 million. Also,2023 which was higher than the regulatory requirement. Additionally, ICICI Bank UK PLC stipulates various internal limits to manage exposure concentrations within the Bank. The key parameters of risk concentrations measured include sectoral, country, rating category based, product specific exposures, counterparty and large exposures.
The Prudential Regulation Authority issued a new policy statement on Capital Requirements in June 2015, which was supplemented by supervisory statement on Prudential Regulation Authorities approach to supervising liquidity and funding risk. The new guidelines were applicable from October 1, 2015. As per the guidelines banks were required to maintain Liquidity Coverage Ratio, as per the methodology provided in the Delegated Act issued by European Banking Authority in October 2014, at 80% starting October 1, 2015 as a Pillar 1 liquidity requirement. The Liquidity Coverage Ratio requirement increased to 90% from January 1, 2017 and would increase to 100% from January 1, 2018 onwards. Additionally, Prudential Regulation Authority adopted an interim Pillar 2 approach, in which it specified banks to hold high quality liquid assets for add-ons specified in the existing Individual liquidity guidance for the Bank. These add-ons are for specific risks, which are not captured in Liquidity Coverage Ratio. ICICI Bank UK maintains Liquidity Coverage Ratio above the stipulated level.
In November 2014, The Office of Superintendent of Financial Institution revised the Liquidity Adequacy Requirements to incorporate Liquidity Coverage Ratio requirements for banks in Canada. The requirements expect banks to have an adequate stock of unencumbered high quality liquid assets that consists of cash or assets that can be converted into cash at little or no loss of value in private markets, to meet its liquidity needs for a 30 calendar day liquidity stress scenario. The standard requires that, absent a situation of financial stress, the value of the coverage ratio of high quality liquid assets to total net cash outflows be no lower than 100%. The Office of Superintendent of Financial Institution expects each Canadian bank to have an internal liquidity policy articulating and defining the role of liquid assets within the bank’s overall liquidity management system and establishing minimum targets for liquid asset holdings. ICICI Bank Canada has a Liquidity Management Policy and Market Risk Management Policy, which are approved by its Board of Directors. These policies require ICICI Bank Canada to maintain a certain percentage of its customer liabilities in liquid assets and to maintain sufficient liquidity to cover net outflows in the “up to 30 days” maturity bucket. These limits are monitored by Asset Liability Management Committee of ICICI Bank Canada, at least on monthly basis. ICICI Bank Canada has complied with these requirements throughout fiscal 2017. In addition, net cumulative cash flow information, which consists of details of the maturity pattern of assets and liabilities and net cash flows, is shared with the Office of Superintendent of Financial Institution on a monthly basis.
Capital Expenditure
The following tables set forth, for the periods indicated, certain information related to capital expenditure by category of fixed assets.
Fiscal 2015 | ||||||||||||||||||||||||
Cost at year-end fiscal 2014 | Additions/ transfers | Deletions/ transfers | Depreciation | Net assets at year-end fiscal 2015 | ||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Premises | Rs. | 47,929 | Rs. | 4,465 | Rs. | (629 | ) | Rs. | (12,258 | ) | Rs. | 39,507 | US$ | 609 | ||||||||||
Other fixed assets (including furniture and fixtures) | 50,802 | 7,519 | (3,049 | ) | (38,393 | ) | 16,879 | 260 | ||||||||||||||||
Assets given on lease | 17,299 | - | - | (14,973 | ) | 2,326 | 36 | |||||||||||||||||
Total | Rs. | 116,030 | Rs. | 11,984 | Rs. | (3,678 | ) | Rs. | (65,624 | ) | Rs. | 58,712 | US$ | 905 |
Fiscal 2021 | ||||||||||||||||||||||||
Cost at year-end fiscal 2021 | Additions/transfers/ revaluation | Deletions/ transfers | Depreciation | Net assets at year-end fiscal 2021 | ||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Premises | Rs. | 94,290 | Rs. | 1,891(1) | Rs. | (399 | ) | Rs. | (21,855 | ) | Rs | 73,927 | US$ | 899 | ||||||||||
Other fixed assets (including furniture and fixtures) | 85,815 | 15,087 | (3,764 | ) | (66,259 | ) | 30,878 | 376 | ||||||||||||||||
Assets given on lease | 17,054 | 681 | — | (14,448 | ) | 3,287 | 40 | |||||||||||||||||
Total | Rs. | 197,159 | Rs. | 17,659 | Rs. | (4,163 | ) | Rs. | (102,562 | ) | Rs. | 108,093 | US$ | 1,315 |
(1) Includes gain on revaluation recorded through reserve of Rs. 500 million.
Fiscal 2022 | ||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Cost at year-end fiscal 2022 | Additions/transfers/ revaluation | Deletions/ transfers | Depreciation | Net assets at year-end fiscal 2022 | ||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Premises | Rs. | 95,782 | Rs. | 3,335(1) | Rs. | (4,771 | ) | Rs. | (23,514 | ) | Rs. | 70,832 | US$ | 862 | ||||||||||
Other fixed assets (including furniture and fixtures) | 97,137 | 15,252 | (13,605 | ) | (66,817 | ) | 31,968 | 389 | ||||||||||||||||
Assets given on lease | 17,735 | 156 | — | (14,636 | ) | 3,255 | 40 | |||||||||||||||||
Total | Rs. | 210,654 | Rs. | 18,743 | Rs. | (18,376 | ) | Rs. | (104,967 | ) | Rs. | 106,055 | US$ | 1,290 |
______________
(1) | Includes gain on revaluation recorded through reserve of Rs. 1,743 million. |
182187
Fiscal 2016 | ||||||||||||||||||||||||
Cost at year-end fiscal 2015 | Additions/ transfers/revaluations | Deletions/ transfers | Depreciation | Net assets at year-end fiscal 2016 | ||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Premises | Rs. | 51,765 | Rs. | 29,610 | (1) | Rs. | (724 | ) | Rs. | (13,359 | ) | Rs 67,292 | US$ | 1,038 | ||||||||||
Other fixed assets (including furniture and fixtures) | 55,272 | 7,510 | (3,215 | ) | (42,139 | ) | 17,428 | 269 | ||||||||||||||||
Assets given on lease | 17,299 | - | - | (14,885 | ) | 2,414 | 37 | |||||||||||||||||
Total | Rs. | 124,336 | Rs. | 37,120 | Rs. | (3,939 | ) | Rs. | (70,383 | ) | Rs. | 87,134 | US$ | 1,344 |
Additions/ transfers/revaluations Deletions/ transfers 1,334 Fiscal 2023 Cost at year-end fiscal 2023 Depreciation Net assets at year-end fiscal 2023 (in millions) Premises Rs. 94,346 Rs. 2,793(1) Rs. (2,799 ) Rs. (25,545 ) Rs. 68,795 US$ 837 Other fixed assets (including furniture and fixtures) 98,785 18,437 (6,220 ) (73,174 ) 37,828 460 Assets given on lease 17,891 12 — (14,836 ) 3,067 37 Total Rs. 211,022 Rs. 21,242 Rs. (9,019 ) Rs. (113,555 ) Rs. 109,690 US$
(1) | Includes gain on revaluation |
Fiscal 2017 | ||||||||||||||||||||||||
Cost at year-end fiscal 2016 | Additions/transfers/ revaluation | Deletions/ transfers | Depreciation | Net assets at year-end fiscal 2017 | ||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Premises | Rs. | 80,650 | Rs. | 8,050 | (1) | Rs. | (607 | ) | Rs. | (14,750 | ) | Rs 73,344 | US$ | 1,131 | ||||||||||
Other fixed assets (including furniture and fixtures) | 59,567 | 7,487 | (3,215 | ) | (46,218 | ) | 17,621 | 272 | ||||||||||||||||
Assets given on lease | 17,300 | - | (395 | ) | (14,490 | ) | 2,415 | 37 | ||||||||||||||||
Total | Rs. | 157,517 | Rs. | 15,537 | Rs. | (4,217 | ) | Rs. | (75,458 | ) | Rs. | 93,380 | US$ | 1,440 |
Cost of fixed assets increased from Rs. 124.3 billion at year-end fiscal 2015 to Rs. 157.5 billion at year-end fiscal 2016 primarily due to gains of Rs. 28.2 billion on revaluation of premises during fiscal 2016.
Collateral Management
Overview
We define collateral as the assets or rights provided to the Bank by the borrower or a third party in order to secure a credit facility. The Bank would have the rights of a secured creditor in respect of the assets/contracts offered as security for the obligations of the borrower/obligor. We ensure that the underlying documentation for the collateral provides the Bank with appropriate rights over the collateral or other forms of credit enhancement including the right to liquidate, retain or take legal possession of it in a timely manner in the event of default by the counterparty. We also endeavor to keep the assets provided as security to the Bank under adequate insurance during the tenor of the Bank’s exposure. The Bank monitors the collateral value periodically.
Collateral valuation
We have an internal framework for updating the collateral values of commercial loans on a periodic basis. Generally, for commercial loans, the value of moveable property held as collateral is updated annually and the value of immovable property held as collateral is updated every three years.
Types of collateral taken by the Bank
We determine the appropriate collateral for each facility based on the type of product and risk profile of the counterparty. In the case of corporate and small and medium enterprises financing, fixed assets are generally
taken as security for long tenor loans and current assets for working capital finance. For project finance, security of the assets of the borrower and assignment of the underlying project contracts is generally taken. In addition, in some cases, additional security such as pledge of shares, cash collateral, charge on receivables with an escrow arrangement and guarantees is also taken.
For retail products, the security to be taken is defined in the product policy for the respective products. Housing loans and automobile loans are secured by the security of the property/automobile being financed. The valuation of the properties is carried out by an empaneled valuer at the time of sanctioning the loan.
The Bank also offers products which are primarily based on collateral, such as shares, specified securities, warehoused commodities and gold jewelry. These products are offered in line with the approved product policies which include types of collateral, valuation and margining.
The Bank extends unsecured facilities to clients for certain products such as derivatives, credit cards and personal loans. The limits with respect to unsecured facilities have been approved by our Board of Directors.
The decision on the type and quantum of collateral for each transaction is made by the credit approving authority as per the credit approval authorization approved by the Board of Directors. For facilities provided as per approved product policies, collateral is taken in line with the policy.
Significant Changes
Except as otherwise stated in this annual report, we have experienced no significant changes since the date of fiscal 20172023 consolidated financial statements contained in this annual report.
Segment Revenues and Assets
The Reserve Bank of India in its guidelines on “segmental reporting” has stipulated specified business segments and their definitions, for the purposes of public disclosures on business information for banks in India.
The consolidated segmental report for fiscal 2017,2023, based on the segments identified and defined by the Reserve Bank of India, has been presented as follows:
· | Retail Banking includes our exposures which satisfy the four qualifying criteria of “regulatory retail portfolio” as stipulated by the Reserve Bank of India’s Basel III guidelines. These criteria are as follows: |
(i) | Orientation criterion: |
(ii) | Product criterion: All |
· | revolving credits and lines of credit (including overdrafts); |
· | term loans and leases (e.g. installment loans and leases, student and educational loans); and |
· | small business facilities and commitments. |
(iii) | Low value of individual exposures: The maximum aggregate retail exposure to one counterparty should not exceed the absolute threshold limit of Rs. |
(iv) | Granularity criterion: The regulatory retail portfolio should be sufficiently diversified to a degree that reduces the risks in the portfolio. The aggregate exposure to one counterparty should not exceed 0.2% of the overall retail portfolio. |
188
· | Wholesale Banking includes all advances to trusts, partnership firms, companies and statutory bodies by the Bank which are not included in the Retail Banking segment, as per the Reserve Bank of India guidelines for the Bank. |
· | Treasuryincludes the entire investment and derivative portfolio of the Bank and ICICI Strategic Investments |
· | Other Banking includes leasing operations and other items not attributable to any particular business segment of the Bank. It also includes the Bank’s banking subsidiaries, i.e., ICICI Bank UK PLC |
· | Life Insurance represents results of ICICI Prudential Life Insurance Company Limited. |
· |
Othersinclude ICICI Home Finance Company Limited, ICICI Venture, |
· | Unallocated includes items such as income tax paid in advance net of provision for tax, deferred tax and provisions to |
Framework for transfer pricingTransfer Pricing
Liabilities of retail banking and wholesale banking segments are transfer priced to a central treasury unit, which pools all funds and lends to the business units at appropriate rates based on the relevant maturity of assets being funded after adjusting for regulatory reserve requirements and specific charge on account of directed lending to certain sectors categorized as priority sector. Current account and savings account deposits are transfer priced at a fixed rate.rates, linked to interest rate on savings account deposits. For term deposits and borrowings, the transfer pricing is primarily based on the categories specified in the Transfer Pricing Policy. Transfer pricing to our asset creation units is based on the incremental cost of deposits (blended for current account and savings account deposits) and borrowings adjusted for the maturity of the asset (term premium) and regulatory reserve requirements. The allocated capital is also considered as a source of funding for this purpose.the purpose of segmental reporting.
Fiscal 2017 Compared2023 compared with Fiscal 20162022
The following table sets forth, for the periods indicated, profit before tax of various segments.
Year ended March 31, | ||||||||||||||||
2016 | 2017 | 2017 | 2017/2016 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Retail Banking | Rs. | 38,977 | Rs. | 53,853 | US$ | 830 | 38.2 | % | ||||||||
Wholesale Banking | (12,454 | ) | (74,341 | ) | (1,146 | ) | 496.9 | |||||||||
Treasury | 86,163 | 120,814 | 1,863 | 40.2 | ||||||||||||
Other Banking | 6,790 | 3,022 | 47 | (55.5 | ) | |||||||||||
Life Insurance | 17,716 | 17,849 | 275 | 0.8 | ||||||||||||
General Insurance | 7,077 | 9,101 | 140 | 28.6 | ||||||||||||
Others | 14,252 | 21,764 | 336 | 52.7 | ||||||||||||
Profit before tax | Rs. | 158,521 | Rs. | 152,062 | US$ | 2,345 | (4.1 | %) |
Year ended March 31, | ||||||||||||||||
2022 | 2023 | 2023 | 2023/2022 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Retail Banking | Rs. | 114,004 | Rs. | 175,337 | US$ | 2,134 | 53.8% | |||||||||
Wholesale Banking | 90,529 | 157,858 | 1,921 | 74.4 | ||||||||||||
Treasury | 96,745 | 140,372 | 1,709 | 45.1 | ||||||||||||
Other Banking | 6,271 | 10,014 | 122 | 59.7 | ||||||||||||
Life Insurance | 7,906 | 8,969 | 109 | 13.4 | ||||||||||||
Others | 43,500 | 42,024 | 511 | (3.4 | ) | |||||||||||
Inter-Segment adjustments | (16,792 | ) | (15,509 | ) | (189 | ) | (7.6 | ) | ||||||||
Share of profit from associates(1) | 7,544 | 9,983 | 121 | 32.3 | ||||||||||||
Unallocated expenses | 250 | (56,500 | ) | (687 | ) | N/M | ||||||||||
Profit before tax | Rs. | 349,957 | Rs. | 472,548 | US$ | 5,751 | 35.0% |
N/M – Not meaningful
1. | Effective April 1, 2021, ICICI Lombard General Insurance Company Limited ceased be a subsidiary of the Bank and was accounted as an equity affiliate under Accounting Standard – 23 – “Accounting for Investments in Associates” in consolidated financial statements. |
189
Retail Banking
The following table sets forth, for the periods indicated, the principal components of profit before tax.
Year ended March 31, | ||||||||||||||||
2016 | 2017 | 2017 | 2017/2016 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Net interest income | Rs. | 91,914 | Rs. | 113,270 | US$ | 1,746 | 23.2 | % | ||||||||
Non-interest income | 49,023 | 57,535 | 887 | 17.4 | ||||||||||||
Total income | 140,937 | 170,805 | 2,633 | 21.2 | ||||||||||||
Non-interest expenses | 97,972 | 112,260 | 1,731 | 14.6 | ||||||||||||
Profit before provisions | 42,965 | 58,545 | 902 | 36.3 | ||||||||||||
Provisions | 3,988 | 4,692 | 72 | 17.7 | ||||||||||||
Profit before tax | Rs. | 38,977 | Rs. | 53,853 | US$ | 830 | 38.2 | % |
185
Year ended March 31, | ||||||||||||||||
2022 | 2023 | 2023 | 2023/2022 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Net interest income | Rs. | 259,120 | Rs. | 317,100 | US$ | 3,858 | 22.4% | |||||||||
Other income | 104,298 | 121,877 | 1,483 | 16.9 | ||||||||||||
Total income | 363,418 | 438,977 | 5,341 | 20.8 | ||||||||||||
Operating expenses | 194,668 | 240,344 | 2,924 | 23.5 | ||||||||||||
Profit before provisions | 168,750 | 198,633 | 2,417 | 17.7 | ||||||||||||
Provisions | 54,746 | 23,296 | 283 | (57.4) | ||||||||||||
Profit before tax | Rs. | 114,004 | Rs. | 175,337 | US$ | 2,134 | 53.8% |
The following table sets forth, for the periods indicated, the outstanding balances of key assets and liabilities.
Outstanding balance at March 31, | Outstanding balance at March 31, | |||||||||||||||||||||||||||||||
2016 | 2017 | 2017 | 2017/2016 % change | 2022 | 2023 | 2023 | 2023/2022 % change | |||||||||||||||||||||||||
(in millions, except percentages) | (in millions, except percentages) | |||||||||||||||||||||||||||||||
Advances | Rs. | 1,608,891 | Rs. | 1,999,885 | US$ | 30,839 | 24.3 | % | Rs. | 4,704,559 | Rs. | 5,765,239 | US$ | 70,145 | 22.5% | |||||||||||||||||
Deposits | 2,982,101 | 3,518,338 | 54,253 | 18.0 | 7,616,264 | 8,587,318 | 104,481 | 12.7 |
Loans in the retail banking segment increased primarily due to higher disbursements, mainly in home loans, automobile loans and personal loans. The retail banking segment maintained its focus on strengthening its deposit franchise reflected in the increase in the retail deposit base. The savings account deposits of the segment increased by 28.0% from Rs. 1,342.3 billion at year-end fiscal 2016 to Rs.1,718.4 billion at year end fiscal 2017.
The profit before tax of the retail banking segment increased by 53.8% from Rs. 39.0114.0 billion in fiscal 20162022 to Rs. 53.9175.3 billion in fiscal 2017,2023, primarily due to an increase in net interest income, non-interest income and non-interest income.a decrease in provisions, offset, in part, by an increase in operating expenses.
Net interest income increased by 23.2%22.4% from Rs. 91.9259.1 billion in fiscal 20162022 to Rs. 113.3317.1 billion in fiscal 20172023 primarily due to growth in the average loan portfolio and an increase in yield.
Other income increased by 16.9% from Rs. 104.3 billion in fiscal 2022 to Rs. 121.9 billion in fiscal 2023 primarily due to an increase in the loan portfolio and increase in current account and savings account deposits.
Non-interest income increased by 17.4% from Rs. 49.0 billion in fiscal 2016 to Rs. 57.5 billion in fiscal 2017 primarily due an increase in third party product distribution fees, lending linked fees, transaction banking fees and fees from credit card portfolio.portfolio and lending linked fees.
Non-interestOperating expenses increased by 14.6%23.5% from Rs. 98.0194.7 billion in fiscal 20162022 to Rs 112.3Rs. 240.3 billion in fiscal 20172023 primarily due to an increase in employee expenses, direct marketing agency expenses, advertisement and sales promotion expenses and an increase in operating expenses due to expansion in branch network.technology related expenses.
190
Provisions increased(net of write-back) decreased from Rs. 3.954.7 billion in fiscal 20162022 to Rs. 4.723.3 billion in fiscal 2017 reflecting an increase2023. During fiscal 2023, there were higher recoveries and upgrades from non-performing assets resulting in retail loan portfolio.lower provisioning requirement. During fiscal 2022, the provision for non-performing and other assets also included provision on loans restructured under ‘Resolution Framework for COVID-19-related Stress’ guidelines issued by the Reserve Bank of India. See also “Business – Risk management – Credit risk – Assessment of Retail Loans” and “Business – Classification of loans – Impact of Economic Environment on Commercial and Consumer Loan BorrowersLoans.””.
Wholesale Banking
The following table sets forth, for the periods indicated, the principal components of profit before tax.
Year ended March 31, | ||||||||||||||||
2016 | 2017 | 2017 | 2017/2016 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Net interest income | Rs. | 83,615 | Rs. | 65,712 | US$ | 1,013 | (21.4 | %) | ||||||||
Non-interest income | 38,064 | 35,304 | 545 | (7.3 | ) | |||||||||||
Total income | 121,679 | 101,016 | 1,558 | (17.0 | ) | |||||||||||
Non-interest expenses | 25,981 | 32,414 | 500 | 24.8 | ||||||||||||
Profit before provisions | 95,698 | 68,602 | 1,058 | (28.3 | ) | |||||||||||
Provisions | 108,152 | 142,943 | 2,204 | 32.2 | ||||||||||||
Profit before tax | Rs. | (12,454 | ) | Rs. | (74,341 | ) | US$ | (1,146 | ) | 496.9 | % |
186
Year ended March 31, | ||||||||||||||||
2022 | 2023 | 2023 | 2023/2022 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Net interest income | Rs. | 126,158 | Rs. | 150,003 | US$ | 1,825 | 18.9% | |||||||||
Other income | 47,578 | 55,492 | 675 | 16.6 | ||||||||||||
Total income | 173,736 | 205,495 | 2,500 | 18.3 | ||||||||||||
Operating expenses | 55,357 | 67,489 | 821 | 21.9 | ||||||||||||
Profit before provisions | 118,379 | 138,006 | 1,679 | 16.6 | ||||||||||||
Provisions | 27,850 | (19,852 | ) | (242 | ) | N/M | ||||||||||
Profit before tax | Rs. | 90,529 | Rs. | 157,858 | US$ | 1,921 | 74.4% |
N/M – Not meaningful
The following table sets forth, for the periods indicated, the outstanding balances of key assets and liabilities.
Outstanding balance at March 31, | Outstanding balance at March 31, | |||||||||||||||||||||||||||||||
2016 | 2017 | 2017 | 2017/2016 % change | 2022 | 2023 | 2023 | 2023/2022 % change | |||||||||||||||||||||||||
(in millions, except percentages) | (in millions, except percentages) | |||||||||||||||||||||||||||||||
Advances | Rs. | 2,609,440 | Rs. | 2,565,395 | US$ | 39,559 | (1.7 | %) | Rs. | 3,928,994 | Rs. | 4,146,135 | US$ | 50,446 | 5.5% | |||||||||||||||||
Deposits | 1,132,167 | 1,358,117 | 20,942 | 20.0 | % | 3,022,194 | 3,209,497 | 39,050 | 6.2 |
The loan portfolio of the wholesale banking segment decreased by 1.7% from Rs. 2,609.4 billion at year-end fiscal 2016 to Rs. 2,565.4 billion at year-end fiscal 2017. The current account deposits increased by 25.9% from Rs. 331.3 billion at year-end fiscal 2016 to Rs. 417.1 billion at year-end fiscal 2017 and the term deposits in the segment increased by 17.5% from Rs. 800.8 billion at year-end fiscal 2016 to Rs. 941.1 billion at year-end fiscal 2017.
The lossprofit before tax of the wholesale banking segment increased by 74.4% from Rs. 12.490.5 billion in fiscal 20162022 to Rs. 74.3157.9 billion in fiscal 20172023 primarily due to reductionan increase in net interest income, non-interest income and a decrease in provisions, offset, in part, by an increase in provisions.operating expenses.
Net interest income decreasedincreased by 21.4%18.9% from Rs. 83.6126.2 billion in fiscal 20162022 to Rs. 65.7150.0 billion in fiscal 2017 primarily due to higher additions to non-performing assets and loans under strategic debt restructuring scheme and reduction in base rate during fiscal 2016 and fiscal 2017. The Bank accounts for interest income on a cash basis on non-performing assets and cases where strategic debt restructuring has been invoked. Non-interest income decreased by 7.3% from Rs. 38.0 billion in fiscal 2016 to Rs. 35.3 billion in fiscal 2017,2023 primarily due to a decreasegrowth in fee income. The corporate feeaverage loan portfolio and increase in yield.
Other income continuedincreased by 16.6% from Rs. 47.6 billion in fiscal 2022 to be adversely impactedRs. 55.5 billion in fiscal 2023 primarily due to subdued corporate activity.an increase in income from lending linked fees and income from foreign exchange and derivative transactions.
Non-interestOperating expenses increased by 24.8%21.9% from Rs. 26.0Rs 55.4 billion in fiscal 20162022 to Rs. 32.467.5 billion in fiscal 2017,2023 primarily due to an increase in employee costexpenses and other operatingtechnology related expenses.
Provisions increased fromThere was a write-back of provision of Rs. 108.119.9 billion in fiscal 20162023 as compared to a provision of Rs. 142.927.9 billion in fiscal 2017 primarily due2022. During fiscal 2023, there were higher recoveries and upgrades from non-performing assets resulting in net write-back of provision, offset, in part, by an increase in additions toprovisioning rate for certain non-performing assets in the corporateasset categories. See also “Operating and smallFinancial Review and medium enterprises loan portfolio including downgrades from the restructured loan portfolio, cases where strategic debt restructuring has been invoked/implementedProspects—Other Income—Provisions and specificcontingencies (excluding provision on certain standard loans. During fiscal 2017, the additions to non-performing loans, including slippages from restructured loans, and provisions remained elevated as the corporate sector challenges continued due to the slowdown in economic growth, low corporate profitability, subdued investment activity, and impact on business activity following the withdrawal of high denomination currency notes. While several companies are working with banks to restructure and reorganize their businesses and reduce their leverage through sales of businesses and assets, the process of resolution of stressed assets remained slower than expected due to delays in decision making at the Joint Lenders’ Forum that was set up to explore options for early resolution of stress in loan accounts. Several measures were announced by the Reserve Bank of India and the government, including the introduction of the Insolvency and Bankruptcy Code, during the year to enable early resolution of assets. However, the continued challenges in the operating and recovery environment impacted the pace of resolution leading to a significant increase in non-performing loans and provisions during fiscal 2017.tax)”.
191
Treasury
The following table sets forth, for the periods indicated, the principal components of profit before tax.
Year ended March 31, | ||||||||||||||||
2016 | 2017 | 2017 | 2017/2016 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Net interest income | Rs. | 30,969 | Rs. | 31,615 | US$ | 488 | 2.1 | % | ||||||||
Non-interest income | 61,457 | 98,701 | 1,522 | 60.6 | ||||||||||||
Total income | 92,426 | 130,316 | 2,010 | 41.0 | ||||||||||||
Non-interest expenses | 1,796 | 2,177 | 34 | 21.2 | ||||||||||||
Profit before provisions | 90,630 | 128,139 | 1,976 | 41.4 | ||||||||||||
Provisions | 4,467 | 7,325 | 113 | 64.0 | ||||||||||||
Profit before tax | Rs. | 86,163 | Rs. | 120,814 | US$ | 1,863 | 40.2 | % |
187
Year ended March 31, | ||||||||||||||||
2022 | 2023 | 2023 | 2023/2022 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Net interest income | Rs. | 84,890 | Rs. | 147,901 | US$ | 1,800 | 74.2% | |||||||||
Other income | 38,177 | 26,516 | 323 | (30.5 | ) | |||||||||||
Total income | 123,067 | 174,417 | 2,123 | 41.7 | ||||||||||||
Operating expenses | 15,370 | 17,905 | 218 | 16.5 | ||||||||||||
Profit before provisions | 107,697 | 156,512 | 1,905 | 45.3 | ||||||||||||
Share of profit from associates | 7,544 | 9,983 | 121 | — | ||||||||||||
Provisions | 3,408 | 6,157 | 75 | 80.7 | ||||||||||||
Profit before tax | Rs. | 96,745 | Rs. | 140,372 | US$ | 1,709 | 45.1% |
The following table sets forth, for the periods indicated, the closing balances of key assets and liabilities.
Closing balance at March 31, | ||||||||||||||||
2016 | 2017 | 2017 | 2017/2016 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Investments1 | Rs. | 1,604,397 | Rs. | 1,615,348 | US$ | 24,909 | 0.7 | % | ||||||||
Borrowings | 1,748,074 | 1,475,562 | 22,753 | (15.6 | %) | |||||||||||
Closing balance at March 31, | ||||||||||||||||
2022 | 2023 | 2023 | 2023/2022 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Investments | Rs. | 3,140,040 | Rs. | 3,667,972 | US$ | 44,628 | 16.8% | |||||||||
Borrowings | 1,072,314 | 1,193,255 | 14,518 | 11.3 |
Our treasury operations include the maintenance and management of regulatory reserves, proprietary trading in equity and fixed income and a range of foreign exchange and derivatives products and services, such as forward contracts, swaps and options. They also include investments made by ICICI Strategic Investments Fund and ICICI Equity Fund (up to September 30, 2015).
The profit before tax of the treasury segment increased by 40.2%45.1% from Rs. 86.296.7 billion in fiscal 20162022 to Rs. 120.8140.4 billion in fiscal 20172023 primarily due to an increase in non-interestnet interest income, offset, in part, by a decrease in non-interest income and an increase in provisions.provisions and operating expenses.
Net interest income increased by 2.1%74.2% from Rs. 31.084.9 billion in fiscal 20162022 to Rs. 31.6147.9 billion in fiscal 2017,2023 primarily due to a decreasean increase in cost of borrowings, offset,average investment portfolio and increase in part, by a decrease in yields on investments.yields.
Non-interestOther income increaseddecreased by 60.6%30.5% from Rs. 61.538.2 billion in fiscal 20162022 to Rs. 98.726.5 billion in fiscal 20172023. The dividend from subsidiaries/joint ventures was Rs. 17.8 billion in fiscal 2023 as compared to Rs. 18.3 billion in fiscal 2022. There was a realised/unrealised loss of Rs. 0.5 billion from treasury portfolio in fiscal 2023 as compared to a realised/unrealised gain of Rs. 9.0 billion in fiscal 2022.
Operating expenses increased by 16.5% from Rs. 15.4 billion in fiscal 2022 to Rs. 17.9 billion in fiscal 2023 primarily due to a gainan increase in premium paid towards purchase of Rs. 51.3 billion on sale of stake in ICICI Prudential Life Insurance Company Limited through initial public offer and higher realized gains on the government securities and other fixed income securities.priority sector lending certificates.
Provisions on investments increased from Rs. 4.53.4 billion in fiscal 20162022 to Rs. 7.36.2 billion in fiscal 20172023 primarily due to provision on security receipts anddebentures, equity shares acquired on conversion of loans.and security receipts.
192
Other Banking
The following table sets forth, for the periods indicated, the principal components of profit before tax.
Year ended March 31, | Year ended March 31, | |||||||||||||||||||||||||||||||
2016 | 2017 | 2017 | 2017/2016 % change | 2022 | 2023 | 2023 | 2023/2022 % change | |||||||||||||||||||||||||
(in millions, except percentages) | (in millions, except percentages) | |||||||||||||||||||||||||||||||
Net interest income | Rs. | 15,288 | Rs. | 15,184 | US$ | 234 | (0.7 | %) | Rs. | 10,316 | Rs. | 15,793 | US$ | 192 | 53.1% | |||||||||||||||||
Non-interest income | 2,477 | 3,095 | 48 | 24.9 | ||||||||||||||||||||||||||||
Other income | 3,418 | 4,240 | 52 | 24.0 | ||||||||||||||||||||||||||||
Total income | 17,765 | 18,279 | 282 | 2.9 | 13,734 | 20,033 | 244 | 45.9 | ||||||||||||||||||||||||
Non-interest expenses | 4,883 | 4,703 | 73 | (3.7 | ) | |||||||||||||||||||||||||||
Operating expenses | 7,245 | 8,899 | 108 | 22.8 | ||||||||||||||||||||||||||||
Profit before provisions | 12,882 | 13,576 | 209 | 5.4 | 6,489 | 11,134 | 136 | 71.6 | ||||||||||||||||||||||||
Provisions | 6,092 | 10,554 | 163 | 73.2 | 218 | 1,120 | 14 | — | ||||||||||||||||||||||||
Profit before tax | Rs. | 6,790 | Rs. | 3,022 | US$ | 46 | (55.5 | %) | Rs. | 6,271 | Rs. | 10,014 | US$ | 122 | 59.7% |
The following table sets forth, for the periods indicated, the outstanding balances of the key assets and liabilities.
Outstanding balance on March 31, | ||||||||||||||||
2016 | 2017 | 2017 | 2017/2016 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Advances | Rs. | 638,887 | Rs. | 502,938 | US$ | 7,755 | (21.3 | %) | ||||||||
Investments | 80,001 | 76,940 | 1,186 | (3.8 | ) | |||||||||||
Deposits | 400,943 | 255,054 | 3,933 | (36.4 | ) | |||||||||||
Borrowings | Rs. | 252,530 | Rs. | 232,139 | US$ | 3,580 | (8.1 | %) |
Outstanding balance on March 31, | ||||||||||||||||
2022 | 2023 | 2023 | 2023/2022 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Advances | Rs. | 553,824 | Rs. | 681,405 | US$ | 8,291 | 23.0% | |||||||||
Investments | 75,292 | 86,751 | 1,055 | 15.2 | ||||||||||||
Deposits | 296,919 | 337,012 | 4,100 | 13.5 | ||||||||||||
Borrowings | Rs. | 174,350 | Rs. | 150,749 | US$ | 1,834 | (13.5)% |
Other banking business includes our leasing operations, our overseas banking subsidiaries ICICI Bank UK and ICICI Bank Canada and other items not attributable to any particular business segment of the Bank.
The profit before tax of ourthe other banking segment decreasedincreased by 59.7% from Rs. 6.86.3 billion in fiscal 20162022 to Rs. 3.010.0 billion in fiscal 2017,2023 primarily due to an increase in provisions,net interest income and other income, offset, in part, by an increase in non-interest income.operating expenses and provisions.
Net interest income decreased marginallyincreased by 53.1% from Rs. 15.310.3 billion in fiscal 20162022 to Rs. 15.215.8 billion in fiscal 2017.
Non-interest2023. Net interest income of ICICI Bank Canada increased by 24.9% from Rs. 2.52.8 billion in fiscal 20162022 to Rs. 3.15.3 billion in fiscal 2017,2023 primarily due to higher interest income on trade finance, commercial loans and residential mortgages on account of increase in benchmark interest rates and lower interest expense on term deposits. Net interest income of ICICI Bank UK PLC increased from Rs. 3.0 billion in fiscal 2022 to Rs. 4.2 billion in fiscal 2023 primarily due to an increase in non-interest income of ICICI Bank Canada. Non-interest income of ICICI Bank Canada increased primarily due to an increase in fee income and realized gainsyield on call back of corporate bonds by the issuers.
Non-interest expenses decreased from Rs. 4.9 billion in fiscal 2016 to Rs. 4.7 billion in fiscal 2017.
Provisions increased by 73.2% from Rs. 6.1 billion in fiscal 2016 to Rs. 10.6 billion in fiscal 2017 primarily due to higher provisions made by ICICI Bank UK and ICICI Bank Canada. Provisions of our UK subsidiary increased from Rs. 3.9 billion in fiscal 2016 to Rs. 4.6 billion in fiscal 2017 primarily due to specific provision made on impaired loans, offset, in part, by a decrease in provision on investments. Provisions of our Canadian subsidiary increased from Rs. 1.8 billion in fiscal 2016 to Rs. 5.7 billion in fiscal 2017 primarily due to specific provision made on impaired loans.
Advances decreased by 21.3% from Rs. 638.9 billion at year-end fiscal 2016 to Rs. 502.9 billion at year-end fiscal 2017, primarily due to a decrease in advances of ICICI Bank and ICICI Bank UK. Advances of ICICI Bank decreased from Rs. 134.3 billion at year-end fiscal 2016 to Rs. 77.0 billion at year-end fiscal 2017 primarily due to maturity of loans against Foreign Currency Non-Resident (Bank) deposits in fiscal 2017. Advances of ICICI Bank UK decreased from Rs. 209.1 billion at year-end fiscal 2016 to Rs. 153.9 billion at year-end fiscal 2017 primarily due to a decrease in corporate loan on account of prepayment/sell-down and maturities of retail loans against foreign currency non-resident deposits. Advances of ICICI Bank Canada decreased from Rs. 295.5 billion at year-end fiscal 2016 to Rs. 272.0 billion primarily due to prepayment/repayment of corporate loans at fiscal 2017.
Investments decreased by 3.8% from Rs. 80.0 billion at year-end fiscal 2016 to Rs. 76.9 billion at year-end fiscal 2017, primarily due to a decrease in investments of ICICI Bank UK,interest earning assets, offset, in part, by an increase in investmentsinterest expenses due to higher benchmark interest rates. Net interest income of ICICI Bank Canada. The investment portfolio of ICICI Bank UK decreasedthe Bank’s other banking business increased from Rs. 49.34.5 billion at year-endin fiscal 20162022 to Rs. 44.36.3 billion at year-endin fiscal 20172023.
Other income increased by 24.0% from Rs. 3.4 billion in fiscal 2022 to Rs. 4.2 billion in fiscal 2023, primarily due to maturityan increase in other income of investmentsother banking segment of the Bank. Other income of other banking segment of the Bank increased from Rs. 0.8 billion in government securities. The investment portfoliofiscal 2022 to Rs. 2.1 billion in fiscal 2023. Other income of ICICI Bank Canada increased from Rs. 30.81.5 billion at year-endin fiscal 20162022 to Rs. 32.61.6 billion at year-endin fiscal 2017 primarily due to deployment of additional liquidity in bankers’ acceptances.
Deposits decreased by 36.4% from Rs. 400.9 billion at year-end fiscal 2016 to Rs. 255.1 billion at year-end fiscal 2017 primarily due to a decrease in deposits of ICICI Bank and ICICI Bank UK. Deposits of ICICI Bank decreased from Rs. 97.5 billion at year-end fiscal 2016 to Rs. 23.9 billion at year-end fiscal 2017 primarily due to redemption of Foreign Currency Non-Resident (Bank) deposits. Deposits2023. Other income of ICICI Bank UK PLC decreased from Rs. 163.41.0 billion at year-endin fiscal 20162022 to Rs. 106.90.6 billion at year-endin fiscal 2017,2023.
193
Operating expenses increased by 22.8% from Rs. 7.2 billion in fiscal 2022 to Rs. 8.9 billion in fiscal 2023 primarily due to a decrease in institutional deposits, retail term and saving deposits, offset, in part, by an increase in corporate term deposits. Depositsoperating expenses of the Bank. Operating expenses of other banking segment of the Bank increased from Rs. 1.9 billion in fiscal 2022 to Rs. 3.0 billion in fiscal 2023. Operating expenses of ICICI Bank Canada decreasedincreased from Rs. 140.02.3 billion at year-endin fiscal 20162022 to Rs. 124.22.9 billion at year-endin fiscal 2017, primarily due to a decrease in term deposits, offset, in part, by an increase in current deposits.
Borrowings decreased by 8.1% from Rs. 252.5 billion at year-end fiscal 2016 to Rs. 232.1 billion at year-end fiscal 2017 primarily due to a decrease in the borrowings of ICICI Bank UK. Borrowings2023. Operating expenses of ICICI Bank UK decreasedPLC increased from Rs. 98.72.9 billion at year-endin fiscal 20162022 to Rs. 81.23.0 billion at year-endin fiscal 20172023.
Provisions increased from Rs. 0.2 billion in fiscal 2022 to Rs. 1.1 billion in fiscal 2023. The increase in provision was primarily due to a decreaseincrease in repo borrowings.Borrowingsprovision by ICICI Bank Canada. Provisions of our other banking segment of the Bank increased from Rs. 281 million in fiscal 2022 to Rs. 555 million in fiscal 2023. ICICI Bank Canada decreased marginallymade a provision of Rs. 147 million in fiscal 2023 as compared to a write-back of Rs. 345 million is fiscal 2022. Provisions of our subsidiary in the UK increased fromRs. 153.8 billion at year-end231 million in fiscal 20162022 to Rs. 150.9 billion at year-end513 million in fiscal 2017.2023.
With regardThe impact on the economy due to our overseas banking subsidiaries, global developments, including decline in crude oil pricesinflation trajectory and on-going rate hike cycle by the election by a majorityregulators of voters indeveloped countries, trade-related disputes and geo-political conflicts, including the United Kingdom to withdraw from the European Union in a national referendum, are expected to slow downconflict between Russia and Ukraine, may impact economic growthconditions in Canada and the United Kingdom, which in turn could impact the business of our banking subsidiaries in these countries. Further, the Group is targeting reduction in the non-India linked corporate loan portfolio of ICICI Bank, ICICI Bank UK PLC and ICICI Bank Canada.
Life Insurance
The following table sets forth, for the periods indicated, the principal components of profit before tax.
Year ended March 31, | Year ended March 31, | |||||||||||||||||||||||||||||||
2016 | 2017 | 2017 | 2017/2016 % change | 2022 | 2023 | 2023 | 2023/2022 % change | |||||||||||||||||||||||||
(in millions, except percentages) | (in millions, except percentages) | |||||||||||||||||||||||||||||||
Premium earned | Rs. | 191,644 | Rs. | 223,540 | US$ | 3,447 | 16.6 | % | Rs. | 374,580 | Rs. | 399,328 | US$ | 4,859 | 6.6% | |||||||||||||||||
Premium on reinsurance ceded | (1,657 | ) | (1,988 | ) | (31 | ) | 20.0 | |||||||||||||||||||||||||
Premium on re-insurance ceded and accepted | (11,367 | ) | (13,732 | ) | (167 | ) | 20.8 | |||||||||||||||||||||||||
Net premium earned | 189,987 | 221,552 | 3,416 | 16.6 | 363,213 | 385,596 | 4,692 | 6.2 | ||||||||||||||||||||||||
Other income | 20,365 | 22,305 | 344 | 9.5 | 28,453 | 27,698 | 337 | (2.7 | ) | |||||||||||||||||||||||
Investment income | 21,285 | 26,605 | 410 | 25.0 | 60,227 | 64,544 | 785 | 7.2 | ||||||||||||||||||||||||
Total income | 231,637 | 270,462 | 4,170 | 16.8 | 451,893 | 477,838 | 5,814 | 5.7 | ||||||||||||||||||||||||
Commission paid | 6,200 | 7,589 | 117 | 22.4 | 16,729 | 18,639 | 227 | 11.4 | ||||||||||||||||||||||||
Claims/benefits paid | 16,975 | 11,118 | 171 | (34.5 | ) | 59,038 | 53,427 | 650 | (9.5 | ) | ||||||||||||||||||||||
Operating expenses | 19,951 | 24,728 | 381 | 23.9 | 39,294 | 48,683 | 592 | 23.9 | ||||||||||||||||||||||||
Total expenses | 43,126 | 43,435 | 669 | 0.7 | 115,061 | 120,749 | 1,469 | 4.9 | ||||||||||||||||||||||||
Transfer to linked funds | 139,479 | 160,605 | 2,477 | 15.1 | 193,959 | 179,008 | 2,178 | (7.7 | ) | |||||||||||||||||||||||
Provisions for policy holder liabilities (non-linked) | 31,316 | 48,573 | 749 | 55.1 | 134,967 | 169,112 | 2,058 | 25.3 | ||||||||||||||||||||||||
Profit before tax | Rs. | 17,716 | Rs. | 17,849 | US$ | 275 | 0.8 | % | Rs. | 7,906 | Rs. | 8,969 | US$ | 109 | 13.5% |
194
The following table sets forth, for the periods indicated, the outstanding balance of key assets and liabilities.
Outstanding balance on March 31, | ||||||||||||||||
2016 | 2017 | 2017 | 2017/2016 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Investments | Rs. | 270,320 | Rs. | 325,351 | US$ | 5,017 | 20.4 | % | ||||||||
Assets held to cover linked liabilities | 752,958 | 878,784 | 13,551 | 16.7 | ||||||||||||
Liabilities on life policies in force | 970,534 | 1,154,974 | 17,810 | 19.0 |
The life insurance industry in India registered a growth of 20.7% in retail weighted new business premium in fiscal 2017, according to the Life Insurance Council with ICICI Prudential Life Insurance Company registering a growth of 29.0%.
ICICI Prudential Life Insurance Company maintained its leadership position among the private sector companies with a private market share of 22.3% on a retail weighted new business premium basis in fiscal 2017 compared to 21.9% in fiscal 2016. Overall market share on this basis increased from 11.3% in fiscal 2016 to 12.0% in fiscal 2017. Assets under management increased by 18.3% from Rs. 1,039.4 billion at year-end fiscal 2016 to Rs. 1,229.2 billion at year-end fiscal 2017.
Outstanding balance on March 31, | ||||||||||||||||
2022 | 2023 | 2023 | 2023/2022 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Investments | Rs. | 828,880 | Rs. | 986,010 | US$ | 11,997 | 19.0% | |||||||||
Assets held to cover linked liabilities | 1,508,663 | 1,440,581 | 17,527 | (4.5) | ||||||||||||
Liabilities on life policies | Rs. | 2,288,272 | Rs. | 2,388,674 | US$ | 29,063 | 4.4% |
The profit before tax of ICICI Prudential Life Insurance Company increased marginallyby 13.5% from Rs. 17.77.9 billion in fiscal 20162022 to Rs. 17.89.0 billion in fiscal 2017.2023 primarily due to an increase in premium earned and a decrease in claims incurred.
The total premium income of ICICI Prudential Life Insurance Company increased by 16.6%6.6% from Rs. 191.6374.6 billion in fiscal 20162022 to Rs. 223.5399.3 billion in fiscal 20172023 primarily due to an increase in retail renewal premium and retail new businessgroup premium. Retail renewal premium increased by 18.5%4.4% from Rs. 120.0214.4 billion in fiscal 20162022 to Rs. 142.2223.8 billion in fiscal 2017. Retail new business2023. Group premium increased by 29.4%28.1% from Rs. 54.667.3 billion in fiscal 20162022 to Rs. 70.786.2 billion in fiscal 2017. Group premium decreased from Rs. 17.1 billion in fiscal 2016 to Rs. 10.7 billion in fiscal 2017.2023.
Other income of ICICI Prudential Life Insurance Company increaseddecreased by 9.5%2.7% from Rs. 20.428.5 billion in fiscal 20162022 to Rs. 22.327.7 billion in fiscal 2017 primarily due to an increase in fund management charges and mortality charges.2023.
Investment income of ICICI Prudential Life Insurance Company increased by 25.0%7.2% from Rs. 21.360.2 billion in fiscal 20162022 to Rs. 26.664.5 billion in fiscal 20172023 primarily due to an increase in net realized gains and interest income. The interest income, increased from Rs. 18.4 billionoffset, in fiscal 2016 to Rs. 20.6 billionpart, by a decrease in fiscal 2017. The net realized gains increased from Rs. 2.9 billion in fiscal 2016 to Rs. 6.0 billion in fiscal 2017 primarily due to higher realized gainsprofit on sale of equity shares and fixed income portfolio.investment.
Commission expenses of ICICI Prudential Life Insurance Company increased by 22.4%11.4% from Rs. 6.216.7 billion in fiscal 20162022 to Rs. 7.618.6 billion in fiscal 2017, which is in line with the change in product mix and2023 primarily due to an increase in total premium.new business commission and renewal commission.
Claims and benefit payouts of ICICI Prudential Life Insurance Company decreased by 34.5%9.5% from Rs. 17.059.0 billion in fiscal 20162022 to Rs. 11.153.4 billion in fiscal 2017 on account2023 primarily due to a decrease in death claims (net of lower surrenders,reinsurance), offset, in part, by an increase in death claims and maturity claims.surrenders.
Transfer to linked funds represents the transfer of premium received, including the renewalinvestible portion of the premium on linked policies of ICICI Prudential Life Insurance Company to investments, which has increaseddecreased by 15.1%7.7% from Rs. 139.5194.0 billion in fiscal 20162022 to Rs. 160.6179.0 billion in fiscal 20172023 primarily due to an increasea decrease in linked premium. The investible portion of the premium on linked policies of life insurance represents the premium income including renewal premium received on linked policies of life insurance business invested, after deducting charges and premium for risk coverage, in the underlying asset or index chosen by the policy holder.
Assets held to cover the linked Provision for policyholder liabilities of ICICI Prudential Life Insurance Company increased from Rs. 753.0135.0 billion at year-endin fiscal 20162022 to Rs. 878.8169.1 billion at year-endin fiscal 20172023.
Employee expenses increased from Rs. 12.0 billion in fiscal 2022 to Rs. 14.5 billion in fiscal 2023. Other operating expenses increased from Rs. 27.3 billion in fiscal 2022 to Rs. 34.2 billion in fiscal 2023 primarily due to an increaseincreases in investments in equity sharesadvertisement and corporate bonds.publicity expenses.
Liability under existing life insurance policies to be paid by ICICI Prudential Life Insurance Company increased by 19.0% from Rs. 970.5 billion at year-end fiscal 2016 to Rs. 1,155.0 billion at year-end fiscal 2017.195
General Insurance
The following table sets forth, for the periods indicated, the principal componentsTable of profit before tax.Contents
Year ended March 31, | ||||||||||||||||
2016 | 2017 | 2017 | 2017/2016 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Gross written premium (including premium on reinsurance accepted) | Rs. | 82,960 | Rs. | 109,605 | US$ | 1,690 | 32.1 | % | ||||||||
Premium on reinsurance ceded | (28,611 | ) | (43,657 | ) | (673 | ) | 52.6 | |||||||||
Unexpired risk reserve | (6,133 | ) | (4,312 | ) | (66 | ) | (29.7 | ) | ||||||||
Net premium earned | 48,216 | 61,636 | 951 | 27.8 | ||||||||||||
Commission income (net) | 3,280 | 4,341 | 67 | 32.4 | ||||||||||||
Investment income from pool(1) | 242 | 245 | 4 | 1.2 | ||||||||||||
Investment income | 11,574 | 13,105 | 202 | 13.2 | ||||||||||||
Total income | 63,312 | 79,327 | 1,224 | 25.3 | ||||||||||||
Operating expenses | 17,112 | 19,820 | 306 | 15.8 | ||||||||||||
Claims/benefits paid (net) | 39,282 | 49,543 | 764 | 26.1 | ||||||||||||
Other expenses (net) | (159 | ) | 863 | 13 | N/M | |||||||||||
Total expense | 56,235 | 70,226 | 1,083 | 24.9 | ||||||||||||
Profit/(loss) before tax | Rs. | 7,077 | Rs. | 9,101 | US$ | 141 | 28.6 | % | ||||||||
N/M- Not meaningful
The following table sets forth, for the periods indicated, the outstanding balances of key assets and liabilities.
Outstanding balance on March 31, | ||||||||||||||||
2016 | 2017 | 2017 | 2017/2016 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Investments | Rs. | 112,788 | Rs. | 147,964 | US$ | 2,282 | 31.2 | % | ||||||||
Current liabilities including claims outstanding | 90,754 | 149,149 | 2,300 | 64.3 | ||||||||||||
Provisions | Rs. | 31,158 | Rs. | 35,485 | US$ | 547 | 13.9 | % |
The general insurance industry witnessed a growth of 32.3% in fiscal 2017 on the basis of gross direct premium. Higher growth in the industry was primarily due to higher off-take in crop/weather insurance segment.
ICICI Lombard General Insurance Company Limited registered a growth of 32.6% in gross direct premium during fiscal 2017 primarily due to an increase in crop/weather, health and motor insurance portfolio. ICICI Lombard General Insurance Company Limited has maintained its leadership position among private sector general insurance companies and an overall market share of 8.4% during fiscal 2017 on the basis of gross direct premium (Source: General Insurance Council/Insurance Regulatory and Development Authority of India).
The profit before tax of ICICI Lombard General Insurance Company increased by 28.6% from Rs. 7.1 billion in fiscal 2016 to Rs. 9.1 billion in fiscal 2017 primarily due to an increase in net earned premium and investment income, offset, in part, by an increase in claims and benefits payout.
The gross direct premium income increased by 32.6% from Rs. 80.9 billion in fiscal 2016 to Rs. 107.3 billion in fiscal 2017 primarily due to an increase in crop/weather, motor and health insurance business. The net premium income increased from Rs. 48.2 billion in fiscal 2016 to Rs. 61.6 billion in fiscal 2017.
Net commission income increased by 32.4% from Rs. 3.3 billion in fiscal 2016 to Rs. 4.3 billion in fiscal 2017 primarily due to higher reinsurance commission on crop insurance business.
Investment income increased by 13.2% from Rs. 11.6 billion in fiscal 2016 to Rs. 13.1 billion in fiscal 2017 primarily due to an increase in interest income and realized gains on sale of investment securities. Interest income increased from Rs. 7.9 billion in fiscal 2016 to Rs. 8.6 billion in fiscal 2017. Realized gain on sale of investment securities increased from Rs. 3.4 billion in fiscal 2016 to Rs. 3.9 billion in fiscal 2017 primarily due to higher gain on equity investments and government securities.
Operating expenses increased by 15.8% from Rs. 17.1 billion in fiscal 2016 to Rs. 19.8 billion in fiscal 2017 primarily due to an increase in business support expenses which is in-line with the increase in business volumes.
Claims/benefits paid increased by 26.1% from Rs. 39.3 billion in fiscal 2016 to Rs. 49.5 billion in fiscal 2017 reflecting an increase in business volumes.
Investments increased by 31.2% from Rs. 112.8 billion at year-end fiscal 2016 to Rs. 148.0 billion at year-end fiscal 2017 primarily due to an increase in investment in debentures, bonds and equity investments. Current liabilities, including claims outstanding, increased by 64.3% from Rs. 90.8 billion at year-end fiscal 2016 to Rs. 149.1 billion at year-end fiscal 2017 primarily due to an increase in claims outstanding.
Others
The “others”“Others” segment mainly includes ICICI Prudential Asset Management Company Limited, ICICI Venture, Funds Management Company Limited, ICICI Securities Limited, ICICI Securities Primary Dealership Limited and ICICI Home Finance Company Limited.
ICICI Prudential Asset Management Company manages the ICICI Prudential Mutual Fund, which was the largesta leading mutual fund in India in terms of average funds under management for the financial period ended March 31, 2017 according to the Association of Mutual Funds in India.
ICICI Securities Limited and ICICI Securities Primary Dealership Limited are engaged in equity underwriting and brokerage and primary dealership in government securities respectively. ICICI Securities Limited owns icicidirect.com, a leading online brokerage platform.
The profit before tax of the “others” segment increased from Rs. 14.3 billionplatform and is engaged in fiscal 2016 to Rs. 21.8 billion in fiscal 2017 primarily due to an increase in profit before tax of ICICI Securities Primary Dealership Limited, ICICI Prudential Asset Management Company Limited, ICICI Securities Limited, ICICI Venture Funds Management Company Limited and ICICI Home Finance Company Limited.
The following table sets forth, for the periods indicated, the principal components of profit before tax.
Year ended March 31, | ||||||||||||||||
2016 | 2017 | 2017 | 2017/2016 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Net interest income | Rs. | 4,470 | Rs. | 5,400 | US$ | 83 | 20.8 | % | ||||||||
Non-interest income | 25,461 | 34,215 | 528 | 34.4 | ||||||||||||
Total income | 29,931 | 39,615 | 611 | 32.4 | ||||||||||||
Non-interest expenses | 15,501 | 17,761 | 274 | 14.6 | ||||||||||||
Operating profit before provisions and tax | 14,430 | 21,854 | 337 | 51.4 | ||||||||||||
Provisions | 178 | 90 | 1 | (49.2 | ) | |||||||||||
Profit before tax | Rs. | 14,252 | Rs. | 21,764 | US$ | 336 | 52.7 | % |
Net interest income increased by 20.8% from Rs. 4.5 billion in fiscal 2016 to Rs. 5.4 billion in fiscal 2017.
Non-interest income increased by 34.4% from Rs. 25.5 billion in fiscal 2016 to Rs. 34.2 billion in fiscal 2017 primarily due to an increase in fees income and other income of ourequities underwriting, securities broking and primary dealership subsidiary and management feesdistribution of our asset management subsidiary.
Non-interest expenses increased by 14.6% from Rs. 15.5 billion in fiscal 2016 to Rs. 17.8 billion in fiscal 2017 primarily due to an increase in administrative expenses and staff expenses of our securities broking and asset management subsidiary.
The profit before tax of ICICI Securities Limited increased from Rs. 3.7 billion in fiscal 2016 to Rs. 5.2 billion in fiscal 2017 primarily due to an increase in fee income, offset, in part, by an increase in staff cost and other administrative expenses. Fee income increased primarily due to an increase in brokerage income, third party product distribution fees and corporate finance fees. The brokerage income increased due to higher secondary market retail volumes.
The profit before tax of ICICI Securities Primary Dealership Limited increased from Rs. 3.0 billion in fiscal 2016 to Rs. 6.3 billion in fiscal 2017, primarily due to an increase in trading gains and net interest income. Trading gains were higher in fiscal 2017 due to favorable interest rate movements resulting in higher opportunities for making gains through trading activities.
The profit before tax of ICICI Prudential Asset Management Company Limited increased from Rs. 5.0 billion in fiscal 2016 to Rs. 7.3 billion in fiscal 2017 primarily due to an increase in fee income on account of an increase in average assets under management and change in product-mix in favor of equity mutual fund, which earns higher fees. Fee income increased from Rs. 9.9 billion in fiscal 2016 to Rs. 13.0 billion in fiscal 2017. The above increase was, offset, in part, by an increase in administrative expenses and staff cost.
The profit before tax of ICICI Home Finance Company Limited increased from Rs. 2.7 billion in fiscal 2016 to Rs. 2.8 billion in fiscal 2017 primarily due to a decrease in provisions and staff cost, offset, in part, by a decrease in fees income. Net interest income increased from Rs. 2.9 billion in fiscal 2016 to Rs. 3.0 billion in fiscal 2017. Fees income decreased from Rs. 0.9 billion in fiscal 2016 to Rs. 0.6 billion in fiscal 2017. Provisions decreased from a provision Rs. 0.2 billion in fiscal 2016 to write back of Rs. 0.04 billion in fiscal 2017.
The profit before tax of ICICI Venture Fund Management Company Limited increased from a loss of Rs. 0.2 billion in fiscal 2016 to a profit of Rs. 0.1 billion in fiscal 2017 primarily due to an increase in management fees. Management fees increased primarily due to management fees from new entities.
Fiscal 2016 Compared with Fiscal 2015
The following table sets forth, for the periods indicated, profit before tax of various segments.
Year ended March 31, | ||||||||||||||||
2015 | 2016 | 2016 | 2016/2015 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Retail Banking | Rs. | 27,243 | Rs. | 38,977 | US$ | 601 | 43.1 | % | ||||||||
Wholesale Banking | 62,241 | (12,454 | ) | (192 | ) | N/M | ||||||||||
Treasury | 64,687 | 86,163 | 1,329 | 33.2 | ||||||||||||
Other Banking | 6,672 | 6,790 | 105 | 1.8 | ||||||||||||
Life Insurance | 16,343 | 17,716 | 273 | 8.4 | ||||||||||||
General Insurance | 6,907 | 7,077 | 109 | 2.5 | ||||||||||||
Others | 14,635 | 14,252 | 219 | (2.6 | ) | |||||||||||
Profit before tax | Rs. | 198,728 | Rs. | 158,521 | US$ | 2,444 | (20.2 | )% |
193
N/M- Not meaningful
Retail Bankingfinancial products.
The following table sets forth, for the periods indicated, the principal components of profit before tax.
Year ended March 31, | ||||||||||||||||
2015 | 2016 | 2016 | 2016/2015 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Net interest income | Rs. | 71,415 | Rs. | 91,914 | US$ | 1,417 | 28.7 | % | ||||||||
Non-interest income | 42,771 | 49,023 | 756 | 14.6 | ||||||||||||
Total income | 114,186 | 140,937 | 2,173 | 23.4 | ||||||||||||
Non-interest expenses | 86,147 | 97,972 | 1,511 | 13.7 | ||||||||||||
Profit before provisions | 28,039 | 42,965 | 662 | 53.2 | ||||||||||||
Provisions | 796 | 3,988 | 61 | 401.0 | ||||||||||||
Profit before tax | Rs. | 27,243 | Rs. | 38,977 | US$ | 601 | 43.1 | % |
The following table sets forth, for the periods indicated, the outstanding balances of key assets and liabilities.
Outstanding balance at March 31, | ||||||||||||||||
2015 | 2016 | 2016 | 2016/2015 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Advances | Rs. | 1,193,521 | Rs. | 1,608,891 | US$ | 24,809 | 34.8 | % | ||||||||
Deposits | 2,539,964 | 2,982,101 | 45,985 | 17.4 |
Loans in the retail banking segment increased primarily due to higher retail disbursements, mainly in home loans, automobile loans and personal loans. The retail banking segment maintained its focus on strengthening its deposit franchise reflected in the increase in the retail deposit base. The savings account deposits of the segment increased by 16.9% from Rs. 1,148.6 billion at year-end fiscal 2015 to Rs. 1,342.3 billion at year-end fiscal 2016.
Year ended March 31, | ||||||||||||||||
2022 | 2023 | 2023 | 2023/2022 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Net interest income | Rs. | 14,709 | Rs. | 15,281 | US$ | 186 | 3.9% | |||||||||
Other income | 56,930 | 57,004 | 694 | 0.1 | ||||||||||||
Total income | 71,639 | 72,285 | 880 | 0.9 | ||||||||||||
Operating expenses | 25,823 | 29,630 | 361 | 14.7 | ||||||||||||
Operating profit before provisions and tax | 45,816 | 42,655 | 519 | (6.9 | ) | |||||||||||
Provision and contingencies | 2,316 | 631 | 8 | (72.8 | ) | |||||||||||
Profit before tax | Rs. | 43,500 | Rs. | 42,024 | US$ | 511 | (3.4)% |
The profit before tax of the retail banking“Others” segment increaseddecreased by 3.4% from Rs. 27.243.5 billion in fiscal 20152022 to Rs. 39.042.0 billion in fiscal 2016, primarily due to an increase in net interest income and non-interest income, offset, in part, by higher expenses and provisions.
Net interest income increased by 28.7% from Rs. 71.4 billion in fiscal 2015 to Rs. 91.9 billion in fiscal 2016 primarily due to an increase in the loan portfolio and an increase in average current account and savings account deposits.
Non-interest income increased by 14.6% from Rs. 42.8 billion in fiscal 2015 to Rs. 49.0 billion in fiscal 2016 primarily due to the third party product distribution fees, lending linked fees, transaction banking fees and fees from credit card portfolio.
Non-interest expenses increased by 13.7% from Rs. 86.1 billion in fiscal 2015 to Rs. 98.0 billion in fiscal 2016 primarily due to an increase in direct marketing expenses and an increase in operating expenses due to expansion in branch network.
Provisions increased from Rs. 0.8 billion in fiscal 2015 to Rs. 3.9 billion in fiscal 2016 primarily due to the reversal of a provision, made in earlier years, in fiscal 2015 and provision for fraud at a specific branch of ICICI Bank in fiscal 2016. See also “Business – Risk management – Credit risk – Assessment of Retail Loans” and “Business – Classification of loans – Impact of Economic Environment on Commercial and Consumer Loan Borrowers”.
Wholesale Banking
The following table sets forth, for the periods indicated, the principal components of profit before tax.
Year ended March 31, | ||||||||||||||||
2015 | 2016 | 2016 | 2016/2015 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Net interest income | Rs. | 84,471 | Rs. | 83,615 | US$ | 1,289 | (1.0 | )% | ||||||||
Non-interest income | 39,004 | 38,064 | 587 | (2.4 | ) | |||||||||||
Total income | 123,475 | 121,679 | 1,876 | (1.5 | ) | |||||||||||
Non-interest expenses | 25,846 | 25,981 | 401 | 0.5 | ||||||||||||
Profit before provisions | 97,629 | 95,698 | 1,475 | (2.0 | ) | |||||||||||
Provisions | 35,388 | 108,152 | 1,667 | 205.6 | ||||||||||||
Profit before tax | Rs. | 62,241 | Rs. | (12,454 | ) | US$ | (192 | ) | N/M% |
N/M- Not meaningful
The following table sets forth, for the periods indicated, the outstanding balances of key assets and liabilities.
Outstanding balance at March 31, | ||||||||||||||||
2015 | 2016 | 2016 | 2016/2015 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Advances | Rs. | 2,564,172 | Rs. | 2,609,440 | US$ | 40,238 | 1.8 | % | ||||||||
Deposits | 977,780 | 1,132,167 | 17,458 | 15.8 | % |
The loan portfolio of the wholesale banking segment increased by 1.8% from Rs. 2,564.2 billion at year-end fiscal 2015 to Rs. 2,609.4 billion at year-end fiscal 2016. The low growth in loan portfolio in the wholesale banking was primarily due to weak demand and our cautious approach towards incremental lending in this segment. The increase in the loan portfolio was primarily due to an increase in the domestic corporate loan portfolio. The current account deposits increased by 18.4% from Rs. 279.8 billion at year-end fiscal 2015 to Rs. 331.3 billion at year-end fiscal 2016 and the term deposits in the segment increased by 14.7% from Rs. 698.0 billion at year-end fiscal 2015 to Rs. 800.8 billion at year-end fiscal 2016.
The wholesale banking segment incurred a loss of Rs. 12.4 billion in fiscal 2016 compared to a profit before tax of Rs. 62.2 billion in fiscal 2015.
Net interest income decreased by 1.0% from Rs. 84.5 billion in fiscal 2015 to Rs. 83.6 billion in fiscal 2016 primarily due to the higher additions to non-performing loans, on which interest income is not accrued.
Non-interest income decreased by 2.4% from Rs. 39.0 billion in fiscal 2015 to Rs. 38.0 billion in fiscal 2016 primarily due to a decrease in fee income. The corporate fee income continued to be impacted due to limited fee income opportunities on account of subdued corporate activity.
Provisions increased from Rs 35.4 billion in fiscal 2015 to Rs 108.1 billion in fiscal 2016 primarily due to an increase in additions to non-performing assets in the corporate and small and medium enterprises loan portfolio, including reclassifications of restructured loans as non-performing loans due to the failure of the borrowers to perform as per the restructured terms.
There are uncertainties in respect of certain sectors due to the weak global economic environment, sharp downturn in the commodity cycle, gradual nature of the domestic economic recovery and high leverage by borrowers.The key sectors that have been impacted include power, mining, iron & steel, cement and rigs. In view of the uncertainties relating to these sectors and the time that it may take to resolve the Bank’s exposure to these sectors, we have made a collective contingency and related reserve at March 31, 2016 of Rs. 36.0 billion towards the Bank’s exposure to these sectors and certain promoter entities where the underlying is partly linked to these sectors. This reserve was over and above the provisions required for non-performing and restructured loans as per the Reserve Bank of India guidelines but, as a prudent matter, is permitted under the Reserve Bank of India guidelines and Indian GAAP. See also “—Selected Consolidated Financial and Operating Data - Provisions and contingencies (excluding tax provisions) - Provisions for Non-performing Assets and Restructured Loans”.
Treasury
The following table sets forth, for the periods indicated, the principal components of profit before tax.
Year ended March 31, | ||||||||||||||||
2015 | 2016 | 2016 | 2016/2015 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Net interest income | Rs. | 29,632 | Rs. | 30,969 | US$ | 478 | 4.5 | % | ||||||||
Non-interest income | 39,779 | 61,457 | 948 | 54.5 | ||||||||||||
Total income | 69,411 | 92,426 | 1,426 | 33.2 | ||||||||||||
Non-interest expenses | 1,830 | 1,796 | 28 | (1.9 | ) | |||||||||||
Profit before provisions | 67,581 | 90,630 | 1,398 | 34.1 | ||||||||||||
Provisions | 2,894 | 4,467 | 69 | 54.4 | ||||||||||||
Profit before tax | Rs. | 64,687 | Rs. | 86,163 | US$ | 1,329 | 33.2 | % |
The following table sets forth, for the periods indicated, the closing balances of key assets and liabilities.
Closing balance at March 31, | ||||||||||||||||
2015 | 2016 | 2016 | 2016/2015 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Investments1 | Rs. | 1,581,528 | Rs. | 1,604,397 | US$ | 24,740 | 1.4 | % | ||||||||
Borrowings | 1,724,173 | 1,748,074 | 26,956 | 1.4 | % | |||||||||||
1. In accordance with the Reserve Bank of India circular dated July 16, 2015, investments in the Rural Infrastructure and Development Fund and other related deposits of Rs. 280.7 billion (March 31, 2015: Rs. 284.5 billion) have been re-classified to line item ‘Rural Infrastructure and Development Fund’ under Other Assets.
Our treasury operations include the maintenance and management of regulatory reserves, proprietary trading in equity and fixed income and a range of foreign exchange and derivatives products and services, such as forward contracts, swaps and options. They also include investments made by ICICI Strategic Investments Fund and ICICI Equity Fund (up to September 30, 2015).
The profit before tax of the treasury segment increased by 33.2% from Rs. 64.7 billion in fiscal 2015 to Rs. 86.2 billion in fiscal 2016 primarily due to an increase in non-interest income, offset, in part, by an increase in provisions.
Net interest income increased by 4.5% from Rs. 29.6 billion in fiscal 2015 to Rs. 31.0 billion in fiscal 2016, primarily due to a decrease in cost of borrowings, offset, in part, by a decrease in yields on investments.
Non-interest income increased by 54.5% from Rs. 39.8 billion in fiscal 2015 to Rs. 61.5 billion in fiscal 2016 primarily due to a gain on sale of stakes in insurance subsidiaries and higher exchange gain on repatriation of retained earnings from overseas operations, offset, in part, by lower gains on the equity and mutual fund investments portfolio.
Provisions increased from Rs. 2.9 billion in fiscal 2015 to Rs. 4.5 billion in fiscal 2016 primarily due to an increase in provision on corporate debt securities, offset, in part, by a decrease in provision on equity shares.
Other Banking
The following table sets forth, for the periods indicated, the principal components of profit before tax.
Year ended March 31, | ||||||||||||||||
2015 | 2016 | 2016 | 2016/2015 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Net interest income | Rs. | 13,422 | Rs. | 15,288 | US$ | 236 | 13.9 | % | ||||||||
Non-interest income | 4,472 | 2,477 | 38 | (44.6 | ) | |||||||||||
Total income | 17,894 | 17,765 | 274 | (0.7 | ) | |||||||||||
Non-interest expenses | 5,494 | 4,883 | 75 | (11.1 | ) | |||||||||||
Profit before provisions | 12,400 | 12,882 | 199 | 3.9 | ||||||||||||
Provisions | 5,728 | 6,092 | 94 | 6.4 | ||||||||||||
Profit before tax | Rs. | 6,672 | Rs. | 6,790 | US$ | 105 | 1.8 | % |
196
The following table sets forth, for the periods indicated, the outstanding balances of the key assets and liabilities.
Outstanding balance on March 31, | ||||||||||||||||
2015 | 2016 | 2016 | 2016/2015 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Advances | Rs. | 561,366 | Rs. | 638,887 | US$ | 9,852 | 13.8 | % | ||||||||
Investments | 60,344 | 80,001 | 1,234 | 32.6 | ||||||||||||
Deposits | 341,775 | 400,943 | 6,183 | 17.3 | ||||||||||||
Borrowings | Rs. | 205,298 | Rs. | 252,530 | US$ | 3,894 | 23.0 | % |
Other banking business includes our leasing operations, our overseas banking subsidiaries, ICICI Bank UK, ICICI Bank Canada and ICICI Bank Eurasia Limited Liability Company (up to December 31, 2014) and other items not attributable to any particular business segment of the Bank.
The profit before tax of our other banking segment increased marginally from Rs. 6.7 billion in fiscal 2015 to Rs. 6.8 billion in fiscal 2016, primarily due to an increase in net interest income and a decrease in non-interest expense, offset, in part, by a decrease in non-interest income and an increase in provisions.
Net interest income increased by 13.9% from Rs. 13.4 billion in fiscal 2015 to Rs. 15.3 billion in fiscal 2016, primarily due to an increase in net interest income of ICICI Bank UK and an increase in interest received on income tax refunds upon the completion of pending income tax assessments. Net interest income of ICICI Bank UK increased primarily due to an increase in the average volume of interest earning assets.
Non-interest income decreased by 44.6% from Rs. 4.5 billion in fiscal 2015 to Rs. 2.5 billion in fiscal 2016, primarily due to a decrease in non-interest income of ICICI Bank UK and ICICI Bank Canada. In fiscal 2015, non-interest income of ICICI Bank UK was higher primarily due to higher treasury income. Non-interest income of ICICI Bank Canada decreased primarily due to lower forex revaluation gains in fiscal 2016.
Non-interest expenses decreased from Rs. 5.5 billion in fiscal 2015 to Rs. 4.9 billion in fiscal 2016.
Provisions increased by 6.4% from Rs. 5.7 billion in fiscal 2015 to Rs. 6.1 billion in fiscal 2016 primarily due to higher provisions made by ICICI Bank UK and ICICI Bank Canada. Provisions of our UK subsidiary increased from Rs. 3.1 billion in fiscal 2015 to Rs. 3.9 billion in fiscal 2016 primarily due to specific provision made on certain existing impaired loans and an increase in collective provision, offset, in part, by a decrease in provision on investments. Provisions of our Canadian subsidiary increased from Rs. 1.1 billion in fiscal 2015 to Rs. 1.8 billion in fiscal 2016 primarily due to additional specific provision made on certain impaired loans.
Advances increased by 13.8% from Rs. 561.4 billion at year-end fiscal 2015 to Rs. 638.9 billion at year-end fiscal 2016, primarily due to an increase in advances of ICICI Bank Canada and ICICI Bank UK. Advances of ICICI Bank Canada increased from Rs. 254.2 billion at year-end fiscal 2015 to Rs. 295.5 billion at year-end fiscal 2016 primarily due to an increase in the securitized insured mortgages portfolio. In terms of Canadian dollar, the loan portfolio of ICICI Bank Canada increased from CAD 5.2 billion at year-end fiscal 2015 to CAD 5.8 billion at year-end fiscal 2016. Advances of ICICI Bank UK increased from Rs. 189.7 billion at year-end fiscal 2015 to Rs. 209.1 billion at year-end fiscal 2016 primarily due to an increase in the corporate loan book offset, in part, by a reduction in the foreign currency convertible bond portfolio on account of maturities. In U.S. dollar terms, the loan portfolio of ICICI Bank UK increased from US$ 3.0 billion at year-end fiscal 2015 to US$ 3.1 billion at year-end fiscal 2016.
Investments increased by 32.6% from Rs. 60.3 billion at year-end fiscal 2015 to Rs. 80.0 billion at year-end fiscal 2016, primarily due to an increase in investments of ICICI Bank UK and ICICI Bank Canada. The investment portfolio of ICICI Bank UK increased by 58.3% from Rs. 31.1 billion at year-end fiscal 2015 to Rs. 49.3 billion at year-end fiscal 2016 primarily due to an increase in investments in corporate bonds. Investments of ICICI Bank Canada increased on account of rupee depreciation against the Canadian dollar in fiscal 2016.
Deposits increased by 17.3% from Rs. 341.8 billion at year-end fiscal 2015 to Rs. 400.9 billion at year-end fiscal 2016 due to an increase in deposits of ICICI Bank Canada and ICICI Bank UK. Deposits of ICICI Bank Canada increased from Rs. 109.3 billion at year-end fiscal 2015 to Rs. 140.0 billion at year-end fiscal 2016 primarily due to an increase in term deposits from Rs. 78.9 billion at year-end fiscal 2015 to Rs. 101.9 billion at year-end fiscal 2016. Deposits of ICICI Bank UK increased from Rs. 142.8 billion at year-end fiscal 2015 to Rs. 163.4 billion at year-end fiscal 2016, primarily due to an increase in savings and current deposits, offset, in part, by a decrease in term deposits.
Borrowings increased by 23.0% from Rs. 205.3 billion at year-end fiscal 2015 to Rs. 252.5 billion at year-end fiscal 2016 primarily due to an increase in the borrowings of ICICI Bank UK and ICICI Bank Canada. Borrowings of ICICI Bank UK increased primarily due to an increase in inter-bank borrowings, bond borrowings and syndicated borrowings, offset, in part, by a decrease in repo borrowings. Borrowings of ICICI Bank Canada increased primarily due to an increase in securitization of insured mortgages.
Life Insurance
The following table sets forth, for the periods indicated, the principal components of profit before tax.
Year ended March 31, | ||||||||||||||||
2015 | 2016 | 2016 | 2016/2015 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Premium earned | Rs. | 153,066 | Rs. | 191,644 | US$ | 2,955 | 25.2 | % | ||||||||
Premium on reinsurance ceded | (1,462 | ) | (1,657 | ) | (25 | ) | 13.3 | |||||||||
Net premium earned | 151,604 | 189,987 | 2,930 | 25.3 | ||||||||||||
Other income | 21,377 | 20,365 | 314 | (4.7 | ) | |||||||||||
Investment income | 18,318 | 21,285 | 328 | 16.2 | ||||||||||||
Total income | 191,299 | 231,637 | 3,572 | 21.1 | ||||||||||||
Commission paid | 5,532 | 6,200 | 95 | 12.1 | ||||||||||||
Claims/benefits paid | 9,028 | 16,975 | 262 | 88.0 | ||||||||||||
Operating expenses | 17,067 | 19,951 | 308 | 16.9 | ||||||||||||
Total expenses | 31,627 | 43,126 | 665 | 36.4 | ||||||||||||
Transfer to linked funds | 108,205 | 139,479 | 2,151 | 28.9 | ||||||||||||
Provisions for policy holder liabilities (non-linked) | 35,124 | 31,316 | 483 | (10.8 | ) | |||||||||||
Profit before tax | Rs. | 16,343 | Rs. | 17,716 | US$ | 273 | 8.4 | % |
The following table sets forth, for the periods indicated, the outstanding balance of key assets and liabilities.
Outstanding balance on March 31, | ||||||||||||||||
2015 | 2016 | 2016 | 2016/2015 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Investments | Rs. | 236,525 | Rs. | 270,320 | US$ | 4,168 | 14.3 | % | ||||||||
Assets held to cover linked liabilities | 747,775 | 752,958 | 11,611 | 0.7 | ||||||||||||
Liabilities on life policies in force | 936,194 | 970,534 | 14,966 | 3.7 |
The life insurance industry in India registered a growth of 8.1% in retail weighted new business premium in fiscal 2016, according to the Life Insurance Council. The private sector registered a growth of 13.6% while ICICI Prudential Life Insurance Company registered a growth of 8.1% in fiscal 2016. This was in the context of a 41.3% growth in retail weighted new business premium for ICICI Prudential Life Insurance Company in fiscal 2015, when the overall industry had declined by 10.3% and the private sector had grown by 15.8%.
ICICI Prudential Life Insurance Company maintained its leadership position among the private sector companies with a private market share of 21.9% on a retail weighted new business premium basis in fiscal 2016 compared to 23.3% in fiscal 2015. Overall market share on this basis remained at a similar level of 11.3% in fiscal 2015 and fiscal 2016. Assets under management increased by 3.8% from Rs. 1,001.8 billion at year-end fiscal 2015 to Rs. 1,039.4 billion at year-end fiscal 2016.
The profit before tax of ICICI Prudential Life Insurance Company increased by 8.4% from Rs. 16.3 billion in fiscal 2015 to Rs. 17.7 billion in fiscal 2016 primarily due to an increase in net premium earned and
investment income and a decrease in provision for policyholder liabilities, offset, in part, by an increase in transfer to linked funds and operating expenses.
The total premium income of ICICI Prudential Life Insurance Company increased by 25.2% from Rs. 153.1 billion in fiscal 2015 to Rs. 191.6 billion in fiscal 2016 primarily due to an increase in retail renewal premium. Retail renewal premium increased by 25.3% from Rs. 95.7 billion in fiscal 2015 to Rs. 120.0 billion in fiscal 2016. Retail new business premium increased by 10.7% from Rs. 49.3 billion in fiscal 2015 to Rs. 54.6 billion in fiscal 2016. Group premium increased from Rs. 8.0 billion in fiscal 2015 to Rs. 17.1 billion in fiscal 2016.
Other income of ICICI Prudential Life Insurance Company decreased by 4.7% from Rs. 21.4 billion in fiscal 2015 to Rs. 20.4 billion in fiscal 2016 primarily due to a decrease in surrender charges, foreclosure income and policy fees, offset, in part, by an increase in fund management charges and mortality charges.
Investment income of ICICI Prudential Life Insurance Company increased by 16.2% from Rs. 18.3 billion in fiscal 2015 to Rs. 21.3 billion in fiscal 2016 primarily due to an increase in net realized gains and interest income. The interest income increased from Rs. 16.1 billion in fiscal 2015 to Rs. 18.4 billion in fiscal 2016 primarily due to an increase in average investment. The net realized gains increased from Rs. 2.2 billion in fiscal 2015 to Rs. 2.9 billion in fiscal 2016.
Commission expenses of ICICI Prudential Life Insurance Company decreased by 12.1% from Rs. 5.5 billion in fiscal 2015 to Rs. 6.2 billion in fiscal 2016, primarily on account of a change in product mix from conventional products to linked products as linked products have lower commission rates.
Claims and benefit payouts of ICICI Prudential Life Insurance Company increased by 88.0% from Rs. 9.0 billion in fiscal 2015 to Rs. 17.0 billion in fiscal 2016 primarily due to an increase in surrender claims pertaining to group business.
Transfer to linked funds represents the transfer of premium received, including the renewal premium on linked policies of ICICI Prudential Life Insurance Company to investments, which has increased by 28.9% from Rs. 108.2 billion in fiscal 2015 to Rs. 139.5 billion in fiscal 2016 primarily due to an increase in total premium on linked products. The investible portion of the premium on linked policies of life insurance represents the premium income including renewal premium received on linked policies of life insurance business invested, after deducting charges and premium for risk coverage, in the underlying asset or index chosen by the policy holder.
Assets held to cover the linked liabilities of ICICI Prudential Life Insurance Company increased marginally from Rs. 747.8 billion at year-end fiscal 2015 to Rs. 753.0 billion at year-end fiscal 2016 primarily due to an increase in the linked business, which also resulted in higher linked liability.
Liability under existing life insurance policies to be paid by ICICI Prudential Life Insurance Company increased by 3.7% from Rs. 936.2 billion at year-end fiscal 2015 to Rs. 970.5 billion at year-end fiscal 2016.
General Insurance
The following table sets forth, for the periods indicated, the principal components of profit before tax.
Year ended March 31, | ||||||||||||||||
2015 | 2016 | 2016 | 2016/2015 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Gross written premium (including premium on reinsurance accepted) | Rs. | 69,367 | Rs. | 82,960 | US$ | 1,279 | 19.6 | % | ||||||||
Premium on reinsurance ceded | (25,091 | ) | (28,611 | ) | (441 | ) | 14.0 | |||||||||
Unexpired risk reserve | (1,923 | ) | (6,133 | ) | (95 | ) | 218.9 | |||||||||
Net premium earned | 42,353 | 48,216 | 743 | 13.8 | ||||||||||||
Commission income (net) | 3,738 | 3,280 | 51 | (12.3 | ) | |||||||||||
Investment income from pool(1) | 218 | 242 | 4 | (11.0 | ) | |||||||||||
Investment income | 9,280 | 11,574 | 178 | 24.7 | ||||||||||||
Total income | 55,589 | 63,312 | 976 | 13.9 | ||||||||||||
Operating expenses | 13,870 | 17,112 | 264 | 23.4 | ||||||||||||
Claims/benefits paid (net) | 34,434 | 39,282 | 606 | 14.1 | ||||||||||||
Other expenses (net) | 378 | (159 | ) | (3 | ) | (142 | ) | |||||||||
Total expense | 48,682 | 56,235 | 867 | 15.5 | ||||||||||||
Profit/(loss) before tax | Rs. | 6,907 | Rs. | 7,077 | US$ | 109 | 2.5 | % | ||||||||
The following table sets forth, for the periods indicated, the outstanding balances of key assets and liabilities.
Outstanding balance on March 31, | ||||||||||||||||
2015 | 2016 | 2016 | 2016/2015 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Investments | Rs. | 98,212 | Rs. | 112,788 | US$ | 1,739 | 14.8 | % | ||||||||
Current liabilities including claims outstanding | 79,885 | 90,754 | 1,399 | 13.6 | ||||||||||||
Provisions | Rs. | 25,058 | Rs. | 31,158 | US$ | 480 | 24.3 | % |
ICICI Lombard General Insurance Company was the largest private sector general insurance company in India in fiscal 2016, with a market share of 8.4% on the basis of gross direct premium income according to the General Insurance Council of India.
The profit before tax of ICICI Lombard General Insurance Company increased by 2.5% from Rs. 6.9 billion in fiscal 2015 to Rs. 7.1 billion in fiscal 2016 primarily due to an increase in net earned premium and investment income, offset, in part, by an increase in claims and benefits paid.
The gross direct premium income increased by 21.2% from Rs. 66.8 billion in fiscal 2015 to Rs. 80.9 billion in fiscal 2016 primarily due to an increase in crop/weather and motor insurance business. The net premium income increased from Rs. 42.4 billion in fiscal 2015 to Rs. 48.2 billion in fiscal 2016.
Net commission income decreased from Rs. 3.7 billion in fiscal 2015 to Rs. 3.3 billion in fiscal 2016.
Investment income increased from Rs. 9.3 billion in fiscal 2015 to Rs. 11.6 billion in fiscal 2016 primarily due to an increase in realized gains on sale of investment securities and interest income. Interest income increased from Rs. 7.1 billion in fiscal 2015 to Rs. 7.9 billion in fiscal 2016. Realized gain on sale of investment securities increased from Rs. 2.1 billion in fiscal 2015 to Rs. 3.4 billion in fiscal 2016 primarily due to higher gain on sale of corporate bonds.
Operating expenses increased from Rs. 13.9 billion in fiscal 2015 to Rs. 17.1 billion in fiscal 2016 primarily due to an increase in business support expenses, sales promotion expenses and employees’ remuneration and welfare benefits, all of which are in line with the increase in business volumes.
Claims/benefits paid increased from Rs. 34.4 billion in fiscal 2015 to Rs. 39.3 billion in fiscal 2016 reflecting an increase in business and an increase in loss ratio in weather insurance business.
Investments increased by 14.8% from Rs. 98.2 billion at year-end fiscal 2015 to Rs. 112.8 billion at year-end fiscal 2016 primarily due to an increase in business volumes. Current liabilities, including claims outstanding, increased by 13.6% from Rs. 79.9 billion at year-end fiscal 2015 to Rs. 90.8 billion at year-end fiscal 2016 primarily due to an increase in claims outstanding.
Others
The “others” segment mainly includes ICICI Prudential Asset Management Company Limited, ICICI Venture Funds Management Company Limited, ICICI Securities Limited, ICICI Securities Primary Dealership Limited and ICICI Home Finance Company Limited.
ICICI Prudential Asset Management Company manages the ICICI Prudential Mutual Fund, which was the largest mutual fund in India in terms of average funds under management for the three months ended March 31, 2016 according to the Association of Mutual Funds in India. The average assets under management for ICICI Prudential Mutual Fund increased primarily on account of an increase in average assets under management of equity products in fiscal 2016.
ICICI Securities Limited and ICICI Securities Primary Dealership Limited are engaged in equity underwriting and brokerage and primary dealership in government securities respectively. ICICI Securities Limited owns icicidirect.com, a leading online brokerage platform.
The profit before tax of the “others” segment decreased from Rs. 14.6 billion in fiscal 2015 to Rs. 14.3 billion in fiscal 20162023 primarily due to a decrease in profit before tax of ICICI Securities Limited and ICICI Securities Primary Dealership Limited and ICICI Home Finance Company Limited, offset, in part, by an increase in profit before tax of ICICI Home Finance Company Limited and ICICI Prudential Asset Management Company Limited.
The following table sets forth, for the periods indicated, the principal components of profit before tax.
Year ended March 31, | ||||||||||||||||
2015 | 2016 | 2016 | 2016/2015 % change | |||||||||||||
(in millions, except percentages) | ||||||||||||||||
Net interest income | Rs. | 3,977 | Rs. | 4,470 | US$ | 69 | 12.4 | % | ||||||||
Non-interest income | 25,854 | 25,461 | 393 | (1.5 | ) | |||||||||||
Total income | 29,831 | 29,931 | 462 | 0.3 | ||||||||||||
Non-interest expenses | 15,140 | 15,501 | 239 | 2.4 | ||||||||||||
Operating profit before provisions and tax | 14,691 | 14,430 | 223 | (1.8 | ) | |||||||||||
Provisions | 56 | 178 | 3 | 217.9 | ||||||||||||
Profit before tax | Rs. | 14,635 | Rs. | 14,252 | US$ | 220 | (2.6 | )% |
Net interest income increased by 12.4%3.9% from Rs. 4.014.7 billion in fiscal 20152022 to Rs. 4.515.3 billion in fiscal 2016.
Non-interest income decreased from Rs. 25.9 billion in fiscal 2015 to Rs. 25.5 billion in fiscal 2016 primarily due to a decrease in fees income and other income of our securities broking and primary dealership subsidiary and management fees of our venture fund management subsidiary, offset, in part, by an increase in management fees of our asset management subsidiary.
Non-interest expenses increased from Rs. 15.1 billion in fiscal 2015 to Rs. 15.5 billion in fiscal 20162023 primarily due to an increase in brokeragenet interest income of our securities broking subsidiary and staffhousing finance subsidiary, offset, in part, by a decrease in net interest income of our primary dealership subsidiary.
Other income increased marginally from Rs. 56.9 billion in fiscal 2022 to Rs. 57.0 billion in fiscal 2023.
Operating expenses increased by 14.7% from Rs. 25.8 billion in fiscal 2022 to Rs. 29.6 billion in fiscal 2023 primarily due to an increase in other operating expenses of our housing finance subsidiary and asset management subsidiary.
The profit before tax of ICICI Securities Limited decreased from Rs. 4.518.7 billion in fiscal 20152022 to Rs. 3.715.2 billion in fiscal 20162023 primarily due to a decrease in fee income. Fee income decreased primarily due to a decrease in brokerage income, offset, in part, by an increase in third party product distribution fees. The brokerage income decreased due to a decrease in equity market transactions volumes on Indian stock exchanges.
The profit before tax of ICICI Securities Primary Dealership Limited decreased from Rs. 3.3 billion in fiscal 2015 to Rs. 3.0 billion in fiscal 2016, primarily due to a decrease in trading gains, offset, in part, by an increase in net interest income. Trading gains were higher in fiscal 2015 due to favorable interest rate movements resulting in opportunities for participating in trading activities.
The profit before tax of ICICI Prudential Asset Management Company Limited increased from Rs. 3.819.1 billion in fiscal 20152022 to Rs. 5.020.1 billion in fiscal 20162023 primarily due to an increase in fee income on account of an increase in average assets under management, change in mix in favor of equity mutual funds which earn higher fees and an increase in margins on mutual funds operations. The above increase was,from fund operations, offset, in part, by an increase in staff cost and other administrative expensesexpenses. Income from fund operations increased primarily due to an increase in management fees from equity and staff cost.hybrid schemes.
196
The profit before tax of ICICI Securities Primary Dealership Limited decreased from Rs. 4.4 billion in fiscal 2022 to Rs. 1.7 billion in fiscal 2023 primarily due to a decrease in net interest income and trading income.
The profit before tax of ICICI Home Finance Company Limited decreasedincreased from Rs. 3.01.2 billion in fiscal 20152022 to Rs. 2.74.9 billion in fiscal 20162023 primarily due to an increase in provisionsnet interest income and afee income and decrease in fees income. Net interest income remained at similar levelprovision, offset, in part, by an increase in operating expenses.
The profit before tax of Rs. 2.9 billion in fiscal 2015 and fiscal 2016. Fees income decreased from Rs. 1.0 billion in fiscal 2015 to Rs. 0.9 billion in fiscal 2016. ProvisionsICICI Venture increased from Rs. 0.1 billion16 million in fiscal 20152022 to Rs. 0.2 billion.
ICICI Venture Fund Management Company Limited incurred a loss of Rs. 0.21 billion79 million in fiscal 2016 compared to a profit of Rs. 0.1 billion in fiscal 20152023 primarily due to a decreasean increase in management feesfee income and otherinvestment income, offset, in part, by a decreaseincrease in staff costs and other administrative expenses. Management fees decreased primarily due to a decrease in accrual of fees from funds that were concluded and change in fee basis from commitment amount to net outstanding investments/outstanding capital in other funds.cost.
Related Party Transactions
In fiscal 2017, we entered into transactions with related parties consisting of (i) associates/other related entities and (ii) key management personnel and their close family members.
Related Parties
Associates/Other Related Entities
In fiscal 2017, the following parties were identified as our associates/other related entities: ICICI Merchant Services Private Limited, India Advantage Fund-III, India Advantage Fund-IV, India Infradebt Limited, I-Process Services (India) Private Limited, NIIT Institute of Finance Banking and Insurance Training Limited, Comm Trade Services Limited, ICICI Foundation for Inclusive Growth and Catalyst Management Services Private Limited.
Akzo Nobel India Limited and FINO Pay Tech Limited ceased to be related parties effective from April 30, 2016 and January 5, 2017 respectively.
Key Management Personnel and their Close Family Members
Our key management personnel include our executive directors. The following individuals were our key management personnel in fiscal 2017: Ms. Chanda Kochhar; Mr. N. S. Kannan; Ms. Vishakha Mulye (identified as related party effective from January 19, 2016), Mr. Vijay Chandok (identified as related party effective from July 28, 2016), Mr. Anup Bagchi (identified as related party effective from February 1, 2017), Mr. K. Ramkumar (ceased to be a related party effective from April 30, 2016) and Mr. Rajiv Sabharwal (ceased to be a related party effective from January 31, 2017). The close family members of the above key management personnel are also our related parties. Close family members in relation to the executive directors means their spouses, children, siblings and parents. We have applied the Indian GAAP standard in determining the close family members of the executive directors.
Related Party Transactions
The following are the material transactions between us and our associates/other related entities or our key management personnel or their close family members. A related party transaction is disclosed as a material related party transaction whenever it exceeds 10% of all related party transactions in that category.
For additional details, see also “Management—Compensation and Benefits to Directors and Officers—Loans” and note 2 - “Related Party Transactions” of Schedule 18 to the consolidated financial statements included herein.
Insurance Services
During fiscal 2017, we received insurance premiums from our associates/other related entities amounting to Rs. 53 million, from key management personnel of the Bank amounting to Rs. 4 million and from the close family members of key management personnel amounting to Rs. 3 million. Our material transactions during fiscal 2017 included Rs. 30 million of premiums received from ICICI Foundation for Inclusive Growth and Rs. 17 million of premiums received from FINO PayTech Limited. The premiums received were towards cover for health insurance, personal accident, marine and miscellaneous items.
During fiscal 2017, we paid claims to our associates/other related entities amounting to Rs. 6 million. Our material transactions during fiscal 2017 include Rs. 4 million of claims paid to FINO PayTech Limited and Rs. 1 million of claims paid to Akzo Nobel India Limited.
Fees, Commission and Other Income
During fiscal 2017, we received fees, commission and other income from our associates/other related entities amounting to Rs. 26 million, from key management personnel of the Bank amounting to Rs. 2 million
and from the close family members of key management personnel amounting to Rs. 0.0 million (insignificant amount). Our material transactions during fiscal 2017 included Rs. 22 million of fees, commission and other income received from India Infradebt Limited and Rs. 4 million of fees, commission and other income received from ICICI Merchant Services Private Limited. These transactions primarily generated management, arranger fees and bank charges for us.
During fiscal 2017, we received commission on bank guarantees from NIIT Institute of Finance, Banking and Insurance Training Limited amounting to Rs. 0.0 million (insignificant amount). These transactions primarily pertain to commission towards bank guarantees.
Recovery of lease of Premises, Shared Corporate and FacilitiesUnallocated Expenses
During fiscal 2017, we received lease of premises, facilities and other administrative costs from our associates/other related entities amounting to Rs. 97 million. Our material transactions during fiscal 2017 included Rs. 58 million received from ICICI Foundation for Inclusive Growth and Rs. 32 million from FINO PayTech Limited. The amounts were paid by ICICI Foundation for Inclusive Growth to2023, the Bank on a prudent basis made an additional contingency provision of Rs. 56.5 billion, to further strengthen the balance sheet as compared to a write-back of Rs. 0.3 billion in fiscal 2022. The contingency provision was not allocated to any segment and by FINO PayTech Limited to ICICI Securities Limited towards their share of the shared corporate expenses, infrastructure and technology sharing charges.included in unallocated.
Recovery of secondment of Employees
During fiscal 2017, we received compensation from I-Process Services (India) Private Limited amounting to Rs. 8 million for the recovery of secondmentFor a discussion of our employees.
Brokerage, Fees and Other Expenses
During fiscal 2017, we paid brokerage, fees and other expenses to our associates/other related entities amounting to Rs. 6.2 billion. Our material transactions during fiscal 2017 included Rs. 3.6 billion in brokerage, fees and other expenses paid to I-Process Services (India) Private Limited and Rs. 2.4 billion in brokerage, fees and other expenses paid to ICICI Merchant Services Private Limited. These transactions primarily pertain to outsourcing services and expenses towards providing basic banking services.
Investments in securities issued by related parties
During fiscal 2017, we invested Rs. 9.8 billion in securities issued by India Infradebt Limited.
Redemption/buyback of Investments
During fiscal 2017, we received Rs. 168 million from India Advantage Fund-IV and Rs. 100 million from India Advantage Fund-III on account of redemption of venture capital units.
Custodial services
During fiscal 2017, we received custodial charges from our associates/other related entities amounting to Rs. 1 million. Our material transactions during fiscal 2017 amounted to Rs. 0.5 million of custodial charges received from India Advantage Fund-III and amounted to Rs. 0.5 million of custodial charges received from India Advantage Fund-IV.
Interest Expenses
During fiscal 2017, we paid interest on deposits to our associates/other related entities amounting to Rs. 16 million, to our key management personnel amounting to Rs. 7 million and to the close family members of key management personnel amounting to Rs. 3 million. Our material transactions during fiscal 2017 included Rs. 11 million of interest paid to India Infradebt Limited and Rs. 5 million of interest paid to Ms. Chanda Kochhar.
Interest Income
During fiscal 2017, we received interest from our associates/other related entities amounting to Rs. 189 million, from our key management personnel amounting to Rs. 11 million and from the close family members of key management personnel amounting to Rs. 0.2 million. Our material transactions during fiscal 2017 included Rs. 154 million of interest received from India Infradebt Limited and Rs. 35 million of interest received from ICICI Merchant Services Private Limited. These transactions mainly pertain to interest received on non-convertible bonds.
Reimbursement of expenses to related parties
During fiscal 2017, we reimbursed expenses to the NIIT Institute of Finance Banking and Insurance Training Limited amounting to Rs. 0.2 million.
Dividends Paid
During fiscal 2017, the Bank paid dividends to its key management personnel, amounting to Rs. 18 million and to the close family members of key management personnel amounting to Rs. 0.0 million (insignificant amount). The dividend paid during fiscal 2017 to Ms. Chanda Kochhar was Rs. 12 million, to Mr. N. S. Kannan was Rs. 2 million, Ms. Vishakha Mulye was Rs. 3 million and to Mr. Rajiv Sabharwal was Rs. 1 million.
Donations Given
During fiscal 2017, we gave donations to the ICICI Foundation for Inclusive Growth amounting to Rs. 976 million.
Related Party Balances
The following table sets forth, at the date indicated, our balance payable to/receivable from our associates/other related entities:
The following table sets forth, at the date indicated, the balance payable to/receivable from the key management personnel:
Items | At year-end fiscal 2017 | |||
(in million, except number of shares) | ||||
Deposits from key management personnel | Rs. | 145 | ||
Payables to key management personnel | 0.0 | (3) | ||
Investments in our shares held by key management personnel | 9 | |||
Loans and advances to key management personnel(2) | 204 | |||
Employee stock options outstanding (numbers) | 31,201,400 | |||
Employee stock options exercised(4) | Rs. | 171 |
The following table sets forth, at the date indicated, the balance payable to/receivable from the close family members of key management personnel:
Items | At year-end fiscal 2017 | |||
(in million) | ||||
Deposits from close family members of key management personnel | Rs. | 56 | ||
Payables to close family members of key management personnel | 0.0 | (3) | ||
Investments in our shares held by close family members of key management personnel | 0.0 | (3) | ||
Loans and advances to close family members of key management personnel(1) | Rs. | 1 |
204
The following table sets forth, for the period indicated, the maximum balance payable to/receivable from the key management personnel:
The following table sets forth, for the period indicated, the maximum balance payable to/receivable from the close family members of key management personnel:
Joint Ventures and Associates
From fiscal 2008, FINO PayTech Limited (earlier known as Financial Inclusion Network & Operations Limited), I-Process Services (India) Private Limited, NIIT Institute of Finance, Banking and Insurance Training Limited and ICICI Venture Value Fund were accounted as equity affiliates on consolidated financial statements. Due to an increase in the equity stake in the ICICI Venture Value Fund from 48.0% to 54.8%results in fiscal 2010 by ICICI Ventures Fund Management Company Limited, a wholly owned subsidiary of2023 compared to fiscal 2022 and certain comparative numbers in fiscal 2022, please refer to “Part I — Item 5. Operating and Financial Review and Prospects” contained in our Annual Report on Form 20-F for fiscal 2022 filed with the Bank, ICICI Venture Value Fund has been consolidated as required by AS 21U.S Securities and Exchange Commission on “Consolidated Financial Statements”. However, from fiscal 2014, due to redemption of units of ICICI Venture Value Fund, this entity ceased to be a consolidating entity and accordingly has not been consolidated. In fiscal 2017, ICICI Group ceased to exercise significant influence over FINO PayTech Limited and therefore this entity ceased to be an equity affiliate of the Bank, and, accordingly, has not been accounted as an equity affiliate from January 5, 2017.
From fiscal 2010, investment in Rainbow Fund and ICICI Merchant Services Private Limited were accounted as equity affiliate in Consolidated Financial Statements. However, from fiscal 2014, due to redemption of units of Rainbow Fund, this entity ceased to be an equity affiliate from its date of the redemption, and, accordingly, has not been accounted as an equity affiliate.
From fiscal 2011, investment in Mewar Aanchalik Gramin Bank was accounted as equity affiliate in Consolidated Financial Statements. However, from fiscal 2015, Mewar Aanchalik Gramin Bank and another Regional Rural Bank were amalgamated into a single Regional Rural Bank. ICICI Bank does not have any shareholding in the new Regional Rural Bank. Accordingly, this entity ceased to be an equity affiliate from its date of the amalgamation, and, accordingly, has not been accounted as an equity affiliate.
From fiscal 2013, investment in India Infradebt Limited was accounted as an equity affiliate. In fiscal 2014, TCW/ICICI Investment Partners Limited ceased to be a jointly controlled entity and accordingly, has not been
consolidated. From fiscal 2015, investment in India Advantage Fund-III and India Advantage Fund-IV was accounted as an equity affiliate.
Under Indian GAAP, we have not consolidated certain entities in which investments are intended to be temporary. However, under U.S. GAAP, these entities have been consolidated in accordance with FASB ASC Subtopic 810-10, “Consolidation – Overall”.
Other Key Factors
Under U.S. GAAP, general insurance subsidiary is accounted for by the equity method of accounting as the minority shareholder (Fairfax Financial Holdings) has substantive participating rights, through joint venture agreement, as defined in ASC Subtopic 810-10, “Consolidation – Overall”. In pursuance of the proposed initial public offering, in July 2017 our general insurance joint venture agreement with Fairfax Financial Holdings was terminated in a mutual agreement, with provisions for protection of both parties in the event of non-completion of the proposed initial public offering. Accordingly, subject to protection given to Fairfax Financial Holdings in the event of non-completion of the proposed initial public offering, the general insurance subsidiary will be consolidated from fiscal 2018 under ASC Topic 810, “Consolidation” against the current equity method of accounting.29, 2022.
Reconciliation of Net Profit (after minority interest) between Indian GAAP and U.S. GAAP
Our consolidated financial statements are prepared in accordance with Indian GAAP, which differs in certain significant aspects from U.S. GAAP. The following discussion explains the significant adjustments to our consolidated profit after tax under Indian GAAP in fiscal 2017,2023, fiscal 20162022 and fiscal 20152021 that would result from the application of U.S. GAAP instead of Indian GAAP.
Consolidated net income attributable to the shareholders of ICICI Bank ofunder U.S. GAAP decreased from Rs. 62.4511.8 billion in fiscal 2017 under U.S. GAAP was lower than the2022 to Rs. 250.0 billion in fiscal 2023, while consolidated profit after tax attributable to the shareholders of ICICI Bank of Rs. 101.9 billion under Indian GAAP. InGAAP increased from Rs. 251.1 billion in fiscal 2017,2022 to Rs. 340.4 billion in fiscal 2023. The decrease in the consolidated net income attributable to the shareholders of ICICI Bank under U.S. GAAP was lower primarily due to gain amounting to Rs. 255.0 billion recognized on deconsolidation in fiscal 2022, and impairment allowance amounting to Rs. 122.0 billion recognized in fiscal 2023, on our general insurance affiliate.
The merger of ICICI Lombard General Insurance Company Limited and general insurance business of Bharti AXA General Insurance Company Limited was approved by the higher losses due to valuationInsurance Regulatory and Development Authority of debt and equity securities, impactIndia with effect from September 8, 2021. Under U.S. GAAP, the Bank has accounted its investment in ICICI Lombard General Insurance Company Limited as an affiliate with effect from September 8, 2021. Under U.S. GAAP, the retained interest in ICICI Lombard General Insurance Company Limited was fair valued on the date of higher loan loss provisioningof control based on the closing quoted price of the common stock of ICICI Lombard General Insurance Company Limited in the stock exchange. This resulted in a gain of Rs. 255.0 billion on deconsolidation under U.S. GAAP as compared toin fiscal 2022. Under Indian GAAP, the impactretained interest in ICICI Lombard General Insurance Company Limited was accounted at carrying value. During fiscal 2023, considering the significant and continuous decline in market price of differencesequity shares of ICICI Lombard General Insurance Company Limited, the Bank has recognized an impairment loss of Rs. 122.0 billion and recorded the carrying value of its investment in accounting for compensation cost under U.S. GAAP, and lower gains due to difference in consolidation accounting between Indian GAAP and U.S. GAAP, offset, in part, byICICI Lombard General Insurance Company Limited at the impact of amortization of loan processing fees, net of costs under U.S. GAAP and higher deferred tax benefit as compared to Indian GAAP. See alsonote 20 to our“Consolidated financial statements—Schedules forming partclosing quoted price of the consolidated financial statements—Additional notes” under U.S. GAAP included herein.common stock on the stock exchange.
197
The difference in accounting for the provision for loanallowances of credit losses resulted in a lowerhigher net income by Rs. 19.615.6 billion in fiscal 2017 as compared to lower net income by2023 (fiscal 2022: Rs. 28.0 billion in fiscal 201622.9 billion) under U.S. GAAP as compared to Indian GAAP. This was primarily due to differences in the methodology of computing loancredit loss allowances between Indian GAAP and U.S. GAAP, resulting in timing differences in the recognition of such allowances. During
Further, during fiscal 20162023, the Bank increased the provisioning rates on certain loans on a conservative basis under Indian GAAP. This also resulted in higher provision under Indian GAAP as compared to U.S. GAAP in fiscal 2023.
Under Indian GAAP, the Bank, on prudent basis, held contingency provisions amounting to Rs. 131.0 billion at March 31, 2023 to strengthen the balance sheet.
The geopolitical factors and fiscal 2017, the aggregate provisionuncertain consequences, macroeconomic environment including the outlook on troubled debt restructuredgrowth across the world and India may have an impact on the results of the Bank and the Group. The Group makes adjustments to appropriately address these economic circumstances over and above the model output under U.S. GAAP by increasing the probability of default estimates based on management judgement. Accordingly, the Bank made management overlay on loan exposures under U.S. GAAP at March 31, 2023.
The allowance for credit loss on loans and other impaired loansfinancial assets under amortized cost was lower by Rs. 38.8 billion at March 31, 2023 (March 31, 2022: Rs. 23.3 billion) under U.S. GAAP were higher as compared to Indian GAAP. Further, under Indian GAAP, due to impairedspecific provision is made on loans where strategic debt restructuring was invoked/implemented as prescribed by the Reserve Bank of India. The Bank has opted for fair value accounting for such loans and guarantees through income statement under U.S. GAAP. Accordingly, the impact of accounting on these loans is accounted in "Allowance for loan losses" for Indian GAAP and in the line item “Valuation of debt and equity securities” for U.S. GAAP. The Bank held fair value loss of Rs. 12.2 billion at March 31, 2023 under U.S. GAAP being significantly higher than Indian GAAP at year-end fiscal 2016in the line item under “Valuation of debt and fiscal 2017. Further, provisions were also impacted due to differences in method of measurement of provisions between Indian GAAP and U.S. GAAP.equity securities” on such loans.
The cumulative provisions under U.S. GAAP at year-end fiscal 2017 continueSee also note 21(a) to be higher than the cumulative provisions held under Indian GAAP, by Rs. 68.8 billion, as shown in the statement of stockholders’ equity reconciliation. See alsonote 20(a) to our“Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes” under U.S. GAAP included herein.
The difference in accounting for business combinations resulted in lower net income under U.S. GAAP by Rs. 0.4 billion in fiscal 2017 and fiscal 2016 primarily due to the amortization of intangible assets. Under Indian GAAP, no intangible assets were created in business combinations by the Bank. However, under U.S. GAAP, intangible assets are created as required by FASB ASC Topic 805, “Business Combinations”. These intangibles assets are amortized over their estimated useful lives.
The difference in accounting for consolidation resulted in lower net income by Rs. 3.6 billion in fiscal 2017 as compared to higher net income by Rs. 3.0 billion in fiscal 2016 under U.S. GAAP, as compared to Indian GAAP. There were lower gains from our insurance subsidiaries amounting to Rs. 3.3 billion as compared to Indian GAAP in fiscal 2017. Further, ICICI Group had been accounting investment in 3i Infotech Limited as an equity affiliate under U.S. GAAP, but not under Indian GAAP, till fiscal 2015. In fiscal 2016, 3i Infotech
Limited ceased to be an equity affiliate and ICICI Group’s share in losses of 3i Infotech Limited accounted in earlier years under U.S. GAAP was reversed, resulting positive impact of Rs. 2.3 billion under U.S. GAAP as compared to Indian GAAP. See alsonote 20(c) to our“Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes” under U.S. GAAP included herein.
The difference in accounting for the valuation of debt and equity securities resulted in lower net income by Rs. 29.80.1 billion in fiscal 20172023 as compared to lower nethigher income byof Rs. 5.510.9 billion in fiscal 20162022 under U.S. GAAP, as compared to Indian GAAP.
In fiscal 2016, the Reserve Bank of India issued guidelines on strategic debt restructuring under which conversion of debt into equity resulting acquisition of ownership interests in the borrower by banks is allowed. The Reserve Bank of India has exempted banks from consolidation of these entities. Banks, including ICICI Bank acquired equity shares in certain entities by invoking strategic debt restructuring. Under U.S. GAAP, these entities were considered as equity affiliates. The Bank opted for fair value option of these equity affiliates under ASC Topic 825 “Financial Instruments”. Accordingly, provisions made on these loans under Indian GAAP were reversed in the line item “Allowance for loan losses” and fair value losses on the loans, guarantees and equity shares were accounted through income statement. This resulted in a loss of Rs. 28.7 billion in fiscal 2017 as compared to Rs. 7.5 billion in fiscal 2016 under U.S. GAAP.
Under Indian GAAP unrealized losses ofon held-for-trading and available-for-sale securities are taken to profit and loss account. Under Indian GAAP,account, while net unrealized gains on investments by category are ignored. Under U.S. GAAP, unrealized gains or losses on trading assets are recognized in the profit and loss account and unrealized gains or losses on debt securities classified as ‘available-for-sale’, which include all securities classified as ‘held-to-maturity’ under Indian GAAP, are recognized in other comprehensive income under stockholders’ equity except for the unrealized losses on debt securities identified as other-than-temporarily impairedcredit loss which are recognized in profit and loss account. ThereThe impact of difference in mark-to-market accounting for investment securities between U.S. GAAP and Indian GAAP resulted in a higher net income by Rs. 7.9 billion under U.S. GAAP in fiscal 2023 (fiscal 2022: Rs. 9.3 billion). The impairment allowance on the debt investments under U.S. GAAP resulted in lower net income by Rs. 2.3 billion in fiscal 2023 (fiscal 2022: Rs. 2.1 billion). Further, there was a negative impact of other-than-temporary impairmentother adjustments of Rs. 4.84.5 billion in fiscal 20172023 as compared to negative impact of Rs. 6.71.6 billion on net income in fiscal 20162022 under U.S. GAAP. Further, there was a positive impact of Rs. 3.4 billion in fiscal 2017 as compared to a positive impact of Rs. 5.1 billion in fiscal 2016 under U.S. GAAP,These primarily include difference due to differences in mark-to-market accounting for available-for-sale securities.
Under U.S. GAAP, currency revaluation gains/lossespremium/discount amortization on available-for-sale debt securities denominated in foreign currency, are reflected in other comprehensive income, while under Indian GAAP these changes are reflected in the profit and loss account. Such foreign currency denominated available-for-sale securities are either funded in the same currency or the exchange rate risk on these investments is covered by foreign currency forwards/swaps. The impact of currency revaluation on such funding liabilities and the derivatives is taken through the income statement under both Indian GAAP and U.S. GAAP. Therefore, while the exchange rate movement risk on foreign currency denominated available-for-sale securities is economically covered, the difference in accounting treatment ofgain on debt securities sold during the assets under U.S. GAAP as compared to Indian GAAP results in a difference in net profityear, between Indian GAAP and U.S. GAAP. This has resulted in gainUnder U.S. GAAP, available-for-sale debt securities include all securities classified as ‘held-to-maturity’ under Indian GAAP. The First-In-First-Out method of Rs. 1.7 billion in fiscal 2017 as compared to a loss of Rs 1.2 billion in fiscal 2016accounting is applied on aggregate ‘available-for-sale’ securities under U.S. GAAP, as compared toresulting in difference in realized gain/(loss) on sale of securities between Indian GAAP and U.S. GAAP.
198
We earn fees and incur costs on the origination of loans which are recognized upfront inunder Indian GAAP but are amortized inunder U.S. GAAP. Amortization of loan origination fees and costs resulted in higher income by Rs. 7.96.5 billion in fiscal 2017 and fiscal 20162023 (fiscal 2022: higher by Rs. 3.9 billion) under U.S. GAAP as compared to Indian GAAP. UnderRetirement benefit cost was lower by Rs. 1.2 billion in fiscal 2023 (fiscal 2022: higher by Rs. 2.0 billion) under U.S. GAAP as compared to Indian GAAP. While under Indian GAAP, retirement benefit cost was lower by Rs. 0.9 billion in fiscal 2017 and Rs. 1.0 billion in fiscal 2016 due to actuarial losses which are accounted upfrontgain or loss is recognized in the profit and loss account, under IndianU.S. GAAP, but accounted inthe actuarial gain/loss is recognized through other comprehensive income and thereafter amortized through the income statement. During fiscal 2023, there was lower amortization of actuarial loss from other comprehensive income under U.S. GAAP and thereafter amortized as percompared to actuarial loss recognized in other comprehensive income, resulting in retirement benefit costs being lower under U.S. GAAP accounting guidelines.in fiscal 2023 as compared to Indian GAAP. See also “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes—Note 20(e) -Note 21(e)” under U.S. GAAP included herein.
Under Indian GAAP untilThe difference in accounting for consolidation resulted in negative impact on net income by Rs. 123.5 billion in fiscal 2016,2023 as compared to positive impact on the disposal/partial disposal of a non-integral foreign operation, the cumulative/proportionate amount of the exchange differences which has been accumulatednet income by Rs. 248.3 billion in the foreign currency translation reserve and which refers to that operation are recognized as income or expenses in the same period in which the gain or loss on disposal is recognized. From fiscal 2017 onwards under Indian GAAP, the Bank does not recognize the cumulative/proportionate amount of such exchange differences as income or expenses, which relate to repatriation of accumulated retained earnings from overseas operations, based on the guideline issued by Reserve Bank of India. Under U.S. GAAP, gain or loss accumulated in the foreign currency translation reserve is recognized in the income statement only on complete/substantially complete disposal of a non-integral foreign operation. Accordingly, profit on exchange difference on repatriation of retained earnings from overseas branches amounting to Nil under Indian GAAP was reversed2022 under U.S. GAAP, as compared to Indian GAAP. This was primarily due to impairment allowance amounting to Rs. 9.5122.0 billion recognized in fiscal 2016.2023, and gain amounting to Rs. 255.0 billion recognized on deconsolidation in fiscal 2022, on our general insurance affiliate under U.S. GAAP. In fiscal 2023, our life insurance affiliate made a net income of Rs. 11.4 billion (fiscal 2022: net loss: Rs. 1.8 billion) under U.S. GAAP as compared to net profit of Rs. 8.1 billion (fiscal 2022: Rs. 7.5 billion) under Indian GAAP. The higher net income was primarily on account of lower policyholders’ liabilities and unallocated policyholders’ surplus, net of amortization of deferred acquisition cost and lower marked-to-market loss on trading portfolio and equity securities. See also note 22(h) to our “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes—Note 20(j)” under U.S. GAAP included herein.
Deferred tax benefit wasexpenses were lower by Rs. 10.9 billion in fiscal 2023 (fiscal 2022: higher by Rs. 13.1 billion in fiscal 2017 as compared to Rs. 7.5 billion in fiscal 201621.7 billion) under U.S. GAAP, as compared to Indian GAAP.
Deferred taxes are recognized on temporary differences related to investments in subsidiaries, branches and affiliates under U.S. GAAP while under Indian GAAP, no deferred taxes are recognized on temporary differences related to investments in subsidiaries, branches and affiliates. In fiscal 2023, there was reduction in deferred tax assets by Rs. 2.1 billion under US GAAP as compared to increase in deferred tax assets by Rs. 9.3 billion in fiscal 2022.
The Bank and its housing finance subsidiary create a Special Reserve through appropriation of profits, in order to avail the tax benefits as per the Income Tax Act, 1961. Such tax benefits are refundable if the funds are withdrawn from the Special Reserve in future periods. Under Indian GAAP, deferred tax liability has been recognized on such Special Reserve in accordance with the guidelines issued by Reserve Bank of India/National Housing Bank.India. Under U.S. GAAP, deferred taxes are recognized and measured based on the expected manner of recovery and deferred taxes are not recognized if the expected manner of recovery does not give rise to tax consequences. Accordingly, a deferred tax liability was not created on the Special Reserve based on the Group’s continuing intention to not ever withdraw/utilize such Special Reserve and based on an opinion from the legal counsel about non–taxabilitynon-taxability of such Special Reserve in the scenario of liquidation. This resulted in a reversal ofIn fiscal 2023, deferred tax liability ofexpenses were lower by Rs. 1.26.6 billion as compared to(fiscal 2022: Rs. 4.6 billion in fiscal 2016, under U.S. GAAP which were recognized under Indian GAAP.
In fiscal 2016, the Bank paid current taxes and created a deferred tax asset of Rs. 5.9 billion on the foreign currency translation reserves pertaining to its overseas branches under Indian GAAP. Under U.S. GAAP, no deferred taxes are recognized on undistributed earnings of overseas branches where current taxes have been incurred, resulting in a lower deferred tax asset of Rs. 5.9 billion under U.S. GAAP. In fiscal 2017, the impact of this difference was a gain Rs. 0.2 billion3.7 billion) under U.S. GAAP as compared to Indian GAAP.
Further, there was a difference due to the positive tax impact of Rs. 13.58.6 billion in fiscal 20172023 on U.S. GAAP adjustments over Indian GAAP as compared to the positivenegative tax impact of Rs. 12.136.9 billion in fiscal 2016.2022. See also “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes—Note 20(i)21(i)” included herein.
199
Consolidated net income attributable to the shareholders of ICICI Bank of Rs. 511.8 billion in fiscal 2022 under U.S. GAAP included herein.was higher than the profit after tax attributable to the shareholders of ICICI Bank of Rs. 251.1 billion under Indian GAAP. In fiscal 2022, the net income under U.S. GAAP was higher primarily due to gain on deconsolidation of our former general insurance subsidiary, lower loan loss provisioning under U.S. GAAP as compared to Indian GAAP, the positive impact of amortization of loan processing fees net of costs and higher income on accounting for debt and equity securities under U.S. GAAP as compared to Indian GAAP, offset, in part, by net loss of our life insurance affiliate under U.S.GAAP as compared to net gain under Indian GAAP, higher deferred tax expenses under U.S. GAAP as compared to Indian GAAP and the impact of differences in accounting for compensation costs under U.S. GAAP.
Consolidated net income attributable to the shareholders of ICICI Bank of Rs. 73.0213.7 billion in fiscal 20162021 under U.S. GAAP was lowerhigher than the profit after tax attributable to the shareholders of ICICI Bank of Rs. 101.8183.8 billion under Indian GAAP. In fiscal 2016,2021, the net income under U.S. GAAP was lowerhigher primarily due to the impact of higherlower loan loss provisioning of Rs. 28.0 billion under U.S. GAAP as compared to Indian GAAP, reversalhigher net income of exchange gain of Rs. 9.5 billion recognized in the income statement underour life insurance affiliate as compared to Indian GAAP on repatriationand the positive impact of retained earningsamortization of loan processing fees, net of costs, offset, in part, by overseas branches, higher losseslower income due to the impact of Rs. 5.5 billion on valuation ofthe differences in accounting for debt and equity securities under U.S. GAAP as compared to Indian GAAP, higher deferred tax expenses under U.S. GAAP as compared to Indian GAAP and the impact of differences in accounting for compensation costcosts under U.S. GAAP of Rs. 3.6 billion, offset, in part, by a higher deferred tax benefit of Rs. 7.5 billion as compared to Indian GAAP, the impact of amortization of loan processing fees, net of costs of Rs. 7.9 billion under U.S. GAAP and higher profits of Rs. 0.8 billion attributable to the shareholders’ of ICICI Bank from insurance subsidiaries and higher share of gain of Rs. 2.3 billion in equity affiliate. See also “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes—Note 20” under U.S. GAAP included herein.
Consolidated net income attributable to the shareholders of ICICI Bank of Rs. 73.0 billion in fiscal 2016 under U.S. GAAP was lower than the profit after tax attributable to the shareholders of ICICI Bank of Rs. 101.8 billion under Indian GAAP. In fiscal 2016, the net income under U.S. GAAP was lower primarily due to the impact of higher loan loss provisioning of Rs. 28.0 billion under U.S. GAAP as compared to Indian GAAP, reversal of exchange gain of Rs. 9.5 billion recognized in the income statement under Indian GAAP on repatriation of retained earnings by overseas branches, higher losses of Rs. 5.5 billion on valuation of securities under U.S. GAAP and the impact of differences in accounting for compensation cost under U.S. GAAP of Rs. 3.6 billion, offset, in part, by a higher deferred tax benefit of Rs. 7.5 billion as compared to Indian GAAP, the impact of amortization of loan processing fees, net of costs of Rs. 7.9 billion under U.S. GAAP and higher profits of Rs. 0.8 billion attributable to the shareholders’ of ICICI Bank from insurance subsidiaries and higher share of gain of Rs. 2.3 billion in equity affiliate. See also “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes—Note 20” under U.S. GAAP included herein.
For a further description of significant differences between Indian GAAP and U.S. GAAP, a reconciliation of net income and stockholders’ equity to U.S. GAAP and certain additional information required under U.S. GAAP, see notes 2021 and 2122 to our consolidated financial statements included herein.
Research and Development
We focus on strengthening our technological capabilities, with key priorities being technology platforms, embedded banking, cloud adoption and real time data analytics.
Critical Accounting Policies and Estimates
In order to understand our financial condition and the results of operations, it is important to understand our significantcritical accounting policies and estimates and the extent to which we use judgments and estimates in applying those
policies. Our accounting and reporting policies are in accordance with Indian GAAP and conform to standard accounting practices relevant to our products and services and the businesses in which we operate. Indian 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 duringin 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. See also “Consolidated Financial Statements—Schedule 17—Significant Accounting Policies” included herein.
ICICI Bank Limited
Accounting for Investments
ICICI Bank Limited
Revenue recognition
Interest income is recognized in the profit and loss account as it accrues, except in the case of non-performing assets where it is recognized upon realization as per the income recognition and asset classification norms of the Reserve Bank of India. Income on discounted instruments is recognized over the tenure of the instrument on a constant yield basis. Dividend income is accounted on accrual basis when the right to receive the dividend is established. Commission received on guarantees and letters of credit and annual/renewal fee on credit cards, debit cards and prepaid cards are amortized over the contractual period of the fees. Fees paid/received for priority sector lending certificates is amortized on straight-line basis over the period of the certificate. All other fees are accounted for as and when they become due where the Bank is reasonably certain of ultimate collection.
200
The revenue recognition involve uncertainties and are significantly affected by the assumptions used and judgments made for collectibility of the income. Changes in assumptions could significantly affect these estimates and the resulting recognition.
Accounting for Investments
ICICI Bank follows the trade date method of accounting for the purchase and sale of investments, except for Government of India and state government securities, for which the settlement date method of accounting is followed as per the Reserve Bank of India guidelines.
The Bank accounts for its investments in accordance with the guidelines on investment classification and valuation issued by the Reserve Bank of India. Investments are classified into the following categories: (a) held-to-maturity, (b) available-for-sale and (c) held-for-trading. Under each classification, we further categorize investments into (a) government securities, (b) other approved securities, (c) shares, (d) bonds and debentures, (e) subsidiaries and joint ventures and (f) others.others (commercial papers, certificate of deposits, mutual funds, pass through certificates, venture units, security receipts, etc.).
Investments that are held principally for resale within 90 days from the date of purchase are classified as held-for-trading securities. Investments which the Bank intends to hold until maturity are classified as held-to-maturity securities. Investments which are not classified in either of the above categories are classified under available-for-sale securities. Investments in the equity of subsidiaries/joint ventures are categorized as held-to-maturity or available for sale in accordance with the Reserve Bank of India guidelines.
Costs, including brokerage and commission pertaining to investments paid at the time of acquisition and broken period interest (the amount of interest from the previous interest payment date until the date of purchase of instruments) on debt instruments, are charged to the profit and loss account.
The Bank computes the market value of its securities, under the available-for-sale and held-for-trading categories, scrip-wise (that is, by individual securities) and the depreciation/appreciation on securities, other than those acquired by way of conversion of outstanding loans is aggregated for each category. Net appreciation in each category under each investment classification, if any, is ignored, as it is unrealized while net depreciation is provided. Depreciation on securities acquired by way of conversion of outstanding loan is fully provided. Non performing investments are identified based on the Reserve Bank of India guidelines.
Held-to-maturity securities are carried at their acquisition cost or at the amortized cost, if acquired at a premium over the face value. Any premium over the face value of the fixed rate and floating rate securities acquired is amortized over the remaining period to maturity on a constant effective yield basis and straight line basis respectively. Equity investments in joint ventures/associates are categorized as held-to-maturity in accordance with the Reserve Bank of India guidelines. These instruments are assessed for any permanent diminution in value and appropriate provisions are made.
Available-for-sale and held-for-trading securities of the Bank are valued in accordance with the guidelines issued by the Reserve Bank of India. The Bank amortizes the premium, if any, over the face value of its fixed and floating rate investments in government securities classified as available-for-sale over the remaining period to maturity on a constant effective yield basis and straight line basis respectively. The market value of quoted investments is based on the closing quotes on recognized stock exchanges or prices declared by the Primary Dealers Association of India (PDAI) jointly with Fixed Income Money Market and Derivatives Association (FIMMDA),Association/Financial Benchmark India Private Limited, periodically.
201
The Bank computes the market value of its unquoted government securities which are in the nature of statutory liquidity ratio securities included in the available-for-sale and held-for-trading categories in accordance with rates published by the Fixed Income Money Market and Derivatives Association.Financial Benchmark India Private Limited.
The Bank computes the market value of unquoted non-government fixed income securities, under the available-for-sale and held-for-trading category,including Pass Through Certificates, wherever linked to the yield-to-maturity rates, with a mark-up, reflecting associated credit risk, over the yield to maturity rates for government securities published by the Fixed Income Money Market and Derivatives Association. The sovereign foreign securities and non-INR India linked bonds are valued on the basis of prices published by the sovereign regulator or counterparty quotes.
Treasury bills, commercial papers and certificate of deposits being discounted instruments, are valued at carrying cost.
The units of mutual funds are valued at the latest repurchase price/net asset value declared by the mutual fund.
The Bank computes the market value of its unquoted equity shares at the break-up value, if the latest balance sheet is available. If such a balance sheet is not available, the unquoted equity shares are valued at Re. 1 in accordance with the Reserve Bank of India guidelines.
The Bank computesunits of Venture Capital Funds are valued at the marketnet asset value of its securities, under the available-for-sale and held for trading categories, scrip-wise (that is, by individual securities) and the depreciation/appreciation on securities, other than those acquired by way of loans is aggregated for each category. Net appreciation in each category, if any, is ignored, as it is unrealized while net depreciation is provided for. Non-performing investments are identified based on the Reserve Bank of India guidelines. Depreciation on securities acquired by way of conversion of outstanding loan is fully provided for. Depreciation on equity shares acquired and helddeclared by the Bank under strategic debt restructuring scheme, schemeVenture Capital Fund. If the latest balance sheet is not available continuously for sustainable structuringmore than 18 months, the units of stressed assets (S4A) and prudential norms on change in ownership of borrowing entities (change in management outside strategic debt restructuring) schemes is provided over a period of four calendar quarters from the date of conversion of debt into equityVenture Capital Fund are valued at Rs. 1, in accordance with the Reserve Bank of India guidelines.
The Bank values the securities receipts at the net asset value provided by asset reconstruction companies. The Bank makes additional provisions on the security receipts based on the remaining period for the resolution period to end. The security receipts which are outstanding and not redeemed as at the end of the resolution period are treated as loss assets and are fully provided for.
The Bank assesses investments in subsidiaries for any other than temporary diminution in value and appropriate provisions are made.
Depreciation/provision on non-performing investments is made as per internal provisioning norms, subject to minimum provisioning requirements of the Reserve Bank of India.
Gain/loss on sale of investments is recognized in the profit and loss Account. Cost of investments is computed based on the First-In-First-Out method. The profit from sale of investment under held-to-maturity category, net of taxes and transfer to statutory reserve is transferred to “Capital Reserve” in accordance with the Reserve Bank of India guidelines.
The Bank undertakes short sale transactions in dated central government securities in accordance with Reserve Bank of India guidelines. The short positions are categorized under held-for-trading category and are marked to market. The mark-to-market loss is charged to profit and loss account and gain, if any, is ignored as per Reserve Bank of India guidelines.
202
The Bank accounts for repurchase, reverse repurchase and transactions with Reserve Bank of India under Liquidity Adjustment Facility as borrowing and lending transactions in accordance with the current guidelines of the Reserve Bank of India. As per the Reserve Bank of India guidelines,guidelines.
The valuation methodologies for investment involve uncertainties and are significantly affected by the Bank followsassumptions used and judgments made regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows and other factors. Changes in assumptions could significantly affect these estimates and the trade date method of accounting for the purchase and sale of investments, except for government of India and state government securities, for which the settlement date method of accounting is followed.resulting fair values.
Provisions/Write-offs on Loans and Other Credit Facilities
ProvisionsLoans and advances are generally made by ICICI Bank on standard, substandardclassified into performing and doubtful assets at rates prescribed by the Reserve Bank of India. Loss assets and unsecured portions of doubtful assets are provided/written off to the extent required by thenon-performing loans as per Reserve Bank of India guidelines. Under Reserve Bank of India guidelines, an asset is generally classified as non-performing if any amount of interest or principal remains overdue for more than 90 days, in respect of term loans. In respect of overdraft or cash credit, an asset is classified as non-performing if the account remains out of order for a period of 90 days and in respect of bills, if the account remains overdue for more than 90 days. Loans held at the overseas branches that are identified as impaired as per host country regulations, for reasons other than record of recovery, but which are standard as per the extant Reserve Bank of India guidelines, are classified as non-performing loans to the extent of the amount outstanding in the respective host country. ForNon-performing loans bookedand advances are classified as standard, substandard, doubtful and loss assets based on number of days overdue. Interest on non-performing advances is transferred to an interest suspense account and not recognized in overseas branches, which are standardprofit and loss account until received.
The Bank considers an account as perrestructured, where for economic or legal reasons relating to the extantborrower’s financial difficulty, the Bank grants concessions to the borrower, that the Bank would not otherwise consider. The moratorium granted to the borrowers based on Reserve Bank of India guidelines butis not accounted as restructuring of loan. The Reserve Bank of India guidelines on ‘Resolution Framework for COVID-19-related Stress’ provide a prudential framework for resolution plan of certain loans. The borrowers where resolution plan was implemented under these guidelines are classified as non-performing loans basedstandard restructured.
Provisions are generally made by the Bank on host country guidelines, provisions are madestandard, substandard, doubtful and loss assets as per the host country regulations. In respect of borrowers classified as non-cooperative borrowers, willful defaulters and non-performing assets covered under distressed assets frameworkinternal provisioning norms, subject to minimum provisioning requirements of the Reserve Bank of India, the Bank makes accelerated provisions as per extant the Reserve Bank of India guidelines.India. The Bank held specific provisions for retail loans that are higher than the minimum regulatory requirements. The Bank heldholds specific provisions against non-performing loans and a general provision against standard loans. The Bank also holds provisionsmakes specific provision on certain performing loans under strategic debt restructuring, S4A and change in management outside strategic debt restructuring schemesas per the direction of the Reserve Bank of India. Loss assets and unsecured portions of doubtful assets are fully provided. For impaired loans held in overseas branches, which are performing as per Reserve Bank of India guidelines, provisions are made as per the host country regulations. For loans held in overseas branches, which are non-performing loans as per the Reserve Bank of India guidelines and as per host country regulations, provisions are made at the higher of the provisions required as per internal provisioning norms and host country regulations. In respect of borrowers classified as non-cooperative borrowers or willful defaulters, the Bank makes accelerated provisions as per Reserve Bank of India guidelines. The Bank held specific provisions for non-performing retail loans that are higher than the minimum regulatory requirements.
In respect of non-retail loans reported as fraud to the Reserve Bank of India, the entire amount, is provided for over a period not exceeding four quarters starting from the quarter in which fraud has been detected. In respect of non-retail loans where there has been a delay in reporting the fraud to the Reserve Bank of India or which are classified as loss accounts, the entire amount is provided immediately. In the case of fraud in retail accounts, the entire amount is provided immediately. In respect of borrowers classified as non-cooperative borrowers or willful defaulters, the Bank makes accelerated provisions as per Reserve Bank of India guidelines.
203
The Bank makes provision on restructured loans subject to minimum requirements as per Reserve Bank of India guidelines. Provision due to diminution in the fair value of a restructured loan, if any, measured in present value terms, is either written off or a provisionrestructured/rescheduled loans and advances is made to the extent of the diminution involved. A restructured loan, which is classified as a standard restructured loan, is subject to higher standard asset provisioning and higher risk weight for capital adequacy purposes than non-restructured standard loans up to the period specified in the guidelines. The specified period is a period of one year from the commencement of the first payment of interest or principal whichever is later on the credit facilityaccordance with the longest moratoriumapplicable Reserve Bank of India guidelines. Non-performing and restructured loans are upgraded to standard as per the restructuring package during which payment performance is monitored. The loan continues to be classifiedextant Reserve Bank of India guidelines or host country regulations, as restructured until it reverts to the normal level of standard asset provisions/risk weights for capital adequacy purposes, which is a period of one year after the end of the specified period.applicable. Banks are required to disclose the aggregate fund-based credit facilities of borrowers whose loans were restructured.
In terms of Reserve Bank of India guidelines, the non-performing advances are written-off in accordance with the Bank’s policy. Amounts recovered against bad debts written-off are recognized in the profit and loss account.
The Bank also creates general provisions on its standardperforming loans based on the guidelines issued by the Reserve Bank of India including provisions on loans to borrowers having unhedged foreign currency exposure, andprovisions on loans to specific borrowers in specific stressed sectors, provision on exposure to step-down subsidiaries of Indian companies.companies and provision on incremental exposure to borrowers identified as per Reserve Bank of India’s large exposure framework. For performing loans in overseas branches, the general provision is made at higher of aggregate provision required as per host country regulations requirement and the Reserve Bank of India requirement.
Additionally, the Bank creates provisions on individual country exposures including indirect country risk (other than for home country exposures)exposure). The countries are categorized into seven risk categories: insignificant, low, moderately low, moderate, moderately high, high and very high and provisioning is made for thoseon exposures exceeding 180 days on a graded scale ranging from 0.25% to 25%. For exposures with a contractual maturity of less than 180 days, provision is required to be held at 25% of the rates applicable to exposures exceeding 180 days. The indirect exposure is reckoned at 50% of the exposure. If the countryBank’s net funded exposure (net) of the Bank in respect of eacha country does not exceedis less than 1% of theits total funded assets, no provision is required for such country exposure.
The Bank makes additional provisions as per Reserve Bank of India guidelines for the cases where viable resolution plan has not been implemented within the timelines prescribed by the Reserve Bank of India, from the date of default. These additional provisions are written-back on satisfying the conditions for reversal as per Reserve Bank of India guidelines.
The Bank, may createon prudent basis, has made contingency provision on loan portfolio, including borrowers who had taken moratorium at any time during fiscal 2021 under the extant Reserve Bank of India guidelines related to COVID-19 regulatory package. The Bank also makes additional contingency provision on certain standard assets. The contingency provision is included in ‘Other Liabilities and Provisions’.
The Bank has a Board approved policy for making floating provision for the year as per Board approved policy, which is in addition to the specific and general provisions made by the Bank. The floating provision can only be utilized, with the approval of Board and the Reserve Bank of India.
Transfer and ServicingIndia, in case of Assets
ICICI Bank transfers commercial and consumer loans through securitization transactions. The transferred loans are de-recognized, and gains/losses are accounted for only if the Bank surrenders the rights to benefits specifiedcontingencies which do not arise in the underlying securitized loan contract. Recoursenormal course of business and servicing obligations are accountedexceptional and non-recurring in nature and for netmaking specific provision for impaired loans as per the requirement of provisions.
Under Indian GAAP, with effect from February 1, 2006, net income arising from securitization of loan assets is accounted for over the life of the securities issued or to be issued by the special purpose vehicle/special purpose entity to which the assets are sold. With effect from May 7, 2012, the profit/premium arising from securitization is amortized over the life of the transaction based on the method prescribed by the Reserve Bank
of India. Net loss arising on account of the sell-down, securitization and direct assignment of loan assets is recognized at the time of sale.
In accordance withextant Reserve Bank of India guidelines in case of non-performing/special mention account-2or any regulatory guidance/instructions. The floating provision is netted-off from loans.
The provisions on loans sold to securitization company/reconstruction company, the Bank reverses the excess provision in profitinvolve uncertainties and loss account in the year in which amounts are received. Any shortfall of sale value over the net book value on sale of such assets is recognizedsignificantly affected by the Bankassumptions used and judgments made for provisions on non-performing loans and on performing loans and other credit exposures. Changes in assumptions could significantly affect these estimates and the year in which the loan is sold.resulting provisions.
204
ICICI Prudential Life Insurance Company
Premium for non-linked policies is recognized as income (net of goods and service tax) when due from policyholders. For unit-linked business, premium is recognized as income when the associated units are created. Premium on lapsed policies is recognized as income when such policies are reinstated.
Reinsurance premium ceded is accounted in accordance with the terms and conditions of the relevant treaties with the reinsurer. Profit commission on reinsurance ceded is netted off against premium ceded on reinsurance.
Death and rider claims are accounted for on receipt of intimation. Survival, maturity and annuity benefits are accounted when due. Withdrawals and surrenders under non-linked policies are accounted on the receipt of intimation and for unit-linked policies are accounted when the associated units are cancelled. Reinsurance claims are accounted for in the period in which the claim is intimated.
Income from unit-linked policies, which includes fund management charges, policy administration charges, mortality charges and other charges, if any, are recovered from the unit-linked funds in accordance with terms and conditions of policies issued and are recognized when due.
Acquisition costs are costs that vary with and are primarily related to acquisition of insurance contracts. It consists of costs like commission, stamp duty, policy issuance, employee cost and other related costs pertaining to the acquisition of insurance contracts andcontracts. These costs are expensed in the period in which they are incurred.
The actuarial liabilities, for all in-force policies and policies where premiums are discontinued but a liability exists as at the valuation date, are calculated in accordance with the accepted actuarial practice, requirements of Insurance Act, 1938, (amended by the Insurance Laws (Amendment) Act, 2015),as amended from time to time, regulations notified by the Insurance Regulatory and Development Authority of India, relevant Guidance notes and Actuarial Practice Standards of the Institute of Actuaries of India.
Funds for future appropriation (Unit linked) - Amounts estimated by Appointed Actuary as funds for future appropriation The unit liability in respect of lapsed unit linked business is the value of the units standing to the credit of policyholders, using the net asset value prevailing at the valuation date.
The actuarial liability in respect of both participating and non-participating policies is calculated using the gross premium method, using assumptions for interest, mortality, morbidity, expenses and inflation, and in the case of participating policies, future bonuses together with allowance for taxation and allocation of profits to shareholders. These assumptions are set asidedetermined as prudent estimates at the date of valuation including allowances for possible adverse deviations.
The Funds for Future Appropriations, in the participating segment represents the surplus, which is not allocated to policyholders or shareholders as at the Balance Sheet and are not available for distribution to Shareholders until the expiry of the maximum revival period.
Funds for future appropriation (Non-unit and Non-participating)- On the basis of recommendation of the Appointed Actuary surplus in the non-unit fund of linked line of business and non-participating funds may be held as Funds for future appropriations or appropriated to the Shareholders’ funds. When held in the policyholders’ funds, Funds for future appropriation provides capital for contingencies such as revival of lapsed or foreclosed policies.
Funds for future appropriation (Participating) - Based on the recommendation of Appointed Actuary unappropriated surplus is held in the Balance Sheet as Funds for future appropriations.date.
Investments are made and accounted for in accordance with the Insurance Act, 1938, (amended by the Insurance Laws (Amendment) Act, 2015), Insurance Regulatory and Development Authority of India (Investment) Regulations, 2016, Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditor’s Report of Insurance Companies) Regulations, 2002, Investments – Master circular, Investment Policy of the Company and various other circulars/notifications issued by the Insurance Regulatory and Development Authority of India in this context from time to time. Accordingly, unrealized gain or loss
Unclaimed amount of policyholders’ liability is determined on investmentthe basis of net asset value of the units outstanding as at the valuation date. Income on unclaimed amount of policyholders is not taken intoaccreted to the profitunclaimed fund and loss account exceptis accounted for on an accrual basis, net of fund management charges.
Borrowing costs are charged to the Profit and Loss Account in the case of unit-linked businesses. Unrealized gains/losses arising due to changesperiod in the fair value of equity shares and mutual fund units, in non-unit-linked policyholders’ and shareholders’ segments,which these are reflected in the “Fair value change account” in the balance sheet.incurred.
205
Fair Value Measurements
We determine the fair values of our financial instruments based on the fair value hierarchy established in ASC Topic 820. The standard describes three levels of inputs that may be used to measure fair value.
The valuation of Level 1 instruments is based upon the unadjusted quoted prices of identical instruments traded in active markets.
The valuation of Level 2 instruments is based upon the quoted prices for similar instruments in active markets, the quoted prices for identical or similar instruments in markets that are not active, prices quoted by market participants and prices derived from valuation models which use significant inputs that are observable in active markets. Inputs used include interest rates, yield curves, volatilities and credit spreads, which are available from public sources such as Reuters, Bloomberg, Foreign Exchange Dealers Association of India,
Financial Benchmark India Private Limited and the Fixed Income Money Markets and Derivatives Association of India.
The valuation of Level 3 instruments is based on valuation techniques or models which use significant market unobservable inputs or assumptions. Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable or when the determination of the fair value requires significant management judgment or estimation.
The valuation methodologies adopted by us for valuing our investments and derivatives portfolio are summarized below. A substantial portion of the portfolio is valued based on the unadjusted quoted or traded prices or based on models using market observable inputs such as interest rates, yield curves, volatilities and credit spreads available from public sources like Fixed Income Money Markets and Derivatives Association of India, Foreign Exchange Dealers Association of India, Financial Benchmark India Private Limited Reuters, Bloomberg and stock exchanges.
The Rupeerupee denominated fixed income portfolio, which includes all rupee investments in government securities and corporate bonds, is valued based on guidelines for market participants established by the Fixed Income Money Market and Derivatives Association. The Fixed Income Money Market and Derivatives Association is an association of scheduled commercial banks, public financial institutions, primary dealers and insurance companies and is a voluntary market body for bonds, derivatives and money markets in India. The international investments portfolio is generally valued on the basis of quoted prices. In certain markets, due to illiquidity, we use alternate valuation methodologies based on our own assumptions and estimates of the fair values.
A substantial part of the derivatives portfolio is valued using market observable inputs like swap rates, foreign exchange rates, volatilities and forward rates. The valuation of derivatives is carried out primarily using the market quoted swap rates and foreign exchange rates. Certain structured derivatives are valued based on counterparty quotes. The exposure regarding derivative transactions is computed and is marked against the credit limits approved for the respective counterparties.
We also hold investments and derivatives that have been valued based on unobservable inputs or that involve significant assumptions made by the management in arriving at their fair values. Such instruments are classified under Level 3 as per the classification defined in FASB ASC Topic 820 “Fair Value Measurements and Disclosures”.
206
A description of the valuation methodologies of Level 3 investments under U.S. GAAP
Our total investment in Level 3 instruments amounted to Rs. 148.2111.8 billion at year-end fiscal 2017, as compared to Rs. 112.6 billion at year-end fiscal 2016.2023. Out of the total Level 3 investments, investments amounting to Rs. 144.3108.9 billion were India-linked and investments amounting to Rs. 3.92.9 billion were non-India linked. India-linked investments consisted of pass through certificates of Rs. 134.898.7 billion, corporate bonds of Rs. 7.72.1 billion, and equity shares of Rs. 1.87.9 billion and other securities of Rs. 0.2 billion. Non-India linked investments consisted of mortgage backed securities of Rs. 3.72.8 billion and equity shares of Rs. 0.20.1 billion at year-end fiscal 2017.2023.
The valuation of Indian pass through certificates is dependent on the estimated cash flows that the underlying trust would pay out. The underlying trust makes assumptions with regards to various variables to arrive at the estimated cash flows. The cash flows for pass through certificates are discounted at the yield-to-maturity rates and credit spreads published by Financial Benchmark India Private Limited and Fixed Income Money Market and Derivatives Association on month ends.
Bonds that have been identified as illiquid and valued on the basis of a valuation model are classified as Level 3 instruments, only if the input used to value those securities is collected from unobservable market data or if the bonds were valued after making adjustment to the market observable data. The investment in bonds of Rs. 7.72.1 billion iswere valued at the amortized cost net of impairment or using significant management estimates and assumptions or based on market value of the underlying collateral.
Due to illiquidity in the asset backed and mortgage backed security markets, a substantial part of these securities are classified as Level 3 and valuation models are used to value these securities.
The valuation of Indian pass through certificates is dependent on the estimated cash flows that the underlying trust would pay out. The underlying trust makes assumptions with regards to various variables to arrive at the estimated cash flows. The cash flows for pass through certificates are discounted at the yield-to-maturity rates and credit spreads published by Fixed Income Money Market and Derivatives Association on month ends.
Our Canadian subsidiary holds retained interest, largely representing the excess spread of mortgage interest over the rate of return on the mortgaged backed securities, which has been recorded as available-for-sale securities in the balance sheet at fair value of Rs. 3.72.8 billion determined using an internal model.
Non-India linked equity shares of Rs. 0.1 billion were valued by applying discount to the market price of same company.
The methodologies we use for validating the pricingvaluation model of products which are pricedvalued with reference to market observable inputs include comparing the outputs of our models with counterparty quotes, in comparison with pricing from third party pricing tools, replicating the valuation methodology used in the model or other methods used on a case-by-case basis. The prices arevaluation is also computedcarried out under various scenarios and are checked for consistency. However, for products where there are no reliable market prices or market observable inputs available, valuation is carried out using models developed using alternate approaches and incorporating proxies wherever applicable. The independent validation of pricingvaluation models is performed by an entity/unit independent of the risk management group.
Recently Issued Accounting Pronouncements under U.S. GAAP
Financial Instruments—Credit LossesLong-Duration Insurance Contracts
In June 2016,August 2018, the FASB issued Accounting StandardsStandard Update No. 2016-13, “Financial2018-12, Financial Services—Insurance: Targeted Improvements to the Accounting for Long-Duration Contracts, which changes the existing recognition, measurement, presentation and disclosures for long-duration contracts issued by an insurance company. The guidance improves the timeliness of recognizing changes in the liability for future policy benefits and prescribes the rate used to discount future cash flows for long-duration insurance contracts. It simplifies the accounting for certain market-based options or guarantees associated with deposit contracts and the amortization of deferred acquisition costs. The Guidance introduces additional quantitative and qualitative disclosures. The Bank has insurance subsidiary/affiliate that issue long-duration insurance contracts that will be impacted by the requirements of ASU 2018-12.
207
The effective date of ASU No. 2018-12 was deferred for all insurance entities by Accounting Standard Update No. 2019-09, Finance Services—Insurance: Effective Date and by Accounting Standard Update No. 2020-11, Financial Services—Insurance: Effective Date and Early Application. The Accounting Standard Update will be applicable to the Group from fiscal 2024.
Troubled debt restructurings and vintage disclosures
In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments—Credit Losses” (ASU 2016-13), an UpdateLosses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures which eliminates the accounting guidance for the Troubled debt restructurings carried out by creditors, while enhancing the disclosure requirements for certain loan refinancings and restructurings undertaken by the creditors when a borrower is experiencing financial difficulty. Further, this update requires entities to Topic 326 –disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial instruments-Credit losses. The amendments in this Update eliminate the probable initial recognition threshold in current GAAP with respect to assets measuredInstruments—Credit Losses—Measured at amortized cost and, instead, reflect an entity’s current estimate of all expected credit losses. When credit losses were measured under current GAAP, an entity generally only considered past events and current conditions in measuring the incurred loss. The amendments in this Update broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. Further, credit losses on available-for-sale debt securities shouldAmortized Cost.
This update would be measured in a manner similar to current GAAP. However, the amendments in this Update require that credit losses on available-for-sale securities be presented as an allowance rather than as a write-down. ASU 2016-13 is effective for interim and annual reporting periodsapplicable from fiscal year beginning after December 15, 2019. This update2022. Accordingly, for this Accounting Standard Update will be applicable forto the Group from fiscal 2021. Early adoption2024 and this amendment is permitted for annual periods beginning January 1, 2019. The Group expects that the new accounting standard guidance will result in higher allowance for credit losses. The allowance on loans and loan commitments will increasenot likely to cover credit losses over the remaining expected life of the loan portfolio. Further, the determination of allowance for loans will also require consideration of expected future changes in macroeconomic conditions. As the standard does not prescribe a specific method for estimating expected credit loss, the Group is in the process of finalizing the approach. The extent of thehave any material impact is yet to be quantified.
Revenue from contracts with customers
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from contracts with customers” (ASU 2014-09), an update to Topic 606 – Revenue from contracts with customers. The amendments in this Update require an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Update also requires new qualitative and quantitative disclosures, including disaggregation of revenues and descriptions of performance obligation. The scope of the guidance excludes net interest income and many other revenues for financial assets and liabilities which includes loans, leases, securities and derivatives. Accordingly, the majority of our revenues will not be effected. ASU 2014-09 is effective for interim and annual reporting periods beginning after December 15, 2017. This update will be applicable for the Group from fiscal 2019. We are in the process of evaluating the impact of adopting this statement.
Leases
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, “Leases” (ASU 2016-02), an Update to Topic 842 - Leases. ASU 2016-02 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The amendments in this Update require lessees to recognize leases on the balance sheet with lease liabilities and corresponding right-of-use asset based on the present value of lease payments and both quantitative as well as qualitative disclosures regarding key information about leasing arrangements. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018, with an option to early adopt. The Group does not plan to early adopt this ASU. We are in the process of evaluating the impact of adopting this statement.
Goodwill
In January 2017, the FASB issued Accounting Standards Update No. 2017-04, “Intangibles- Simplifying the test for goodwill impairment” (ASU 2017-04), an Update to Topic 350- Intangibles- Goodwill and other. The amendments in this Update modify the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. ASU 2017-04 is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted for interim and annual goodwill impairment testing dates after January 1, 2017. The impact of ASU will depend upon the performance of the reporting units and market conditions impacting the fair value of the reporting units in future.
Recognition and measurement of financial assets and financial liabilities
In January 2016, the FASB issued Accounting Standards Update No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” (ASU 2016-01), an Update to ASC Topic 825 – Financial Instruments – Overall. The amendments in this Update address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The amendments primarily affect the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. ASU 2016-01 is effective for interim and annual reporting periods beginning after December 15, 2017. This update will be applicable for the Group from fiscal 2019. We are in the process of evaluating the impact of adopting this statement.
Derivatives and hedging: Effect of derivative contract novations on existing hedge accounting relationships
In March 2016, the FASB issued Accounting Standards Update No. 2016-05, “Derivatives and hedging (Topic 815) Effect of derivative contract novations on existing hedge accounting relationships” (ASU 2016-05), an Update to Topic 815- Derivatives and hedging. The amendments in this Update clarify that where there is a change in the counterparty to a derivative instrument that has been designated as a hedging instrument under Topic 815, does not, in and of itself, require de-designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. ASU 2016-05 is effective for interim and annual reporting periods beginning after December 15, 2016. This update will be applicable for the Group from fiscal 2018. We are in the process of evaluating the impact of adopting this statement.
Derivatives and hedging: Contingent put and call options in debt instruments
In March 2016, the FASB issued Accounting Standards Update No. 2016-06, “Derivatives and hedging (Topic 815) Contingent put and call options in debt instruments” (ASU 2016-06), an Update to Topic 815- Derivatives and hedging. The amendments in this Update clarify the steps required to be performed, when assessing the economic characteristics and risks of call (put) options that are clearly and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative. ASU 2016-06 is effective for interim and annual reporting periods beginning after December 15, 2016. This update will be applicable for the Group from fiscal 2018. We are in the process of evaluating the impact of adopting this statement.
Non-refundable fees and other costs
In March 2017, the FASB issued Accounting Standards Update No. 2017-08, “Premium amortization on purchased callable debt securities” (ASU 2017-08), an Update to Topic 310- Receivables- Non-refundable fees and other costs. The amendments in this Update would change the accounting for callable debt securities purchased at a premium to require amortization of the premium to the earliest call date rather than to the maturitytransition date. Accounting for callable debt securities purchased at a discount is not proposed to change and the discount would continue to amortize to the maturity date. ASU 2017-08 is effective for interim and annual reporting periods beginning after December 15, 2018. This update will be applicable for the Group from fiscal 2020. We are in the process of evaluating the impact of adopting this statement.
Convergence of Indian accounting standardsAccounting Standards with International Financial Reporting Standards
The financial statements and other financial information included or incorporated by reference in this annual report are based on our unconsolidated and consolidated financial statements underIn 2016, the Ministry of Corporate Affairs issued the roadmap for implementation of new Indian GAAP. The Institute of Chartered Accountants of India has issued Ind AS (a revised set of accounting standards) which
largely converges the Indian accounting standardsAccounting Standards (Ind AS), converged with International Financial Reporting Standards. The Ministry of Corporate Affairs, which is the law making authorityStandards, for adoption of accounting standards in India, has notified these Ind AS for adoption. Further, the ministry has also issued a roadmap for transition to Ind AS by Indian companies in a phased manner starting from April 1, 2016. For bankingscheduled commercial banks, insurance companies and non-banking finance companies,financial companies. However, currently the implementation of Ind AS will begin from April 1, 2018. Forfor banks and insurance companies has been deferred until further notice pending the consideration of some recommended legislative amendments by the Government of India. We are in an advanced stage of preparedness for implementation of Ind AS, will begin from April 1, 2020. Accordingly, while ICICI Bankas and our group companies other than insurance companies, would report its financials as perwhen these are made applicable to the Indian banks. Further, there may be regulatory guidelines and clarifications in some critical areas of Ind AS from April 1, 2018 onwards. Our insurance subsidiaries would report their financialsapplication, which we will need to suitably incorporate in our implementation project as per Ind AS from April 1, 2020. and when those are issued.
Financial statements prepared under standards different from existing GAAPInd AS may diverge significantly from the financial statements and other financial information included or incorporated by reference in this annual report. The major areas of differences include classification and mark-to-market accounting of financial assets, impairment of financial assets and allowance for expected credit losses, accounting of loan processing fees and costs, amortization of premium/premium or discount on purchase of financial assets, consolidation accounting employee stock options and deferred taxes.
Ind AS 109 - Financial Instruments (Standard equivalent toSeparately, during fiscal 2022, Reserve Bank of India, issued a discussion paper on “Review of prudential norms on classification, valuation and operations of investment portfolio of commercial banks”, which is broadly based on the principles of the International Financial Reporting Standard 9) would have a significant impact on the way financial assets and liabilities are classified and measured, resulting in volatility in profit or loss and equity.
Under current Indian GAAP, loans are measured at cost, net of provision. Investments are accounted for in accordance with the extant9. Further, during fiscal 2023, Reserve Bank of India, guidelinesthrough its discussion paper on investment classification and valuation which requires all investments“Introduction of Expected Credit Loss framework for provisioning by banks” has proposed to be classified as ‘Held to Maturity’, ‘Available for Sale’ and ‘Held for Trading’. According to the current guidelines, net loss in the available for sale and held for trading classifications is computed category-wise and recognized in the profit and loss account while net gains are ignored. As per Ind AS 109, all financial assets will have to be classified at ‘amortized cost’, ‘fair value through other comprehensive income’ or ‘fair value through profit and loss’. The above classification would be based on the business model test and the contractual cash flow test. All unrealized gains or losses for financial assets classified at fair value through other comprehensive income would be accounted for in the other comprehensive income and on assets at fair value through the profit and loss in the profit and loss account. For the Bank, based on the assessment so far, the loans are likely to primarily qualify for amortized cost accounting, except for certain loans which are originated by the Bank with an intention to sell. A significant portion of the government bonds held by the Bank in ‘Held to maturity’ under current Indian GAAP may need to be classified in ‘fair value through other comprehensive income’ category under Ind AS because of their business model of both – hold to collect contractual cash flows, as well as selling these bonds to meet liquidity and other risk management requirements. Accordingly, the unrealized gains or losses on these investments would be accounted for in the other comprehensive income under Ind AS.
We classify our assets, including those in our overseas branches, as performing and non-performing in accordance with the Reserve Bank of India’s guidelines. The Bank holds specific provisions against non-performing loans and general provision against performing loans. Non-performing loans are further classified into sub-standard, doubtful and loss assets based on the criteria stipulated by the Reserve Bank of India and provisions are made for sub-standard and doubtful assets at rates prescribed by the Reserve Bank of India. Loss assets and the unsecured portion of doubtful assets are provided/written-off as per the extant Reserve Bank of India guidelines. See also “Business—Classification of Loans”. Ind AS 109 requires entities to recognize and measure a credit loss allowance or provision based onadopt an expected credit loss model.framework based on the approach used in International Financial Reporting Standard 9, supplemented by regulatory backstops wherever necessary. The expected credit loss impairment model would apply to loansmajor areas of differences include classification and debt securities measured at amortized cost or at fair value through other comprehensive income. The model is also intended to apply to outstanding non-fund facilities, undrawn fund/non-fund commitments and lease receivables. The impairment and expected credit loss requirements under Ind AS represent the most significant area of difference with the current Indian GAAP and introduces substantial requirements of management judgment, estimates and assumptions in many areas, like significant increase in credit risk, expected lifemark-to-market accounting of financial instruments, computationassets, impairment of one-yearfinancial assets and lifetimeallowance for expected credit losses, and incorporationaccounting of forward looking estimates in the expected credit losses model. While the standard does not prescribe a specific method for estimating expected credit loss, the Bank proposes to build on Basel’s internal ratings-based approach and estimated expected credit loss as a product of probability of default, loss given default and exposure at default. The Bank is currently developing its internal models and finalizing the assumptions and methodologies, as well as discussing with industry participants and the Indian regulator about the possible approaches to computation of expected credit losses.
Under current Indian GAAP, originationloan processing fees and costs, for financial instruments, including commissions paid to direct marketing agents, are accounted for upfront. Also, under current Indian GAAP, theand amortization of premium or discount on purchase of certain investment securities is amortized, while the discount is recognized on maturity/salefinancial assets.
208
Under current GAAP, consolidation is required only if there is ownership of more than one-half of the voting power of an enterprise or control of the composition of the Board of Directors in the case of a company or of the composition of the governing body in case of any other enterprise. Ind AS 110 - Consolidated Financial Statements establishes control as the basis for consolidation and defines the principle of control. Under Ind AS 110, an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The implementation of this standard will require the Bank to exercise significant judgment to determine the entities which it controls as per the definition under Ind AS. Further, under Ind AS, proportionate consolidation can be used only in limited cases of joint control, while joint ventures would have to be consolidated using the equity method. The Bank is in early stage of evaluating entities to be consolidated as per new ‘control’ definition.MANAGEMENT
Under current Indian GAAP, the Bank follows the intrinsic value method to account for its stock-based employees’ compensation plans. Compensation cost is measured by the excess, if any, of the fair market price of the underlying stock over the exercise price on the grant date. Ind AS 102 - Share-based Payment, requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values.
Under current GAAP, deferred tax assets and liabilities are recognized by considering the impact of timing differences (income approach) between the taxable income and accounting income for current year and carry forward losses as compared to Ind AS where, deferred tax assets and liabilities are recognized in respect of the temporary differences between the carrying amount of assets and liabilities for financial reporting purpose and amount used for taxation purposes.
The Bank is in the process of migrating to Ind AS based financial statements. For implementation of Ind AS, the Bank has formed a Steering Committee which has members from various functions. The Committee meets regularly to supervise the progress of the project. An update on the implementation status is also submitted to the Audit Committee at quarterly intervals. The Bank’s Ind AS implementation project also focusses on technical evaluation of GAAP differences, selection of accounting policies and choices, evaluation of system changes and data requirements, business impact analysis and skill development in the Bank through regular trainings and workshops. The implementation of Ind AS will require significant system developments primarily related to amortization of loan origination fees and costs, expected credit loss accounting, preparation of financial statements and generation of management information. It also poses challenge for collection and validation of historical data. The Group companies of the Bank are also running similar Ind AS implementation projects in co-ordination with the parent Bank.
Directors and Executive Officers
Our boardBoard of directors, consisting of 12 members at June 30, 2017,Directors is responsible for the management of our business. Our organizational documents provide for a minimum of three directors and a maximum of 2115 directors, excluding the government directorGovernment Director and the debenture directorDebenture Director (defined below), if any. We may, subject to the provisions of our organizational documents and the Companies Act, 2013 change the maximum number of directors by a special resolution, which hassubject to be approvedapproval by our shareholders. Approval of a special resolution requires that the votes cast by membersshareholders in favor of the resolution are not less than three times the number of the votes, if any, cast against the resolution. In addition, under the Banking Regulation Act, 1949, the Reserve Bank of India may require us to convene a meeting of our shareholders for the purposes of appointing new directors to our Board of Directors.
The Banking Regulation Act requires that at least 51% of our directors should have special knowledge or practical experience in banking and areas relevant to banking including accounting,accountancy, agriculture and rural economy, co-operation, economics, finance, agriculture,law, small scale industry. All of our directors are professionals with special knowledge of one or more of the above areas. The Reserve Bank of India in November 2016 has broadened the fields of specialization to includeindustry, information technology, payment &and settlement systems, human resources, risk management and business management. All our directors possess special knowledge in more than one area specified in the Banking Regulation Act and applicable regulations. The appointment of the chairman and executive directors requires the approval of the Reserve Bank of India, in addition to the approval of our shareholders that is generally required for the appointment of all directors other(other than the government directorGovernment Director and the debenture director.Debenture Director, if any). In classification ofclassifying our directors as independent, we have relied on the declaration of independence provided by the independent directors as prescribed under the Companies Act and the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended from time to time, which were also placed before the Board at the boardits meeting held inon April 2017, applicable Reserve Bank of India guidelines and circulars and legal advice.22, 2023. The Companies Act, 2013 excludes the government directorGovernment Director from the definition of independent director. TheOur directors are also subject to ‘fit and proper’ criteria as prescribed by the Reserve Bank of India has also prescribed ‘fit and proper’ criteria to be considered while appointing persons as directors of banking companies. Our directors (other than the government director)Government Director) are required to make declarations confirming their ongoing compliance of the ‘fit and proper’ criteria. Our Board Governance, Remuneration & Nomination Committee/Committee and Board of Directors hashave reviewed the declarations received from all the existing directors in this regard and determined that all our directors satisfy the ‘fit and proper’ criteria.criteria and can continue on the Board. Further, pursuant to the Reserve Bank of India guidelines, a person is eligible for appointment as non-executive director, if he or she is between 35 and 7075 years of age.
After attaining the age of 75 years, no person can continue in this position. Our organizational documents also provide that we may execute trust deeds in respect of our debentures under which the trustee or trustees may appoint a director, known as the debenture director.Debenture Director. The debenture director is not subject to retirement by rotation and may only be removed as provided in the relevant trust deed. Currently, there is no debenture directorwe do not have a Debenture Director on our Board of Directors.
Of our 1211 directors fiveas at June 30, 2023, three directors are in our whole-time employment or executive directors, one is a government director(one Managing Director & CEO, and two Executive Directors) and the remaining sixeight directors are independent directors. The Government of India through its letter dated January 16, 2017, has nominated Mr. Amit Agrawal, Joint Secretary, Department of Financial Services, Ministry of Finance, as a Director on the Board of ICICI Bank effective January 16, 2017, in place of Mr. Alok Tandon. Of the sixeight independent directors Mr. M. K. Sharma is the Chairman of our Board and the others are company/corporate executives,include retired companypublic servants, corporate executives, advisors and chartered accountants. Of the sixeight independent directors, twothree have specialized knowledge in respect of agriculture and rural economy orand three in small scale industry.
The Companies Act provides that an independent director shall not hold office for more than two consecutive terms of up to five years each provided that the director is re-appointed by passing a special resolution on completion of the first termterm. In line with the Reserve Bank of five consecutive years. To computeIndia guidelines, the period of five consecutive years, thetotal tenure of every independentnon-executive director, was reckoned afresh from April 1, 2014. Pursuant tocontinuously or otherwise, on the provisionsboard of a bank, shall not exceed eight years. After completing eight years on the Banking Regulation Act, noneboard of a bank the directors other than the Chairman and executive directorsperson, may hold office continuouslybe considered for re-appointment only after a period exceeding eightminimum gap of three years. The Companies Act also provides that in respect of banking companies, the provisions of the Companies Act shall apply except in so far as they are inconsistent with the provisions of the Banking Regulation Act.
209
Pursuant to the provisions of the Companies Act, at least two-thirds of the total number of our non-independent directors (other than independent directors) are subject to retirement by rotation. The government directorGovernment Director and the debenture director are not subject to retirement by rotation as per our organizational documents. One-third of the directors liable to retire by rotation must retire from office at each annual general meeting of shareholders. A retiring director is eligible for re-election.
PursuantMr. Girish Chandra Chaturvedi was appointed as an independent director from July 1, 2018 to June 30, 2021. Subsequently, he was appointed as non-executive (part-time) Chairman effective July 17, 2018 to June 30, 2021. Mr. Girish Chandra Chaturvedi was re-appointed for the approval grantedsecond term as an independent director and as non-executive (part-time) Chairman for a period of three years effective from July 1, 2021 to June 30, 2024.
Mr. Sandeep Bakhshi was appointed as a wholetime director and Chief Operating Officer (Designate) by the Board of Directors at its meeting held on June 18, 2018. The Reserve Bank of India Mr. M. K. Sharma was appointedand shareholders approved his appointment as the independent non-executive Chairman of our Boarda wholetime director effective from July 1, 2015 up to June 30,31, 2018. The Board of Directors at its meeting held on October 4, 2018 approved the appointment was approved by our shareholders through postal ballot on April 22, 2016.
Ms. Chanda Kochhar was appointedof Mr. Sandeep Bakhshi as Executive Director effective April 1, 2001, designated as Deputy Managing Director effective April 29, 2006 and Joint Managing Director and Chief FinancialExecutive Officer effective October 19, 2007. She was appointed as Managing Director and CEO for a period of five years, subject to the approval of Reserve Bank of India and shareholders. The Reserve Bank of India on October 15, 2018 initially approved his appointment as Managing Director and Chief Executive Officer for a period of three years effective May 1, 2009.from October 15, 2018 and subsequently on August 24, 2021 approved his re-appointment from October 15, 2021 till October 3, 2023. The shareholders at the annual general meeting held on June 24, 2013,August 9, 2019 have approved the re-appointmentappointment of Ms. Chanda KochharMr. Sandeep Bakhshi as Managing Director and Chief Executive Officer of the Bank for a period effective from October 15, 2018 to October 3, 2023. The Board of five years effective April 1, 2014 up to March 31, 2019. The ReserveDirectors of the Bank of India has also approved the re-appointment of Ms. Chanda Kochhar for the same period.
Mr. N. S. Kannan was appointed as Executive Director, for a period of five years, effective May 1, 2009. The shareholders at the annual generalits meeting held on June 24, 2013October 22, 2022 approved the re-appointment of Mr. N. S. KannanSandeep Bakhshi as Managing Director and Chief Executive Officer of the Bank for a period of fivethree years effective May 1, 2014 upwith effect from October 4, 2023 to April 30, 2019. The Reserve Bank of India has also approved the re-appointment of Mr. N. S. Kannan for the same period.
The Board of Directors at its meeting held on November 16, 2015 appointed Ms. Vishakha Mulye as Executive Director for a period of five years effective from the date of receiptOctober 3, 2026, subject to approval of the Reserve Bank of India approval. Pursuant toand shareholders of the Bank. The approval granted by theof Reserve Bank of India Ms. Vishakha Mulyeis awaited while the approval of the shareholders would be sought at the Annual General Meeting scheduled on August 30, 2023.
Mr. Anup Bagchi who was appointed as an Executive Director on the Board of the Bank effective January 19, 2016 for a periodfrom February 1, 2017, resigned from the Board with effect from the close of three years. The shareholders through postal ballotthe business hours on April 22, 2016 approved30, 2023.
Mr. Sandeep Batra was appointed as a wholetime director (designated as an Executive Director) by the appointmentBoard of Ms. Vishakha MulyeDirectors at its meeting held on May 6, 2019 for a period of five years effective January 19, 2016 upfrom May 7, 2019 or the date of approval of his appointment by the Reserve Bank of India, whichever is later. The shareholders at the Annual General Meeting held on August 9, 2019 approved the appointment of Mr. Sandeep Batra as a wholetime director (designated as an Executive Director) for a period of five years effective from May 7, 2019 or the date of approval from the Reserve Bank of India, whichever is later. In line with a Reserve Bank of India letter dated October 30, 2019, the Board of Directors at its meeting held on September 16, 2020 approved the filing of a fresh application to January 18, 2021.the Reserve Bank of India for the purpose of approval of appointment of Mr. Sandeep Batra as a wholetime director (designated as Executive Director) of the Bank, for a period of five years or date of retirement, whichever is earlier, effective from September 17, 2020 or the date of approval of appointment by Reserve Bank of India, whichever is later. The Reserve Bank of India has approved the appointment of Mr. Sandeep Batra as an Executive Director of the Bank for a period of three years from the date of his taking charge as an Executive Director. The Board of Directors through a circular resolution dated December 23, 2020 recorded December 23, 2020 as the effective date of appointment and taking charge by Mr. Sandeep Batra as a wholetime director (designated as an Executive Director) of the Bank. The Board of Directors of the Bank at its meeting held on May 28, 2023 approved the re-appointment of Mr. Sandeep Batra as Executive Director of the Bank for a further period of two years with effect from December 23, 2023 to December 22, 2025, subject to the approval of Reserve Bank of India. This renewed term of two years is within the five years term as previously approved by the shareholders.
210
The Board of Directors at its meeting held on April 29, 2016 and the shareholders at the annual general meeting held on July 11, 201623, 2022 approved the appointment of Mr. Vijay ChandokRakesh Jha as an additional director and wholetime director (designated as Executive DirectorDirector) of the Bank for a period of five years effective from May 1, 2022 or the date of receiptapproval of approval ofhis appointment by the Reserve Bank of India.India, whichever is later. The Reserve Bank of Indiashareholders at the Annual General Meeting held on August 30, 2022 approved the appointment of Vijay Chandok forMr. Rakesh Jha as a period of three years effective from July 28, 2016 up to July 27, 2019.
The Board of Directors at its meeting held on October 14, 2016 appointed Mr. Anup BagchiDirector and Wholetime Director (designated as Executive DirectorDirector) for a period of five years effective from FebruaryMay 1, 20172022 or the date of receiptapproval of approval fromhis appointment by the Reserve Bank of India, whichever is later. The Reserve Bank of India grantedvide its letter dated September 2, 2022 has communicated its approval for the appointment of Mr. Anup BagchiRakesh Jha as an Executive Director of the Bank for a period of three years effective February 1, 2017 up to January 31, 2020. Shareholdersfrom the date of its approval i.e. September 2, 2022.
The Board of Directors of the Bank at the annual generalits meeting held on June 28, 2022 and the shareholders at the Annual General Meeting held on August 30, 20172022 approved the appointmentre-appointment of Mr. Anup Bagchi for a period of five years effective February 1, 2017.the following Directors:
· | Ms. Neelam Dhawan as an independent director of the Bank for a second term commencing from January 12, 2023 to January 11, 2026; |
Mr. Rajiv Sabharwal who was appointed as Executive Director effective June 24, 2010 stepped down from his position as Executive Director effective close of business hours on January 31, 2017.
· | Mr. Uday Chitale as an independent director of the Bank for a second term commencing from January 17, 2023 to October 19, 2024; |
· | Mr. Radhakrishnan Nair as an independent director of the Bank for a second term commencing from May 2, 2023 to May 1, 2026. |
In May 2017, the Reserve Bank of India issued guidelines on minimum qualifications and experience required while inviting applications for the position of Chief Financial Officer and Chief Technology Officer in banks.
OurThe Board of Directors of the Bank at its meeting held on May 28, 2023 approved the re-appointment of the following independent directors, subject to the approval of the shareholders:
· | Mr. Hari Mundra as an independent director of the Bank for a second term commencing from October 26, 2023 to October 25, 2024; |
· | Mr. B. Sriram as an independent director of the Bank for a second term commencing from January 14, 2024 to January 13, 2027; |
· | Mr. S. Madhavan as an independent director of the Bank for a second term commencing from April 14, 2024 to April 13, 2027. |
Our Board had the following members at June 30, 2017:2023:
Name, | Age | Date of first Appointment | Particulars of other Directorship(s) at June 30, 2023 |
Mr. Girish Chandra Chaturvedi Non-Executive Independent Director Profession: Advisor | 70 | July 1, 2018 (appointed as part-time Chairman effective July 17, 2018) | Chairperson National Stock Exchange of India Limited |
211
Name, | Age | Date of first Appointment | Particulars of other | |
Mr. Non-Executive Independent
Director | January 17, 2018 |
|
Indian
| |
Ms. Neelam Dhawan Non-Executive Independent |
Capillary Technologies India Limited
Yatra Online Inc
Nudge Lifeskills Foundation | |||
Mr. Non-Executive Independent | Director Transport Corporation of India Limited HCL Technologies Limited
CBIX Technology Solutions Private Limited
Lifestyle International Private Limited
| |||
Mr. Hari L. Mundra Non-Executive Independent | Director
Tata Autocomp Systems Limited |
219212
Name, | Age | Date of first Appointment | Particulars of other | |||
Mr. Non-Executive Independent
| 68 | May 2, 2018 | Director Axis Mutual Fund Trustee Limited ICICI Securities Primary Dealership Limited ICICI Prudential Life Insurance |
Inditrade Capital Limited Independent Member Kerala Infrastructure Investment Fund Board | ||
Mr. Non-Executive Independent Profession: Advisor | January |
| ||||
| ||||||
IndiaIdeas Com Limited
TVS SCS Singapore Pte Limited National Bank TVS Motor Company Limited Dreamplug Technologies Private Limited |
220213
Name, | Age | Date of first Appointment | Particulars of other | ||
Ms. Non-Executive Independent Director Profession: Company | 63 | January 23, 2022 | Director Tata Chemicals Limited Asian Paints Limited ICICI Prudential Life Insurance Company Limited Pratham Education Foundation Tata Chemicals North America Inc., USA TCE Group Limited, UK Valley Holdings Inc., USA Gusiute Holdings (UK) Limited, UK Piramal Pharma Limited | ||
Mr.
and CEO | |||||
Mr. | 57 | December 23, 2020 | Chairperson ICICI Venture Funds Management Company Limited ICICI Prudential Asset Management Company Limited
Director ICICI Prudential Life Insurance Company Limited ICICI Lombard General Insurance Company Limited | ||
Mr. Rakesh Jha Executive Director | 51 | September 2, 2022 |
ICICI Venture Funds Management Company Limited ICICI Lombard General Insurance Company Limited ICICI Securities Limited ICICI Home Finance Company Limited
|
214
Our executive officers as at June 30, 2017March 31, 2023, who received executive remuneration in fiscal 2023, were as follows:
Name | Age | Designation and Responsibilities | Years of work experience | Total remuneration in fiscal 2017(1) | Bonus for fiscal 2017 (in Rupees) | Stock options granted for fiscal 2016 | Stock options granted for fiscal 2017(2) | Total stock options granted through June 30, 2017(3) | Total stock options outstanding at June 30, 2017 | Shareholdings at June 30, 2017(4) |
Ms. Chanda Kochhar | 55 | Managing Director and CEO | 33 | 56,480,383 | 22,028,362 | 3,822,500 | 1,512,500 | 20,157,500 | 16,866,300 | 2,515,287 |
Mr. N. S. Kannan | 52 | Executive Director | 29 | 39,176,449 | 14,766,738 | 1,853,500 | 753,500 | 8,890,200 | 7,447,000 | 468,737 |
Ms. Vishakha Mulye | 48 | Executive Director | 24 | 38,197,410 | 14,766,738 | 753,500 | 753,500 | 5,554,863 | 4,312,000 | 647,487 |
Mr. Vijay Chandok | 49 | Executive Director | 26 | 36,630,284 | 13,539,876 | 1,314,500 | 753,500 | 6,908,550 | 6,043,950 | 1,940 |
Mr. Anup Bagchi | 46 | Executive Director | 25 | 14,680,607 | 5,601,428 | - | 753,500 | 4,896,925 | 4,130,500 | - |
Mr. Rakesh Jha | 45 | CFO | 21 | 25,754,027 | 10,015,833 | 781,550 | 365,750 | 4,428,875 | 3,501,300 | 14,850 |
Name | Age | Designation and Responsibilities | Years of Work Experience | Total remuneration in Fiscal 2023 (in Rupees) (1) | Bonus Paid in Fiscal 2023 (in Rupees) (2) | Stock Options Granted during Fiscal 2022 | Stock Options Granted during Fiscal 2023 | Total Stock Options | Total Stock Options Outstanding at March 31, 2023(3) | Shareholding |
Mr. Sandeep Bakhshi | 63 | Managing Director and CEO | 40 | 74,369,260 | 21,350,000 | 394,850 | 317,800 | 9,695,100 | 6,459,400 | 275,000 |
Mr. Anup Bagchi | 52 | Executive Director | 31 | 67,875,485 | 18,650,000 | 305,350 | 249,100 | 7,318,375 | 4,096,200 | .. |
Mr. Sandeep Batra | 57 | Executive Director | 35 | 66,696,291 | 18,650,000 | 305,350 | 249,100 | 4,894,500 | 3,695,500 | 148,000 |
Mr. Rakesh Jha(5) | 51 | Executive Director | 27 | 52,701,843 | 13,908,217 | 305,350 | 249,100 | 6,073,825 | 4,101,250 | 65,000 |
Mr. Anindya Banerjee(6) | 47 | Group Chief Financial Officer | 25 | 29,617,634 | 6,102,216 | 90,600 | 89,200 | 2,638,800 | 1,743,900 | 152,500 |
(1) |
(2) |
(3) |
Each stock option, once exercised, |
Executive officers and |
(5) | Mr. Rakesh Jha was appointed as Executive Director effective September 2, 2022. The above remuneration is his full year salary. |
(6) | Mr. Anindya Banerjee was appointed as the Group Chief Financial Officer of the Bank with effect from May 1, 2022. The |
The profile of our non-executive directors as at June 30, 2023 was as follows:
Ms. Chanda KochharMr. Girish Chandra Chaturvedi has masters’ degrees in physics and social policy in developing countries from the University of Allahabad and the London School of Economics respectively. He joined the Indian Administrative Service in 1977, serving at various levels across a post-graduatenumber of sectors, including banking, insurance, pension, health, family welfare and petroleum and natural gas. He also served as a government nominee director on the boards of several banks, insurance companies and financial institutions. He retired in 2013 as the secretary of the Ministry of Petroleum and Natural Gas. Currently, he is also the Chairman of the National Stock Exchange of India Limited.
215
Mr. Uday Chitale is a chartered accountant with professional standing of over 45 years and was a senior partner of M. P. Chitale & Co, chartered accountants. He is also active in the field of arbitration and conciliation of commercial disputes. He has served on the boards of several companies and was a board member of the Bank from 1997-2005 as well. He served on the global board of directors and as Vice President-Asia Pacific of the worldwide association of accounting firms DFK International. He is also a member of the Board of Governors of National Institute of Securities Markets promoted by Securities and Exchange Board of India.
Ms. Neelam Dhawan is an economics graduate from St Stephen’s College, Delhi University and has a master in business administration degree in management from Jamnalal Bajaj Institutethe Faculty of Management Studies, Mumbai and a degree in cost and works accountancy from the InstituteDelhi University. Ms. Dhawan has over 38 years of Cost and Works Accountants of India. She started her career in 1984 with ICICI in its project finance department and has workedexperience in the areas of corporate banking, infrastructure financing, e-commerce, strategy, retail banking, international bankinginformation technology industry. Starting from 1982, she has held various positions across Hindustan Computers Limited, IBM, Microsoft and finance.Hewlett Packard Enterprise. She was appointed to our Board as an Executive Director in April 2001. Our Board designated her as Deputy Managing Director effective April 29, 2006 and as Jointhas been Managing Director and Chief Financial Officer effective October 19, 2007. Effective May 1, 2009 our Board appointed Ms. Chanda Kochharleader of the country businesses for 11 years for Microsoft and later Hewlett Packard in India. Her last executive assignment was in Hewlett Packard Enterprise that of as Managing DirectorVice President for Global Industries, Strategic Alliances, and CEO.Inside Sales for Asia Pacific and Japan.
Mr. N. S. KannanSubramanian Madhavanis a chartered accountant and holds a post graduate diploma in mechanical engineering, a post-graduate inbusiness management from the Indian Institute of Management, BangaloreAhmedabad. He started his career with Hindustan Unilever Limited. He had thereafter established a highly successful tax practice and served large Indian and multinational clients. He was then a senior partner and Executive Director in PricewaterhouseCoopers Private Limited. He has around 38 years of experience in accountancy, economics, finance, law, information technology, human resources, risk management, business management and banking.
Mr. Hari L. Mundra has a bachelor of arts degree and a chartered financial analystpost graduate degree in business management from the Indian Institute of Chartered Financial AnalystsManagement, Ahmedabad. He began his career in 1971 in Hindustan Unilever Limited and was the youngest member of India.its board as the Vice President and Executive Director in charge of exports at the time he left in 1995. He joined ICICIsubsequently held leadership positions in 1991.major Indian industrial conglomerates, in areas including pharmaceuticals and healthcare, and petrochemicals. He has 50 years of extensive industrial experience, both in India and Indonesia.
Mr. Radhakrishnan Nair holds degrees in science, securities laws, management and law. He has around 40 years of experience in banking industry and in the field of securities and insurance regulation. He started his banking career with Corporation Bank and also served as the Managing Director of Corporation Bank Securities Limited. He was Executive Director at Securities and Exchange Board of India from 2005 to 2010 and Member (Finance and Investment) in the Insurance Regulatory and Development Authority of India from 2010 to 2015. He has been a member of various committees of International Organization of Securities Commissions and the International Association of Insurance Supervisors.
Mr. Balasubramanyam Sriram is a Certificated Associate of the Indian Institute of Banking Finance (formerly known as The Indian Institute of Bankers) and holds diplomas in international law and diplomacy from the Indian Academy of International Law & Diplomacy and management from the All India Management Association. He has bachelors and masters degrees in science (physics) from St. Stephen’s College, Delhi University. Mr. Sriram worked with State Bank of India for about 37 years. Mr. Sriram was Managing Director of State Bank of Bikaner & Jaipur from 2013 to 2014, Managing Director of State Bank of India from 2014 to 2018 and Managing Director & Chief Executive Officer of IDBI Bank Limited from June-September 2018. He is a part time member of the Insolvency and Bankruptcy Board of India.
216
Ms. Vibha Paul Rishi is an economics graduate from Lady Shri Ram College, Delhi University and also has a masters in business administration with a specialisation in marketing from the Faculty of Management Studies, University of Delhi. She has worked at senior positions in branding, strategy, innovation and human capital around the world. She started her career with the Tata Group and was part of the core team for launching Titan watches. She was thereafter associated with PepsiCo for 17 years in leadership roles in the areas of corporate finance, infrastructure finance, structured finance, treasurymarketing and life insurance.innovation in India, U.S. and UK. She was one of the founding team members of PepsiCo when it started operations in India. Ms. Rishi serves on the boards and board committees of several reputed companies.
The profile of our executive officers as at June 30, 2023 was as follows:
Mr. Sandeep Bakhshi is an engineer and has a masters’ degree in business administration. Mr. Sandeep Bakhshi joined ICICI Limited in the year 1986. Over the years he has worked in various assignments at ICICI Limited, ICICI Lombard General Insurance Company Limited, ICICI Bank Limited and ICICI Prudential Life Insurance Company Limited. He joined ICICI Bank Limited on June 19, 2018 as Chief Operating Officer (Designate) and was appointed as Managing Director and Chief Executive Officer of ICICI Bank Limited effective October 15, 2018.
Mr. Sandeep Batra is a chartered accountant and a company secretary by qualification. He joined as Chief Financial Officer of ICICI Prudential Life Insurance Company Limited in the year 2000 and Treasurersubsequently has held positions as Group Compliance Officer of ICICI Bank from 2003 to 2005Limited, Executive Director of ICICI Prudential Life Insurance Company Limited and President at ICICI Bank Limited. He was appointed as Executive Director of ICICI Bank Limited effective December 23, 2020 and is currently responsible for technology, credit, corporate communications, data science and analytics, finance, operations and customer service, legal, human resources and secretarial functions and has administrative oversight over risk management, internal audit and compliance functions. He also serves on the board of ICICI Prudential Life Insurance, Company from 2005 to 2009. Our Board of Directors appointed him as Executive Director and Chief Financial Officer effective
May 1, 2009. Our board re-designated Mr. Kannan as Executive Director, effective October 25, 2013. His responsibilities include finance, treasury, legal, operations, risk management, secretarial, corporate communications, corporate branding and the strategic solutions group. The compliance and internal audit functions have administrative reporting to Mr. Kannan.
Ms. Vishakha Mulye is a chartered accountant and joined ICICI in 1993. She has worked in the areas of strategy, finance, treasury and markets, structured finance, corporate and project finance, insurance and private equity. She was the Chief Financial Officer of ICICI Bank from 2005 to 2007, Executive Director of ICICI Lombard General Insurance, Company from 2007 to 2009,ICICI Prudential Asset Management and Managing Director and Chief Executive Officer of ICICI Venture Funds Management Company from 2009 to 2015. She was appointed as an Executive Director of ICICI Bank effective January 19, 2016 and is responsible for wholesale banking.Venture.
Mr. Vijay Chandokis a post-graduate in management from Narsee Monjee Institute of Management Studies, Mumbai. He joined ICICI in 1993 and has worked in the areas of corporate banking, small enterprises and retail banking. He was designated as Group Executive-International Banking in April 2010 and re-designated as President effective May 10, 2011. Mr. Chandok was appointed as Executive Director for a period of five years by the shareholders at the annual general meeting held on July 11, 2016 subject to approval of the Reserve Bank of India. The Reserve Bank of India has approved the appointment of Mr. Chandok for a period of three years effective from July 28, 2016. He is responsible for the commercial banking group, small and medium enterprises business and international banking.
Mr. Anup Bagchihas a management degree from the Indian Institute of Management, Bangalore and an engineering degree from the Indian Institute of Technology, Kanpur. Mr. Bagchi joined the ICICI Group in 1992 and has worked in the areas of retail banking, corporate banking, treasury, capital markets and investment banking. From 2011 to 2016, Mr. Anup Bagchi was the Managing Director and Chief Executive Officer of ICICI Securities Limited. Pursuant to approval granted by the Reserve Bank of India, Mr. Bagchi assumed office as an Executive Director effective February 1, 2017. He is responsible for retail and rural and inclusive banking.
Mr. Rakesh Jhais an engineering graduate from the Indian Institute of Technology at Delhi and a post-graduate in management from the Indian Institute of Management, Lucknow. He joined ICICI in 1996 and has worked in various areas including planning, strategy, finance and treasury.areas. He was designated the DeputyGroup Chief Financial Officer in his previous role. He was appointed as an Executive Director on the Board of ICICI Bank with effect from September 2, 2022. He is responsible for the retail, small enterprises and corporate banking businesses of the Bank. He also serves on the board of ICICI Lombard General Insurance Company Limited, ICICI Securities Limited, ICICI Home Finance Company Limited and ICICI Venture.
Mr. Anindya Banerjee is a chartered accountant. He joined ICICI Group in 1998 and initially worked in the area of corporate banking before moving to planning and strategy function in the corporate office. He was appointed as the Group Chief Financial Officer of ICICIthe Bank inwith effect from May 2007 and Chief Financial Officer in October 2013.1, 2022. His current responsibilities include financial reporting, planning and strategy and asset-liability management.
Corporate Governance
Our corporate governance policies recognize the accountability of the Board and the importance of making the Board transparent to all our constituents, including employees, customers, investors and the regulatory authorities, and for demonstrating that theour shareholders are the ultimate beneficiaries of our economic activities.
Our corporate governance framework is based on an effective majority independent Board, the separation of the Board’s supervisory role from the executive management and the constitution of Board committees, generally comprising a majority of independent Directorsdirectors and most of the Committees being chaired by independent Directors,directors, to oversee critical areas and functions of executive management.
217
Our corporate governance philosophy encompasses regulatory and legal requirements, such as the compliance with the provisions of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, aimed at a high level of business ethics, effective supervision and enhancement of value for all stakeholders.
Securities and Exchange Board of India through its notification dated June 14, 2023 (published in e-gazette on June 15, 2023) issued Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Second Amendment) Regulations, 2023 amending the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015. The amendments are effective from July 14, 2023, except few, which were effective from June 15, 2023. Through the same notification; Securities and Exchange Board of India has also amended Regulation 30 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 by prescribing the materiality thresholds for determination of materiality of events/ information for disclosure to the stock exchange(s).
Our Board’s role, functions, responsibility and accountability are clearly defined. In addition to its primary role of monitoring corporate performance, the functions of our Board include:
· | approving corporate philosophy and mission; |
· | participating in the formulation of strategic and business plans; |
· | reviewing and approving financial plans and budgets; |
· | monitoring corporate performance against strategic and business plans, including overseeing operations; |
· | ensuring ethical behavior and compliance with laws and regulations; |
· | reviewing and approving borrowing limits; |
· | formulating exposure limits; and |
· | keeping shareholders informed regarding plans, strategies and performance. |
To enable our Board of Directors to discharge these responsibilities effectively, executive management provides detailed reports on its performance to the Board on a quarterly basis.
Our Board functions either as a full board or through various committees constituted to oversee specific operational areas. These Board committees meet regularly. The quorum of the Board committees was increased from at least two members to at least three members with effect from June 30, 2019, to transact business at any Board Committee meeting and in case where the Committee comprises of two members only or where two members are participating, then any Independent Director may attend the meeting to fulfil the requirement of three members. The constitution and main functions of the various committees are given below.
Audit Committee
As ofOn the date of filing of this annual report, the Audit Committee comprises of three independent Directorsdirectors - Mr. Homi Khusrokhan,Uday Chitale, Mr. Dileep Choksi,Subramanian Madhavan and Mr. V. Sridar. The Audit Committee is chaired byRadhakrishnan Nair. Mr. Homi Khusrokhan, an independent Director. Mr. Dileep Choksi, an independent Director,Uday Chitale is the alternate Chairman.Chairman of the Committee. Mr. Homi Khusrokhan,Uday Chitale, Mr. Dileep ChoksiSubramanian Madhavan and Mr. V. Sridar are chartered accountants. Our Board of Directors has also determined that Mr. Dileep Choksi qualifiesRadhakrishnan Nair qualify as an Audit Committee financial expert.experts.
The Audit Committee provides direction to the audit function and monitors the quality of internal and statutory audit. The responsibilities of the Audit Committee include examining the financial statements and auditors’ report and overseeing the financial reporting process to ensure fairness, sufficiency and credibility of financial statements, review of the quarterly and annual financial statements before submission to the Board, review of management’s discussion and analysis, recommendation of appointment, terms of appointment, fixing remuneration and removal of central and branch statutory auditors and chief internal auditor, approval of payment to statutory auditors for other permitted services rendered by them, reviewreviewing and monitormonitoring with the management the auditor’s independence and the performance and effectiveness of the audit process, approval of transactions with related parties or any subsequent modifications reviewand utilization of statement of significant related party transactions, review ofloans and/or advances from/investment by the Bank in its subsidiaries. The Audit Committee also reviews the functioning of the whistle blower policy, review of theWhistle-Blower Policy, adequacy of internal control systems and the internal audit function, review of compliance with inspection and audit reports and reports of statutory auditors, review of the findings of internal investigations, review of management letters/letters on internal control weaknesses issued by statutory auditors/internal auditors, investment in shares and advances against shares. The Audit Committee responsibilities also include reviewing with the management the statement of uses/application of funds raised through an issue (public issue, rights issue, preferential issue, etc.), the statement of funds utilized for the purposes other than those stated in the offer document/prospectus/notice and the report submitted by the monitoring agency, monitoring the utilization of proceeds of a public or rights issue and making appropriate recommendations to the Board to take steps in this matter, discussion on the scope of audit with external auditors, examination of reasons for substantial defaults, if any, in payment to stakeholders, valuation of undertakings or assets, evaluation of risk management systems and scrutiny of inter-corporate loans and investments. The Audit Committee is also empowered to appoint/oversee the work of any registered public accounting firm, establish procedures for receipt and treatment of complaints received regarding accounting, internal accounting controls and auditing matters and engage independent counsel andas also provide for appropriate funding for compensation to be paid to any firm/advisors. In addition, the Audit Committee also exercises oversight on the regulatory compliance function of the Bank. The Committee also considers and comments on rationale, cost-benefits and impact of schemes involving merger/demerger/amalgamation etc., on the Bank and its shareholders. The Audit Committee is also empowered to approve the appointment of the Chief Financial Officer (i.e., the wholetimewhole-time Finance Director or any other person heading the finance function or discharging that function) after assessing the qualifications, experience and background, etc. of the candidate.
All audit and non-audit services to be provided by our principal accountants are pre-approved by the Audit Committee before such services are provided to us.218
Board Governance, Remuneration & Nomination Committee
As ofOn the date of filing this annual report, the Board Governance, Remuneration & Nomination Committee comprises of three independent Directorsdirectors - Ms. Neelam Dhawan, Mr. Homi Khusrokhan, Mr. M. K. SharmaGirish Chandra Chaturvedi and Mr. V. K. Sharma. Mr. Homi Khusrokhan, an independent Director,Balasubramanyam Sriram. Ms. Neelam Dhawan is the ChairmanChairperson of the Committee.
The functions of the Committee include recommending appointments of Directorsdirectors to the Board, identifying persons who are qualified to become Directorsdirectors and who may be appointed in senior management in accordance with the criteria laid down and recommending to the Board their appointment and removal, formulatingformulate a criteria for the evaluation of the performance of the wholetime/independent Directorsdirectors and the Board and to
extend or continue the term of appointment of independent Directordirectors on the basis of the report of performance evaluation of independent Directors,directors, recommending to the Board a policy relating to the remuneration for the Directors,directors, key managerial personnel and other employees, recommending to the Board the remuneration (including performance bonus and perquisites) to Whole-time Directors, commissionwholetime directors and fee payable to non-executive Directors subject to applicable regulations,senior management personnel. The functions also include approving thepolicy for and quantum of bonus payable to the members of the staff including senior management and key managerial personnel, formulating the criteria for determining qualifications, positive attributes and independence of a Director, framing policy on Board diversity, framing guidelines for the Employees Stock Option Scheme/Employee Stock Unit Scheme and decidingdecide on the grant of the Bank’s stock optionsoptions/units to employees and whole-time Directorswholetime directors of the Bank and its subsidiary companies.
Corporate Social Responsibility Committee
As ofOn the date of filing this annual report, the Corporate Social Responsibility Committee comprises fourof five directors - Dr. Tushaar Shah, Mr. Dileep Choksi,Girish Chandra Chaturvedi, Mr. Amit AgrawalRadhakrishnan Nair, Ms. Vibha Paul Rishi, Mr. Uday Chitale and Ms. Chanda Kochhar. Dr. Tushaar Shah,Mr. Rakesh Jha. Mr. Girish Chandra Chaturvedi, an independent Director,director and non-executive part-time Chairman of the Bank is the Chairman of the Committee.
The functions of the Committee include review of corporate social responsibility initiatives undertaken by the ICICI Group and the ICICI Foundation for Inclusive Growth, formulation and recommendation to the Board of a corporate social responsibility policy indicating the activities to be undertaken by the Company and recommendation of the amount of the expenditure to be incurred on such activities, identifying the focus, from among the themes specified in Schedule VII of the Companies Act, 2013 (the Act), for initiatives to be undertaken by the Bank, reviewing and recommending the annual corporate social responsibility plan to the Board with details of projects and schedule of implementation, making recommendations to the Board with respect to the corporate social responsibility initiatives, policies and practices of the ICICI Group, monitoring the corporate social responsibility activities, implementation and compliance with the corporate social responsibility policy, reviewing the submissions to be made to the Board with respect to implementation of the annual corporate social responsibility action plan including the disbursement of funds for the purposes and manner as approved, implementation of on-going projects as per approved timelines and year-wise allocation of funds, any modifications to be suggested to on-going projects, earmarking unspent corporate social responsibility amount, if any, in subsequent periods as prescribed in the Act and suggest deployment of any amount spent in excess of the requirement for set-off in subsequent years, reviewing impact assessment of projects, and reviewing and implementing, if required, any other matter related to corporate social responsibility initiatives as recommended/suggested by the Reserve Bank of India or any other body.
219
Credit Committee
As ofOn the date of filing of this annual report, the Credit Committee comprises threeof four directors - Mr. M. K. Sharma,Sandeep Bakhshi, Mr. Homi KhusrokhanBalasubramanyam Sriram, Mr. Hari L. Mundra and Ms. Chanda Kochhar. Mr. M. K. Sharma, an independentRakesh Jha. Mr. Sandeep Bakhshi, Managing Director and CEO, is the Chairman of the Committee.
The functions of thisthe Committee include review of developments in key industrial sectors, major credit portfolios and approval of credit proposals as per the authorization approved by the Board.
Customer Service Committee
As ofOn the date of filing of this annual report, the Customer Service Committee comprises of four directors - Ms. Vibha Paul Rishi, Mr. V. Sridar, Dr. Tushaar Shah, Ms. Chanda KochharHari L. Mundra, Mr. Sandeep Bakhshi and Mr. Anup Bagchi. Mr. V. SridarRakesh Jha. Ms. Vibha Paul Rishi, an independent Director,director, is the ChairmanChairperson of the Committee.
The functions of the Committee include review of customer service initiatives, overseeing the functioning of the Standing Committee on Customer Service Council(Customer Service Council) and evolving innovative measures for enhancing the quality of customer service and improvement in the overall satisfaction level of customers.
Fraud Monitoring Committee
As ofOn the date of filing of this annual report, the Fraud Monitoring Committee comprises of five directors - Mr. V. Sridar,Radhakrishnan Nair, Mr. Dileep Choksi,Subramanian Madhavan, Ms. Neelam Dhawan, Mr. Homi Khusrokhan, Ms. Chanda KochharSandeep Bakhshi and Mr. Anup Bagchi.Rakesh Jha. Mr. V. Sridar,Radhakrishnan Nair, an independent Director,director, is the Chairman of the Committee.
The Committee monitors and reviews all the frauds involving an amount of Rs. 10 million and above with the objective of identifying the systemic lacunae, if any, that facilitated perpetration of the fraud and put in place measures to rectify the same. The functions of this Committee include identifying the reasons for delay in detection, if any, and reporting to the top management of the Bank and the Reserve Bank of India on the same. The progress of investigation and recovery position is also monitored by the Committee. The Committee also ensures that staff accountability is examined at all levels in all the cases of frauds and action, if required, is completed quickly without loss of time. The role of the Committee is also to review the efficacy of the remedial action taken to prevent recurrence of frauds, such as strengthening of internal controls and putting in place other measures as may be considered relevant to strengthen preventive measures against frauds.controls.
220
Information Technology Strategy Committee
As ofOn the date of filing of this annual report, the Information Technology Strategy Committee comprises threeof four directors -– Mr. Homi Khusrokhan,Balasubramanyam Sriram, Ms. Neelam Dhawan, Mr. V. SridarSandeep Batra and Ms. Chanda Kochhar. Mr. Homi Khusrokhan,Rakesh Jha. Mr. Balasubramanyam Sriram, an independent Director,director, is the Chairman of the Committee.
The functions of the Committee are to approve the strategy for information technology and policy documents, ensure that the information technology strategy is aligned with business strategy, review information technology risks, ensure proper balance of information technology investments for sustaining the Bank’s growth, oversee the aggregate funding of information technology at Bank-level, ascertain if the management has resources to ensure the proper management of information technology risks, and review contribution of information technology to our business.business, oversee the activities of the Digital Council, review technology from a future readiness perspective, overseeing key projects progress and critical information technology systems performance, review of special information technology initiatives, review cyber risk, consider the Reserve Bank of India inspection report/directives received from time to time by the Bank in the areas of information technology and cyber security and to review the compliance of various actionables arising out of such reports/directives as may be deemed necessary from time to time.
Risk Committee
As ofOn the date of filing of this annual report, the Risk Committee comprises sixof four directors - Mr. M. K. Sharma,Subramanian Madhavan, Mr. Dileep Choksi,Girish Chandra Chaturvedi, Ms. Vibha Paul Rishi and Mr. Homi Khusrokhan,Sandeep Batra. Mr. V. K. Sharma, Mr. V. Sridar, and Ms. Chanda Kochhar. Mr. M. K. Sharma,Subramanian Madhavan, an independent Director,director, is the Chairman of the Committee.
The functions of the Committee are to review ICICI Bank’s risk management policies pertaining to credit, market, liquidity, operational, outsourcing, reputation risks, and business continuity plan and disaster recovery plan.plan and approve Broker Empanelment Policy and any amendments thereto. The functions of the Committee also include setting limits on any industry or country, review of the Enterprise Risk Management framework, risk appetite framework,for the Bank, stress testing framework, Internal Capital Adequacy Assessment Processinternal capital adequacy assessment process and framework for capital allocation; review of the status of Basel II and Basel III implementation, risk return profile of the Bank,framework, risk dashboard covering various risks, outsourcing activities and the activities of the Asset Liability Management Committee. The Committee also has oversight on risks of subsidiaries covered under the Group Risk Management Framework. The Committee also carries out Cyber Security risk assessment. The appointment, removal and terms of remuneration of the Chief Risk Officer is subject to review by the Committee. The Committee keeps the Board of Directors informed about the nature and content of its discussions, recommendations and actions to be taken. The Committee coordinates its activities with other committees, in instances where there is any overlap with activities of such committees, as per the framework laid down by the Board of Directors.
Stakeholders Relationship Committee
As ofOn the date of filing of this annual report, the Stakeholders’ Relationship Committee comprises of three directors -Mr. Homi Khusrokhan,- Mr. V. SridarHari L. Mundra, Mr. Uday Chitale and Mr. N. S. Kannan.Sandeep Batra. Mr. Homi Khusrokhan,Hari L. Mundra, an independent Director,director, is the Chairman of the Committee.
The functions and powers of the Committee include approval and rejection of transfer or transmission of equity shares, preference shares, bonds, debentures, and securities, issue of duplicate certificates, allotment of shares and securities issued from time to time, review redressal and resolution of grievances of shareholders, debenture holders and other security holders, delegation of authority for opening and operation of bank accounts for payment of interest, dividend and redemption of securities and the listing of securities on stock exchanges.interest/dividend.
Review Committee for Identification of WillfulWilful Defaulters/Non Co-operative Borrowers
The Managing Director &and CEO is the ChairpersonChairman of this Committee and any two independent Directorsdirectors comprise the remaining members.
221
The function of thisthe Committee is to review the order of the Committee for identification of willfulwilful defaulters/non co-operative borrowers (a Committee comprising wholetime Directorsdirectors and senior executives of the Bank to examine the facts and record the fact of the borrower being a willfulwilful defaulter/non co-operative borrower) and confirm the same for the order to be considered final.
Code of Ethics
We have adopted a Group Code of Business Conduct and Ethics for our directors and all our employees. This code aims at ensuring consistent standards of conduct and ethical business practices across the constituents of the Company and is reviewed on an annual basis. We have not granted a waiver from any provision of the code to any of our directors or executive officers. All directors and members of the senior management have confirmed compliance with Group Code of Business Conduct and Ethics for fiscal 2023.
Principal Accountant: Fees and Services
The total fees to our principal accountant relating to the audit of consolidated financial statements for fiscal 20162022 and fiscal 20172023 and the fees for other professional services billed in fiscal 20162022 and fiscal 20172023 are as follows:
Year ended March 31, | ||||||||||||
2016 | 2017 | 2017 | ||||||||||
(in millions) | (in thousands) | |||||||||||
Audit | ||||||||||||
Audit of ICICI Bank Limited and our subsidiaries | Rs. | 270 | Rs. | 280 | US$ | 4,313 | ||||||
Audit-related services | ||||||||||||
Opinion on non-statutory accounts presented in Indian Rupees | 10 | 17 | 264 | |||||||||
Others | 14 | 24 | 368 | |||||||||
Sub-total | 294 | 321 | 4,945 | |||||||||
Non-audit services | ||||||||||||
Tax services | – | – | – | |||||||||
Tax compliance | 4 | 4 | 61 | |||||||||
Other services | 3 | 2 | 36 | |||||||||
Sub-total | 7 | 6 | 97 | |||||||||
Total | Rs. | 301 | Rs. | 327 | US$ | 5,042 |
Year ended March 31, | ||||||||||||
2022 | 2023 | 2023 | ||||||||||
(in millions) | (in thousands) | |||||||||||
Audit | ||||||||||||
Audit of ICICI Bank Limited and our subsidiaries | Rs. | 177 | Rs. | 183 | US$ | 2,227 | ||||||
Audit-related services | .. | .. | .. | |||||||||
Opinion on non-statutory accounts | .. | .. | .. | |||||||||
Others | 9 | 9 | 110 | |||||||||
Sub-total | 186 | 192 | 2,337 | |||||||||
Non-audit services | ||||||||||||
Tax compliance | 1 | 1 | 12 | |||||||||
Other services | 3 | .. | .. | |||||||||
Sub-total | 4 | 1 | 12 | |||||||||
Total | Rs. | 190 | Rs. | 193 | US$ | 2,349 |
Fees for “other services”“others” under the non-auditaudit services category are principally fees related to advisory and certification services. Our Audit Committee approved the fees paid to our principal accountant relating to audit of consolidated financial statements for fiscal 20172023 and fees for other professional services billed in fiscal 2017.2023. Our Audit Committee pre-approves all assignments undertaken for us by our principal accountant.
Summary Comparison of Corporate Governance Practices
The following is a summary comparison of significant differences between our corporate governance practices and those required by the New York Stock Exchange for United States issuers.
Independent Directors.Directors
A majority (eight of 11 as at June 30, 2023) of our Board are independent directors, as defined under applicable Indian legal requirements. Section 149 of the Companies Act, notified effective April 1, 2014 has2013 as amended from time to time and Regulation 16 the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 as amended from time to time, have defined an independent director and specified the eligibility criteria for a director to be classified as independent. TheAll independent directors have given declarations that they meet the criteria include that a director in order to be independent should not have any pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year. Exemptions have been prescribed for certain transactions, which may be in the ordinary course of business and at arm’s length. As perindependence as laid down under Section 149 of the Companies Act, every independent director at the first meeting2013 as amended and Regulation 16 of the Securities and Exchange Board inof India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended (SEBI Listing Regulations) which he/she participates as a director and thereafter at the first meeting of the Board in every financial year or whenever there is any change in the circumstances which may affect his/her independent status is required to give a declaration that he/she meets the relevant criteria. In classification of the directors as independent, we have been relied on the declarations provided by the directors as prescribed under the Companies ActBank and were placed at the board meetingBoard Meeting held on April 6-7, 2017, applicable Reserve Bank of India guidelines and circulars and legal advice obtained in this regard.22, 2023. The Board has accordingly determined the independence of these directors. Pursuant to the Companies Act, the director nominated by Government of India would not be classified as independent. Although the judgment on independence must be made by our Board as required under the Companies Act, 2013, there is no requirement that our Board affirmatively make such determination, in accordance with the independence test as required by the New York Stock Exchange rules.
222
Non-Management Directors Meetings.Meetings The Companies Act requires independent
Independent directors are required to meet at least once in a financial year without the non-independent directors and members of the management. TheAt such meetings, the independent directors at such meetings are required to review the performance of the Chairman of the Board, non-independent directors, Board Committees, and the Board as a whole. The independent directors met on May 3, 2017April 22, 2023 to carry out these reviews. Prior to this, the independent directors had met separately before the Board meeting held on April 29, 2016.23, 2022, separately to carry out similar reviews.
Board Governance, Remuneration & Nomination Committee and Audit Committee.Committee
All members of our Board Governance, Remuneration & Nomination Committee are independent, as defined under applicable Indian legal requirements. All members of our Audit Committee are independent under Rule 10A-3 under the Exchange Act. The constitution and main functions of these committees as approved by our Boardboard are described above and comply with the spirit of the New York Stock Exchange requirements for United States issuers.
Corporate Governance Guidelines.Guidelines
Under New York Stock Exchange rules, United States issuers are required to adopt and disclose corporate governance guidelines addressing matters such as standards of director qualification, responsibilities of directors, director compensation, director orientation and continuing education, management succession and annual performance review of the boardBoard of directors.Directors. While as a foreign private
issuer, we are not required to adopt such guidelines, under the home country regulations, pursuant to the notification of the Companies Act, the Bank has disclosed the policy on director appointments and remuneration including criteria for determining qualifications and independence of a director in its Indian annual report to shareholders for fiscal 2017.2023. The Bank is also required to provide a statement indicating the manner in which formal annual evaluation has been made by the Boardboard of its own performance and that of its committees and individual directors and this statement has been included in the Indian annual report.
Controls and Procedures
We have carried out an evaluation under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”) at year-end fiscal 2023.
As a result, it has been concluded that, as of the end of the period covered by this report, the disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required.
223
However, as a result of our evaluation, we noted certain areas where our processes and controls, including information technology related processes and controls, could be improved. The Audit Committee monitors the resolution of any identified significant process and control improvement opportunities to a satisfactory conclusion. We are committed to continuing to implement and improve internal controls and our risk management processes, and this remains a key priority for us. We also have a process whereby business and financial officers throughout the Bank attest to the accuracy of reported financial information as well as the effectiveness of disclosure controls, procedures and processes.
There are inherent limitations to the effectiveness of any system, especially of disclosure controls and procedures, including the possibility of human error, circumvention or overriding of the controls and procedures, in a fast-changing environment or when entering new areas of business or expanding geographic reach or deploying emerging technologies. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
We have experienced significant growth in a fast-changing environment, and management is aware that this may pose significant challenges to the control framework. See also “Risk Factors—Risks Relating to Our Business—There is operational risk associated with the financial industry which, when realized, may have an adverse impact on our business”.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act). Our internal control over financial reporting system has been designed to provide reasonable assurance regarding the reliability of financial reporting and preparation and fair presentation of our published Indian GAAP consolidated financial statements and disclosures relating to U.S. GAAP net income reconciliation, stockholders’ equity reconciliation and other disclosures as required by U.S Securities and Exchange Commission and applicable GAAP.
Management maintains an internal control system intended to ensure that financial reporting provides reasonable assurance that transactions are executed in accordance with the authorizations of management and directors, assets are safeguarded and financial records are reliable.
Our internal control over financial reporting includes policies and procedures that:
· | pertain to the maintenance of records that accurately and fairly reflect in reasonable detail the transactions and dispositions of our assets; |
· | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are made only in accordance with authorizations of management and the executive directors; and |
· | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
All internal control over financial reporting systems, no matter how well-designed, have inherent limitations, and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness for future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
224
Management assessed the effectiveness of our internal control over financial reporting at year-end fiscal 2023 based on criteria set by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on the assessment, management concluded that our internal control over financial reporting was effective at year-end fiscal 2023. Effectiveness of our internal control over financial reporting at year-end fiscal 2023 has been audited by KPMG Assurance and Consulting Services LLP (formerly known as KPMG), an independent registered public accounting firm, as stated in their attestation report, which is included herein.
Change in Internal Control Over Financial Reporting
No change in our internal control over financial reporting occurred during the period covered by this annual report that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.
Compensation and Benefits to Directors and Officers
Remuneration
Under our organizational documents, each of our non-executive Director,directors, except the government director, is entitled to receive remuneration for attending each meeting of our Board or of a Board committee. The amount of remuneration payable to non-executive directors is set by our Board from time to time in accordance with the limits prescribed by the Companies Act and the rules thereunder. The Board of Directors has approved the payment of Rs. 100,000 as sitting fee for attending each meeting of the Board and Rs. 20,000 as sitting fee for each meeting ofor a Committee. TheBoard committee.
In line with the Reserve Bank of India through its guidelines, dated June 1, 2015 regarding compensation of non-executive Directors (except part-time Chairman) of private sector banks has permitted the payment of profit-related commission up tofixed remuneration of Rs. 1,000,0002,000,000 per annum was approved by shareholders for each non-executive DirectorsDirector of the Bank (other than non-executive part-time Chairman). Our shareholders at the annual general meeting held on July 11, 2016 have approved the payment of profit-related commission up to Rs. 1,000,000 per annum to non-executive Directors (excluding non-executive part-time Chairman and the Government Nominee Director) effective fiscal 2016.. The Reserve Bank of India has approved a remuneration of Rs. 3,500,000 per annum for the non-executive chairman. In addition, we reimburse our directors for travel and related expenses in connection with attending Board and Committee meetings and related matters. If a director is required to perform services for us beyond attending meetings, we may remunerate the director as determined by our Board of Directors and thiswhich remuneration may be either in addition to or as substitution for the remuneration discussed above. We have not paid any remuneration to non-executive Directors other than the remuneration for attending each meeting of our Board or of a Board committee and profit related commission to the non-executive Directors (other than the Chairman). Non-executive directors are not entitled to the payment of any benefits at the end of their terms of office.
The Board of Directors at its Meeting held on June 9, 2015 and subsequently shareholders through a postal ballot resolution dated April 22, 2016 approved a remuneration range of Rs. 3,000,000 – Rs. 5,000,000 per annum for Mr. M. K. Sharma, Chairman of the Board with the remuneration for each year to be determined by the Board of Directors within this range. The Board of Directors approved remuneration of Rs. 3,000,000 per annum effective July 1, 2015 to be paid to Mr. M. K. Sharma for the first year of his tenure. Reserve Bank of India while approving the appointment of Mr. M. K. Sharma for the period July 1, 2015 to June 30, 2018 also approved the above remuneration. The Board at its Meeting held on June 28, 2016 approved the revision in remuneration for Mr. M. K. Sharma to Rs. 3,500,000 per annum effective July 1, 2016. The same has been approved by Reserve Bank of India.
Our Board or any committeea Committee thereof, may fix within the range approved by the shareholders, the salary and supplementary allowance payable to the executivewholetime directors. We are required to obtain specific approval of the Reserve Bank of India for the actual monthly salary, supplementary allowance, and annual performance bonus and employee stock options paid each year to the executiveour wholetime directors.
The following table sets forthIn addition to the currently applicable monthlybasic salary ranges:
|
|
The monthly supplementary allowance, range for the Managing Director and CEO is Rs. 1,000,000 – Rs. 1,800,000, for N. S. Kannan, Executive Director, for Vishakha Mulye, Executive Director, for Vijay Chandok, Executive Director and for Anup Bagchi, Executive Director is in the range of Rs. 675,000 – Rs. 1,225,000. The Board would determine the actual remuneration/supplementary allowance payable within the above ranges from time to time subject to the approval of the Reserve Bank of India.
Theour executive directors are entitled to certain perquisites (evaluated pursuant toas per Indian Income-Tax rules wherever applicable, and otherwise at actual cost to the Bank) such asBank in other cases) including the benefit of the Bank’s furnished accommodation, gas, electricity, water and furnishings, club fees, personal and group insurance, use of car, running and maintenance of cars including drivers, telephone or IT assets at residence or
reimbursement of expenses in lieu thereof, payment of income tax on perquisites by Bank to the extent permissible under the Income Tax Act, 1961 and rules framed thereunder, medical reimbursement, leave and leave travel concession, education and other benefits, staff home loans, provident fund, superannuation fund, gratuity and gratuity,other retirement benefits, in accordance with the scheme(s) and rule(s) applicable from time to time.time to retired wholetime directors of the Bank or the members of the Staff.
In line with the staff loan policy applicable to specified grades225
There are no service contracts with our executivewholetime directors providing for benefits upon termination of their employment.
The total compensation paid by ICICIthe Bank to its executive directors and executive officers during fiscal 20172023 was Rs. 221.7370 million.
Bonus
Each year, our Board of Directors awardawards discretionary bonuses to employees and executivewhole-time directors on the basis of the Bank’s performance and seniority. The performance of each employee is evaluated through a performance management appraisal system.individual performance. The aggregate amount of bonuses and performance linked retention pay to all eligible employees of ICICI Bank for fiscal 20172023 was Rs. 5.620 billion. This amount was paid in fiscal 2018, excluding the payment of bonuses to executive directors which requires the approval of the Reserve Bank of India.
Employee Stock Option Scheme
ICICI Bank has an Employees Stock Option Scheme - 2000 (Scheme 2000) which was instituted in fiscal 2000 to enable the employees and Wholetime Directors of ICICI Bank and its subsidiaries to participate in future growth and financial success of the Bank. The Scheme 2000 aims at achieving the twin objectives of aligning employee interest to that of the shareholders and retention. Through employee stock option schemegrants, the Bank seeks to encouragefoster a culture of long-term sustainable value creation. The Scheme 2000 is in compliance with the Securities and retain high-performing employees.Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 (the SEBI SBEB & SE Regulations). The options are granted by the Board Governance, Remuneration & Nomination Committee and noted/approved by the Board as the case maybe. Pursuant to the stock option schemeScheme 2000, as amended from time to time, up to 10.0% of the aggregate of issued equity shares of the Bank at the time of the grant of stock options couldcan be allocated under the employee stock option scheme. As on June 30, 2017, against theThe stock options entitle eligible employees to apply for equity shares. At March 31, 2023, this 10.0% limit of 10.0% of issued shares,was equivalent to 641.3698.28 million shares, of which the Bank has granted about 490.8612.29 million options under the employee stock option scheme.Scheme 2000. Employees and Directors of ICICIthe Bank, its subsidiaries and its holding company are eligible employees for grants of stock options. ICICIThe Bank has no holding company. The maximum number of options granted to any eligible employee in a year is restricted to 0.05% of the Bank’s issued equity shares at the time of the grant.
Options granted after April 1, 2014 vest in a graded manner over a three-year period, with 30%, 30% and 40% of the grantoptions vesting inon each year, commencing from the end of 12 months from the datefirst three anniversaries of the grant other than the following:date respectively, except as follows:
· | For 275,000 options granted in April 2014, 50% vested on April 30, 2017 and the balance 50% |
· |
· | For 300,000 options granted in January 2018, 100% vested at the end of four years from the date of grant. |
· | For 188,000 options granted in May 2018, 50% vested on May 7, 2021 and the balance 50% vested on May 7, 2022. |
226
Options granted prior to April 1, 2014 vestvested in a graded manner over a four-year period, with 20%, 20%, 30% and 30% of the grantsoptions vesting inon each year commencing fromof the endfirst four anniversaries of 12 months from the grant date, of grant, other than the following:except as follows:
· | Options granted in April 2009 vested in a graded manner over a five-year period with 20%, 20%, 30% and 30% of the grant vesting in each year, commencing from the end of 24 months from the date of the grant. |
· |
· | Options granted in September 2011 |
The price for options granted is equal to the closing price on the stock exchange which recorded the highest trading volume preceding the date of grant of options. Options granted in February 2011 were granted at an exercise price which was approximately 3.0% below the closing price preceedingpreceding the date of grant of options.
Pursuant to the approval by theof shareholders in April 2016 and subsequently in June 2017, the exercise period was modified from 10is such period not exceeding ten years from the date of grant orvesting of options as may be determined by the Board of Governance, Remuneration & Nomination Committee for each grant. In September 2018, the shareholders approved the change in exercise period to not exceeding five years from the date of vesting whichever is later, to up to 10 years from the date of vesting of options.
The Board of Directors at its Meeting held in May, 2017 approved the issue of bonus shares, in the proportion of one bonus equity share of Rs. 2 each for every 10 fully paid-up equity shares held (including shares underlying ADS)options as on the record date. In June 2017, the shareholders of the Bank through postal ballot approved the increase in the authorized share capital, the consequential alterations to the Memorandum and Articles of Association of the Bank and the issuance of bonus shares. Subsequent to the bonus issue, the ratio of ADSs to equity shares remains unaffected and each ADS after the bonus issue continues to represent two equity share of par value of Rs. 2 per share. Pursuant to approval of bonus sharesmay be determined by the shareholders, stock options were also adjusted with increase of one optionBoard Governance, Remuneration & Nomination Committee for every ten outstanding options and the exercise price of option were proportionately adjusted.all future grants effective May 2018.
The following table sets forth certain information regarding the stock option grants ICICI Bank has made to employees under its employee stock option scheme as on June 30, 2017. ICICIthe Scheme 2000 at March 31, 2023. The Bank granted all of these stock options at no cost to its employees. Options granted include grants to whole-timewholetime directors and employees of subsidiaries of ICICIthe Bank. ICICIThe Bank has not granted any stock options to its non-executive directors. Pursuant to the Board and shareholders approval received with respect to issue of bonus equity shares of the Bank as mentioned earlier, the stock options granted, vested, exercised and forfeited/lapsed in table below have been adjusted to include the impact of the bonus stock options granted and the exercise price stated herein is the revised exercise price after making proportionate adjustments.
The following table sets forth certain information regarding the options summary of ICICIgranted by the Bank at June 30, 2017.March 31, 2023.
Particulars | ICICI Bank | |||
Options granted | ||||
Options vested | ||||
Options exercised | ||||
Options forfeited/lapsed | ||||
Amount realized by exercise of options | Rs. | |||
Total number of options in force | ||||
Weighted average exercise price of options in force | Rs. | |||
361.60 |
See also “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes—Note 1718” under U. S. GAAP included herein.
227
ICICI Prudential Life Insurance Company has an Employee Stock Option Scheme. Theemployees stock option scheme, which allows that the aggregate number of shares issued or issuable since March 31, 2016 pursuant to the exercise of any options granted cannotto eligible employees, shall not exceed 2.64%a figure equivalent to 3.54% of the number of shares of ICICI Prudential Life Insurance Company has outstandingissued at March 31, 2016. The maximum number of options granted to any Eligible Employeeeligible employee in a financial year shall not exceed 0.1% of the issued shares of the companyCompany at the time of grant of options. ICICI Prudential Life Insurance Company had 2,398,83823,942,115 stock options outstanding (net of forfeited or lapsed options) at year-end fiscal 2017.2023.
ICICI Lombard General Insurance Company has an Employee Stock Option Scheme, the terms ofemployee stock option scheme, which allowallows up to 5.0%7.0% of its paid-upthe issued capital to be allocated to employee stock options. The maximum number of options granted to any eligible employee in a financial year shall not exceed 0.1% of the issued shares of the Company at the time of grant of options. ICICI Lombard General Insurance Company had last granted options in fiscal 2012. ICICI Lombard General Insurance Company had 3,180,32412,646,890 employee stock options outstanding (net of forfeited or lapsed options) at year-end fiscal 2017.
Loans2023.
ICICI Securities Limited has an employees stock option scheme, which allows up to 5.0% of the issued capital to be allocated to employee stock options. The maximum number of options granted to any eligible employee in a financial year shall not exceed 0.1% of the issued shares of the Company at the time of grant of options. ICICI Securities Limited had 4,146,544 employee stock options outstanding (net of forfeited or lapsed options) at year-end fiscal 2023.
Employees Stock Unit Scheme
The Board of Directors of ICICI Bank Limited at its meeting held on June 28, 2022, approved the adoption of Employees Stock Unit Scheme - 2022 (Scheme 2022), which was subsequently approved by the members at the annual general meeting held on August 30, 2022.
The key objectives of the Scheme 2022 are to deepen the co-ownership amongst the (i) mid level and front-line managers, and (ii) employees of Bank’s select unlisted wholly owned subsidiaries with the following key considerations:
i. | to enable employees’ participation in the business as an active stakeholder to usher in an ”Owner-Manager” culture and to act as a retention mechanism; |
ii. | to enhance motivation of employees; and |
iii. | to enable employees to participate in the long term growth and financial success of the Bank. |
The Scheme 2022 is in compliance with the Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021.
Maximum of 100,000,000 Units, shall be granted in one or more tranches over a period of seven years from the date of approval of the Scheme 2022 by the shareholders, which shall entitle the Unit holder one fully paid-up equity share of face value of Rs. 2 of the Bank (as adjusted for any changes in capital structure of the Bank) against each Unit exercised and accordingly, up to 100,000,000 equity shares of face value of Rs. 2 each shall be allotted to all eligible employees taken together under the Scheme 2022.
Units granted under the Scheme 2022 shall vest not later than the maximum vesting period of four years. Exercise price shall be the face value of equity shares of the Bank i.e. Rs. 2 for each unit (as adjusted for any changes in capital structure of the Bank).
The Bank had not granted any units under employees stock unit scheme to its employees during fiscal 2023.
228
Loans
The Bank has internal rules for grant of loans to employees and executive directors to acquire certain assets such as property, vehicles and other consumer durables at significantly lower interest rates than the market rate. ICICIThe Bank’s loans to employees have been made at interest rates ranging from 2.5% to 3.5% per annum and are repayable over fixed periods of time. The loans are generally secured by the assets acquired by the employees. Pursuant to the Banking Regulation Act, ICICIthe Bank’s non-executive directors are not eligible for any loans. At year-end fiscal 2017,2023, outstanding loans to ICICIthe Bank’s employees totaled Rs. 9.110.7 billion compared to Rs. 8.59.5 billion at year-end fiscal 2016.2022. This amount included loans to certain executive directors amounting to Rs. 122 million at year-ended fiscal 2017 compared to Rs. 5285.4 million at year-end fiscal 2016,2023 compared to Rs. 137.6 million at year-end fiscal 2022, made on the same terms, including as to interest rates and collateral, as loans to other employees. Loans to executive directors are given after approval by the Reserve Bank of India. See also “Operating and Financial Review and Prospects—Related Party Transactions”.
Gratuity
ICICIGratuity
The Bank pays gratuity to employees who retire or resign after a minimum prescribed period of continuous service and, in the case of employees at overseas locations, in accordance with the rules in force in the respective countries. ICICIThe Bank makes contributions to gratuity funds for employees which are administered by the Life Insurance Corporation of India and ICICI Prudential Life Insurance Company Limited.
Actuarial valuation of the gratuity liability for all the above funds is determined by an actuary appointed by the Bank. Actuarial valuation of gratuity liability is determined based on certain assumptions regarding rate of interest, salary growth, mortality and staff attrition as per the projected unit credit method.
The accounts of the fund are audited by independent auditors. The total corpus of the fund at year-end fiscal 20172023 based on its audited financial statements was Rs. 8,589 million14.0 billion compared to Rs. 7,093 million13.6 billion at year-end fiscal 2016.2022.
Superannuation Fund
ICICIThe Bank contributes upto 15% of the total annual basic salary and dearness allowance (if applicable) to a superannuation fund in respect of the employees to whom it applies. ICICIThe Bank’s employees get an optionmay elect on retirement or resignation to receive one-third or one-half, depending on the tenure of service, of the total balance as commutation and a periodic pension based on the remaining balance. In the event of the death of an employee, his or her beneficiary receives the remaining accumulated balance, if eligible. ICICIThe Bank also gives a cash option to its employees, allowing them to receive the amount that would otherwise be contributed by ICICIthe Bank in their monthly salary during their employment. The superannuation fund is being administered by Life Insurance Corporation of India and ICICI Prudential Life Insurance Company Limited. Employees have the option to choose between funds administered by the Life Insurance Corporation of India and ICICI Prudential Life Insurance Company Limited. The total corpus of the superannuation fund was Rs. 3,012 million5.3 billion at year-end fiscal 20172023 compared to Rs. 2,656 million5.0 billion at year-end fiscal 2016.2022.
Provident Fund
ICICIThe Bank is statutorily required to maintain a provident fund as part of its retirement benefits to its employees. The provident fund, to which both ICICI Bank and its employees contribute a defined amount, is a savings scheme under which ICICI Bank at present is required to pay to employees a minimum annual return as specified from time to time, which was specified at 8.15% for fiscal 2023. If such return is not generated internally by the fund, ICICI Bank is liable for the difference. There are separate provident funds for employees inducted from merged entities (Bank of Madura, The Bank of Rajasthan and Sangli Bank) and for other employees of ICICIthe Bank. These funds are managed by in-house trustees. Each employee contributes 12.0% of his or her basic salary and ICICIdearness allowance (if applicable) and the Bank contributes an equal amount to the funds. Out of the 12% of employer contribution, 8.33% subject to a maximum of Rs. 1,250 contributed per employee to the Employee Pension Scheme with Employee Provident Fund Organization. Pursuant to Supreme Court judgement in November 2022, certain eligible employees are given an option to contribute the entire 8.33% to employee pension scheme with Employee Provident Fund Organization. The investments of the funds are made according to rules prescribed by the governmentGovernment of India. The accounts of the funds are audited by independent auditors. The total corpuses of the funds for employees inducted from merged entities and other employees of ICICIthe Bank at year-end fiscal 2017,2023, based on their audited financial statements, amount to Rs. 3,336 million1.8 billion and Rs. 19,192 million47.7 billion respectively, as compared to Rs. 3,501 million2.2 billion and Rs. 16,433 million for42.2 billion, respectively, at year-end fiscal 2016.2022.
229
Pension Fund
The Bank provides for pension, a deferred retirement plan covering certain employees of the former Bank of Madura, Sangli Bank and Bank of Rajasthan. The plan provides for pension payments, including dearness relief, on a monthly basis to these employees on their retirement based on the respective employee’s salary and years of service with the Bank and applicable salary.Bank. For the former Bank of Madura, Sangli Bank and Bank of Rajasthan employees in service, funds are managed by the trust and the liability is funded as per actuarial valuation. The trust purchases annuities from the Life Insurance Corporation of India and ICICI Prudential Life Insurance Company Limited as part of its master policies for payment of pension to retired employees of the former Bank of Madura, Sangli Bank and Bank of Rajasthan. Employees covered by the pension plan are not eligible for employer’s contribution under the provident fund plan. The corpus, based on audited financial statements at year-end fiscal 20172023 was Rs. 16,303 million17.7 billion compared to Rs. 13,098 million18.9 billion at year-end fiscal 2016.2022.
National Pension Scheme
National Pension Scheme is a voluntary, defined contribution retirement savings scheme. The Bank contributes up to 10% of basic salary to National Pension Scheme for employees who opt to participate in the scheme. These funds are invested by Pension Fund Regulatory and Development Authority and are regulated by professional fund managers as per the investment option selected by the respective employees. At the time of retirement, up to 60% of the accumulated contributions (including returns thereon) can be withdrawn as lump-sum by the employee. The residual accumulated contributions need to be used for the purchase of a life annuity from a Pension Fund Regulatory and Development Authority empaneled life insurance company. The Bank has contributed Rs. 279.8 million for fiscal 2023 (fiscal 2022: Rs. 224.8 million) to National Pension Scheme for employees who opted for the scheme.
Interest of Management in Certain Transactions
Except as otherwise stated in this annual report, no amount or benefit has been paid or given to any of our directors or executive officers.
Overview of The Indian Financial Sector
Introduction230
This discussion presents an overview of the role and activities of the Reserve Bank of India and of each of the major participants in the Indian financial system, with a focus on commercial banks. This is followed by a brief summary of the banking reform process and key reform measures announced or proposed in recent years. Finally, measures announced by the Reserve Bank of India in recent monetary policy statements are briefly reviewed.
The Reserve Bank of India
The Reserve Bank of India, established in 1935, is the central banking and monetary authority in India. The Reserve Bank of India manages the country’s money supply and foreign exchange and also serves as a bank for the government of India and for the country’s commercial banks. In addition to the traditional central banking roles, the Reserve Bank of India undertakes certain developmental and promotional roles.
The Reserve Bank of India issued guidelines on exposure limits, income recognition, asset classification, provisioning for non-performing and restructured assets, investment valuation and capital adequacy for commercial banks, long-term lending institutions and non-bank finance companies. The Reserve Bank of India requires these institutions to furnish information relating to their businesses to it on a regular basis. For further discussion regarding the Reserve Bank of India’s role as the regulatory and supervisory authority of India’s financial system and its impact on us, see “Supervision and Regulation”.
Commercial Banks
Commercial banks in India meet the short-term financial needs, or working capital requirements, of industry, trade and agriculture, provide long-term financing to sectors like infrastructure and provide retail loan products. At March 31, 2017, there were 148 scheduled commercial banks in the country, with a network of 137,770 branches serving approximately Rs. 107.51 trillion in deposit accounts. Scheduled commercial banks are banks that are listed in the second schedule of the Reserve Bank of India Act, 1934, and are further categorized as public sector banks, private sector banks and foreign banks. Scheduled commercial banks have a presence throughout India, with approximately 62.5% of bank branches located in rural or semi-urban areas of the country.
Public Sector Banks
Public sector banks make up the largest category in the Indian banking system. They include the State Bank of India, 20 nationalized banks and 56 regional rural banks. Excluding the regional rural banks, the remaining public sector banks have 92,347 branches, and accounted for 69.4% of the outstanding gross bank credit and 65.9% of the aggregate deposits of scheduled commercial banks at March 31, 2017. The State Bank of India is the largest bank in India in terms of total assets. In one of the largest consolidation in the Indian banking
industry, the State Bank of India merged its five associate banks and the Bharatiya Mahila Bank effective from April 1, 2017. At March 31, 2017, the consolidated State Bank of India had 25,005 branches. They accounted for 23.2% of aggregate deposits and 21.6% of outstanding gross bank credit of all scheduled commercial banks.
Regional rural banks were established from 1976 to 1987 by the central government, state governments and sponsoring commercial banks jointly with a view to develop the rural economy. Regional rural banks provide credit to small farmers, artisans, small entrepreneurs and agricultural laborers. The National Bank for Agriculture and Rural Development is responsible for supervising the functions of the regional rural banks. At March 31, 2017, there were 56 regional rural banks and they had 21,057 branches, and accounted for 3.4% of aggregate deposits and 2.9% of gross bank credit outstanding of scheduled commercial banks.
Private Sector Banks
After the first phase of bank nationalization was completed in 1969, public sector banks made up the largest portion of Indian banking. In July 1993, as part of the banking reform process and as a measure to induce competition in the banking sector, the Reserve Bank of India permitted entry of the private sector into the banking system. This resulted in the introduction of private sector banks, including us. These banks are collectively known as the “new” private sector banks. At March 31, 2017, there were eight “new” private sector banks, including the most recently licensed IDFC Limited and Bandhan Financial Services Private Limited that began operations in fiscal 2016. In September 2015, the Reserve Bank of India granted in-principle licenses to 10 small finance banks and 11 payments banks in the private sector. Of these, six small finance banks and four payments banks have begun operations and three payments banks licensees have surrendered or announced their decision to surrender their licenses. See also “—Differentiated licenses”.In addition, 13 old private sector banks existing prior to July 1993 were operating at March 31, 2017.
At March 31, 2017, private sector banks, including the small finance banks, accounted for approximately 23.0% of aggregate deposits and 26.8% of gross bank credit outstanding of the scheduled commercial banks. Their network of 24,079 branches accounted for 17.5% of the total branch network of scheduled commercial banks in the country.
Foreign Banks
There were 43 foreign banks operating in India. At March 31, 2017, foreign banks had 287 branches and accounted for 4.1% of aggregate deposits and 4.4% of outstanding gross bank credit of scheduled commercial banks. As part of the liberalization process, the Reserve Bank of India has permitted foreign banks to operate more freely, subject to requirements largely similar to those imposed on domestic banks. The primary activity of most foreign banks in India has been in the corporate segment. However, some of the larger foreign banks have made retail banking a significant part of their portfolios. Most foreign banks operate in India through branches of the parent bank. Certain foreign banks also have wholly owned non-bank finance company, investment banking, securities broking, insurance and asset management subsidiaries or joint ventures for both corporate and retail lending.
In a circular dated July 6, 2004, the Reserve Bank of India stipulated that banks should not acquire any fresh stake in another banks’ equity shares, if by such acquisition, the investing bank’s holding exceeded 5.0% of the investee bank’s equity capital. This also applies to holdings of foreign banks with a presence in India, in Indian banks. The Reserve Bank of India issued a notification on “Roadmap for presence of foreign banks in India” on February 28, 2005, announcing the following measures with respect to the presence of foreign banks:
However, in view of the deterioration in the global financial markets during fiscal 2009, the Reserve Bank of India decided to put on hold the second phase until there was greater clarity over the economic recovery as well as the reformed global regulatory and supervisory architecture.
In November 2013, the Reserve Bank of India issued a scheme for the establishment of wholly owned subsidiaries by foreign banks in India. The scheme envisages that foreign banks which commenced business in India after August 2010, or will do so in the future, will be permitted to do so only through wholly owned subsidiaries if certain specified criteria apply to them. These criteria include incorporation in a jurisdiction which gives legal preference to home country depositor claims, among others. Further, a foreign bank that has set up operations in India through the branch mode after August 2010 will be required to convert its operations into a subsidiary if it is considered to be systemically important. A bank would be considered to be systemically important if the assets on its Indian balance sheet (including credit equivalent of off-balance sheet items) exceed 0.25% of the assets of the Indian banking system. Establishment of a subsidiary would require approval of the Reserve Bank of India and for this purpose, the Reserve Bank of India would take into account various factors including economic and political relations with the country of incorporation of the parent bank and reciprocity with the home country of the parent bank. The regulatory framework for a subsidiary of a foreign bank would be substantially similar to that applicable to domestic banks, including with respect to management, directed lending, investments and branch expansion. Wholly-owned subsidiaries of foreign banks may, after further review, be permitted to enter into mergers and acquisition transactions with Indian private sector banks, subject to adherence to the foreign ownership limit of 74% applicable to Indian private sector banks. The Reserve Bank of India, in its second quarter monetary policy review announced in October 2013 has also proposed near national treatment for foreign banks, based on the principles of reciprocity and subsidiary mode of presence.
In July 2012, the Reserve Bank of India revised priority sector lending norms and mandated foreign banks with 20 branches or more in India to meet priority sector lending norms as prescribed for domestic banks. In April 2015, revised priority sector lending guidelines were issued by the Reserve Bank of India, and require foreign banks with less than 20 branches to also meet priority sector lending norms in a phased manner by fiscal 2020.
Long-Term Lending Institutions
The long-term lending institutions were established to provide medium-term and long-term financial assistance to various industries for setting up new projects and for the expansion and modernization of existing facilities. The primary long-term lending institutions included Industrial Development Bank of India (now a bank), IFCI Limited, and the Industrial Investment Bank of India, as well as ICICI prior to the merger. Pursuant to the recommendations of the Narasimham Committee II and the Khan Working Group, a working group created in 1999 to harmonize the role and operations of long-term lending institutions and banks. In fiscal 2000, the Reserve Bank of India announced that long-term lending institutions would have the option of transforming themselves into banks subject to compliance with the prudential norms as applicable to banks. In April 2001, the Reserve Bank of India issued guidelines on several operational and regulatory issues, which needed to be addressed, and laid down a path for how long-term lending institutions can transition into universal banks. In April 2002, ICICI merged with ICICI Bank. The Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003 converted the Industrial Development Bank of India into a banking company incorporated under the Companies Act, 1956. IDBI Bank Limited, a new private sector bank that was a subsidiary of the Industrial Development Bank of India, was merged with the Industrial Development Bank of India in April 2005. The long-term funding needs of Indian companies are met primarily by banks, Life Insurance Corporation of India and specialized non-bank finance companies. Indian companies also issue bonds to institutional and retail investors.
Co-operative Banks
Co-operative banks cater to the financing needs of agriculture, small industry and self-employed businessmen in urban and semi-urban areas of India. The state land development banks and the primary land development banks provide long-term credit for agriculture. In light of the liquidity and insolvency problems experienced by some co-operative banks in fiscal 2001, the Reserve Bank of India undertook several interim measures, pending formal legislative changes, including measures related to lending against shares, borrowings in the call market and term deposits placed with other urban co-operative banks. Presently, the Reserve Bank of India is responsible for the supervision and regulation of urban co-operative banks, and the National Bank for Agriculture and Rural Development (NABARD) for state co-operative banks and district central co-operative banks. The Banking Regulation (Amendment) and Miscellaneous Provisions Act, 2004 provides for the regulation of all co-operative banks by the Reserve Bank of India.
With a view to strengthen the capital structure of co-operative banks, the Reserve Bank of India announced a minimum capital adequacy requirement of 9.0% for state and central co-operative banks in January 2014 to be achieved in a phased manner over a period of three years. The guidelines prescribe a minimum capital adequacy ratio of 7.0% by March 31, 2015 and 9.0% with effect from March 31, 2017. Co-operative banks have also been allowed to issue long-term deposits and perpetual debt instruments in order to be able to meet the prescribed capital adequacy requirements.
In April 2015, the Reserve Bank of India announced measures to enable well-managed co-operative banks to expand their business. Financially sound urban co-operative banks having a minimum net worth of Rs. 1.0 billion and technology enabled systems have been allowed to issue credit cards. State co-operative banks have been permitted to set up offsite automated teller machines (ATMs) and mobile ATMs without the prior approval of the Reserve Bank of India. Co-operative banks fulfilling specific requirements like core banking solution, capital adequacy of above 10.0% and net worth of above Rs. 250 million have been allowed to offer internet banking facility to their customers and to issue open system pre-paid payment instruments.
Non-Banking Finance Companies
There were 11,517 non-banking finance companies in India at March 31, 2017, mostly in the private sector. Of these, 179 were deposit-taking non-banking finance companies, and the rest were non-deposit taking entities. All non-banking finance companies are required to register with the Reserve Bank of India. Non-banking finance companies are categorized on the following basis: (i) in terms of the type of liabilities into deposit and non-deposit accepting non-banking finance companies; (ii) non-deposit taking non-banking finance companies by their size into systemically important companies with asset size above Rs. 1.0 billion and other non-deposit holding companies; and (iii) by the kind of activity they conduct. The companies that take public deposits are subject to strict supervision and capital adequacy requirements, similar to banks, by the Reserve Bank of India. Non-banking financial companies are broadly classified into eight categories — asset finance companies, loan companies, investment companies, infrastructure finance companies, infrastructure debt funds, microfinance companies, factors and core investment companies. In fiscal 2017, the Reserve Bank of India introduced a new type of non-banking finance company, account aggregators, which will consolidate, organize and present financial information pertaining to a customer either to the customer or to any other person as instructed by the customer. They cannot offer any financial services or support financial transactions. At March 31, 2016, the asset base of deposit taking non-banking financial companies and non-deposit taking systemically important non-banking financial companies combined was Rs. 16.67 trillion, with a net credit outstanding of Rs. 12.83 trillion and borrowings of Rs. 11.90 trillion.
ICICI Securities Limited, our subsidiary, is a non-banking finance company that does not accept public deposits, and ICICI Home Finance Company, our subsidiary, is a non-banking finance company that accepts public deposits. The primary activities of the non-banking finance companies are consumer credit (including automobile finance, home finance and consumer durable products finance, wholesale finance products such as bill discounting for small and medium companies), and infrastructure finance, and fee-based services, such as investment banking and underwriting. In November 2011, the Reserve Bank of India issued guidelines on the establishment of infrastructure debt funds in the form of mutual funds or non-banking finance companies. In fiscal 2013, we in partnership with other domestic and international banks and financial institutions launched India’s first infrastructure debt fund set up in the form of a non-banking finance company. We along with our wholly owned subsidiary have a shareholding of 40.0% in this company.
The Reserve Bank of India issues guidelines with regard to lending, exposure, provisioning requirements and restructuring of loans for the various categories of non-banking finance companies. In August 2011, the Reserve Bank of India released a working group report on issues and concerns in the non-banking finance companies sector. In March 2015, the Reserve Bank of India issued the final regulatory framework for non-banking finance companies in line with the recommendations of the working group. Some key recommendations include a minimum asset size of Rs. 500 million with a minimum net owned fund of Rs. 20 million for registering as a non-banking finance company, a minimum Tier 1 capital of 12%, introduction of liquidity ratios, more stringent asset classification norms and provisioning norms and limits on exposure to real estate. Deposit accepting non-banking finance companies should have a minimum investment grade rating to accept public deposits. In the event of a downgrade below investment grade, the company would have to stop accepting new deposits and cannot renew existing deposits. Further, deposit accepting non-banking finance companies had to achieve a minimum Tier 1 capital of 8.5% by March 31, 2016, and 10.0% by March 31, 2017.
In July 2015, the Reserve Bank of India issued guidelines relating to acquisition or transfer of control of non-banking finance companies. According to the guidelines, any change in the management of a non-banking
finance company either by way of a takeover or acquisition of control, change in shareholding or change in the management with at least 30% newly appointed directors, cannot be initiated without the prior permission of the Reserve Bank of India. A public notice of at least 30 days would also have to be given before the occurrence of these events.
Non-banking finance companies raise money by issuing capital or debt securities including debentures, by way of public issue or private placement. Non-deposit-taking non-banking financial companies can issue perpetual debt instruments which are eligible for inclusion as Tier 1 capital to the extent of 15.0% of total Tier 1 capital as on March 31 of the previous accounting year. Further, with regard to private placement of debentures by non-banking finance companies, the Reserve Bank of India issued guidelines in June 2013, which states that issue of debentures should necessarily be for deployment of funds on its own balance sheet, and not for facilitating resources for group companies. The guidelines also prescribe a minimum time gap of six months between two private placements, a limit on the number of investors to 49, and restrict non-banking finance companies from extending loans against the security of its own debentures.
In the past, the Reserve Bank of India has issued banking licenses to non-banking finance companies. In 2003, Kotak Mahindra Finance Limited was granted a banking license by the Reserve Bank of India and converted itself into Kotak Mahindra Bank. In April 2014, the Reserve Bank of India issued in-principle banking licenses to two non-banking finance companies, IDFC Limited and Bandhan Financial Services Private Limited. Both began operations during fiscal 2016. In September 2015, the Reserve Bank of India granted in-principle licenses to 10 applicants for small finance banks, most of which are microfinance non-banking finance companies. In July 2016, IDFC Bank acquired a microfinance company, making it the first acquisition of a microfinance company by a bank.
Housing Finance Companies
Housing finance companies form a distinct sub-group of the non-banking finance companies. As a result of the various incentives given by the Government for investing in the housing sector, the scope of this business has grown substantially. Housing Development Finance Corporation Limited is a leading provider of housing finance in India. In recent years, several other players, including banks, have entered the housing finance industry. We also have a housing finance subsidiary, ICICI Home Finance Company. The National Housing Bank and the Housing and Urban Development Corporation Limited are the two major financial institutions instituted through acts of Parliament to improve the availability of housing finance in India. The National Housing Bank Act provides for securitization of housing loans, foreclosure of mortgages and setting up of the Mortgage Credit Guarantee Scheme.
Microfinance Institutions
In fiscal 2012, the Reserve Bank of India introduced a new category of non-banking financial company called microfinance institutions. Microfinance institutions should have a minimum net worth of Rs. 50 million and maintain a minimum capital adequacy ratio of 15.0% of risk weighted assets. There are specific regulations with regard to pricing of credit by microfinance institutions. The margin above the cost of funds that can be charged on a loan is capped at 10.0% for microfinance institutions having a loan portfolio exceeding Rs. 1.0 billion and 12.0% for others. Further, the interest rate on individual loans is capped at the lower of the following two: 1) cost of funds plus margin, and 2) the average base rate of the five largest commercial banks by assets (as informed by the Reserve Bank of India on a quarterly basis) multiplied by 2.75. Further, the average interest on loans during a year cannot exceed the cost of borrowing during the financial year plus the prescribed margin. This was later revised in February 2017 to a quarterly basis by the Reserve Bank of India, as per which the average interest rate on loans sanctioned during a quarter cannot exceed the average cost of borrowing during the preceding quarter plus the prescribed margin.
Other Financial Institutions
Specialized Financial Institutions
In addition to the long-term lending institutions, there are various specialized financial institutions which cater to the specific needs of different sectors. These include the National Bank for Agricultural and Rural Development, Export Import Bank of India, Small Industries Development Bank of India, Tourism Finance Corporation of India Limited, National Housing Bank, Power Finance Corporation Limited, and India Infrastructure Finance Company. Further, India’s first quasi-sovereign wealth fund, the National Investment and Infrastructure Fund, was set up to support investments in infrastructure and technology.
State Level Financial Institutions
State financial corporations operate at the state level and form an integral part of the institutional financing system. State financial corporations were set up to finance and promote small and medium-sized enterprises. The state financial institutions are expected to achieve balanced regional socio-economic growth by generating employment opportunities and widening the ownership base of industry. At the state level, there are also state industrial development corporations, which provide finance primarily to medium-sized and large enterprises.
Insurance Companies
At March 31, 2017, there were 52 insurance companies in India, of which 24 were life insurance companies and 30 general insurance companies. Of the 24 life insurance companies, 23 were in the private sector and one is in the public sector. Among the general insurance companies, 24 in the private sector and 6 (including the Export Credit Guarantee Corporation of India Limited and the Agriculture Insurance Company of India Limited) are in the public sector. General Insurance Corporation of India, a reinsurance company, is in the public sector. Life Insurance Corporation of India, General Insurance Corporation of India and public sector general insurance companies also provide long-term financial assistance to the industrial sector.
The insurance sector in India is regulated by the Insurance Regulatory and Development Authority of India. In December 1999, the Indian Parliament passed the Insurance Regulatory and Development Authority Act, 1999, which also amended the Insurance Act, 1938. This opened up the Indian insurance sector for foreign and private investors. The Insurance Act currently allows foreign equity participation in new insurance companies of up to 49.0%. A new company should have minimum paid-up equity capital of Rs. 1.0 billion to carry on the business of life insurance or general insurance and of Rs. 2.0 billion to carry on exclusively the business of reinsurance.
In fiscal 2001, the Reserve Bank of India issued guidelines governing the entry of banks and financial institutions into the insurance business. The guidelines permit banks and financial institutions to enter the business of insurance underwriting through joint ventures provided they meet stipulated criteria relating to their net worth, capital adequacy ratio, profitability track record, level of non-performing loans and the performance of their existing subsidiary companies. According to the guidelines, the promoters of insurance companies had to divest in a phased manner their shareholding in excess of 26.0% after a period of 10 years from the date of commencement of business or within such period as may be prescribed by the Indian government. However, the Insurance Laws (Amendment) Act, 2015, passed by both houses of the Parliament and enacted in March 2015 removed the requirement that requires the promoters to dilute their stake to 26.0%. The Act also increased the foreign equity participation limit in insurance companies from 26.0% to 49.0%.
In the general insurance sector, gross premiums underwritten by general insurance companies moderated in fiscal 2008 and fiscal 2009 owing to the de-tariffing of the general insurance sector. Until January 1, 2007 almost 70.0% of the general insurance market was subject to price controls under a tariff regime. With the commencement of a tariff-free regime effective January 1, 2007, the resultant competitive pricing led to a significant decrease in premium rates across the industry leading to moderate premium growth during fiscal 2009 and fiscal 2010. See also “Supervision and Regulation-Regulations Governing Insurance Companies”.
During fiscal 2017, the new business weighted individual premium underwritten by the life insurance sector increased by 20.7% year-on-year from Rs. 440.8 billion during fiscal 2016 to Rs. 532.2 billion during fiscal 2017. The share of the private sector increased from 51.5% during fiscal 2016 to 53.9% during fiscal 2017. The gross premium underwritten in the general insurance sector (excluding specialized insurance institutions) amounted to Rs. 1,192.2 billion during fiscal 2017 as against Rs. 915.7 billion during fiscal 2016, recording a year-on-year growth of 30.2% (excluding the Export Credit Guarantee Corporation of India Limited and the Agriculture Insurance Company of India Limited). The share of the private sector increased from 45.5% during fiscal 2016 to 46.7% during fiscal 2017. We have a joint venture in the life insurance sector and our life insurance subsidiary, ICICI Prudential Life Insurance Company, is the largest private sector company in the life insurance sector in India in terms of new business retail weighted received premium. Our subsidiary in the general insurance sector was set up as a joint venture withFairfax Financial Holdings (through its affiliate). However, the joint venture was terminated on July 3, 2017 following the decision by us and our joint venture partner to sell a part of our shareholding in our general insurance subsidiary through an initial public offering. The Bank will continue to hold more than 50.0% shareholding in the general insurance subsidiary post the proposed initial public offer. See also,“Business-Insurance”. Our general insurance subsidiary, ICICI Lombard General Insurance Company, is the largest private sector company in the general insurance sector in India in terms of gross written premium, excluding premium on motor third-party insurance pool.
The financial inclusion initiatives of the government of India include providing insurance cover for people belonging to low-income or below poverty segments and are enrolled through the Government’s financial inclusion program. A life insurance cover and accident insurance cover of up to Rs. 200,000 each are provided to the beneficiaries at very low premiums. The government has also launched separate schemes for providing pension and insurance products to the larger population.
See also “Risk Factors—Risks Relating to Our Business—While our insurance businesses are an important part of our business, there can be no assurance of their future rates of growth or level of profitability” and “Description of ICICI Bank—Overview of Our Products and Services—Insurance”.
Mutual Funds
There were 41 mutual funds in India with assets under management at March 31, 2017 of Rs. 17,546.2 billion. Average assets under management of all mutual funds increased by 35.2% to Rs. 18,295.8 billion during the three months ended March 31, 2017 from Rs. 13,534.4 billion during the three months ended March 31, 2016. From year 1963 to 1987, Unit Trust of India was the only mutual fund operating in the country. It was set up in 1963 at the initiative of the Government and the Reserve Bank of India. From 1987 onwards, several other public sector mutual funds entered this sector. These mutual funds were established by public sector banks, the Life Insurance Corporation of India and General Insurance Corporation of India. The mutual funds industry was opened up to the private sector in 1993. The industry is regulated by the Securities and Exchange Board of India (Mutual Fund) Regulation, 1996. Our asset management joint venture, ICICI Prudential Asset Management Company, was the largest mutual fund in India in terms of average assets under management for the three months ended March 31, 2017, with an overall market share of about 13.3%.
To enhance marketability and access to mutual fund schemes, the Securities and Exchange Board of India in November 2009 permitted the use of stock exchange terminals to facilitate transactions in mutual fund schemes. As a result, mutual funds units can now be traded on recognized stock exchanges. While this facility was available to stock brokers and clearing members initially, it was widened to include mutual fund distributors in October 2013. In June 2009, the Securities and Exchange Board of India removed the entry load and up-front charges deducted by mutual funds, for all mutual fund schemes and required that the up-front commission to distributors should be paid by the investor to the distributor directly. In February 2010, the Securities and Exchange Board of India introduced guidelines for the valuation of money market and debt securities, with a view to ensuring that the value of money market and debt securities in the portfolio of mutual fund schemes reflects the current market scenario. The valuation guidelines were effective from August 1, 2010. Further, the Union Budget for fiscal 2014 allowed mutual fund distributors to become members on the mutual fund segment of stock exchanges to enable them to leverage the stock exchange network to improve the reach and distribution of mutual fund products.
Pension Sector
Currently, the pension schemes operating in India can be broadly classified in the following categories: pension schemes for Government employees, the employees’ provident fund and employees’ pension schemes for employees in the organized sector, voluntary pension schemes and the new pension scheme. In case of pension schemes for Government employees, the Government pays its employees a defined periodic benefit upon their retirement. Further, the contribution towards the pension scheme is funded solely by the Government and not matched by a contribution from the employees. The Employees Provident Fund, established in 1952, is a mandatory program for employees of certain establishments. It is a contributory program that provides for periodic contributions of 10% to 12% of the basic salary by both the employer and the employees. The contribution is invested in prescribed securities and the accumulated balance in the fund (including the accretion thereto) is paid to the employee as a lump sum on retirement. Besides these, there are voluntary pension schemes administered by the Government (the Public Provident Fund to which contribution may be made up to a maximum of Rs. 150,000 per year) or offered by insurance companies, where the contribution may be made on a voluntary basis. Such voluntary contributions are often driven by tax benefits offered under the scheme. The new pension scheme (NPS) was launched in January 2004 and offers a defined contribution based pension scheme with the individual having the option to decide where to invest the funds.
The Government initially made it mandatory for its new employees (excluding defense personnel) to join the new pension scheme where both the Government and the employee would make monthly contributions of 10% of the employee’s basic salary. In 2009, the Government extended the New Pension System to all citizens of India on a voluntary basis, effective from May 1, 2009. With a view to encourage people to invest towards old age security, the Government launched a pension scheme in fiscal 2015, called the Atal Pension Yojana. The scheme focuses on individuals in the unorganized sector to join the National Pension System.
The Government set up the Pension Fund Development and Regulatory Authority to regulate the pension industry in August 2003. In October 2013, the Pension Fund Regulatory and Development Authority Act, 2011 was enacted giving powers to the Pension Fund Development and Regulatory Authority to regulate pension schemes and funds and frame investment guidelines for pension funds. Foreign direct investments in the pension sector are allowed up to 49%. Private sector participation in managing pension assets was permitted for the first time in fiscal 2009, and six private sector companies have been issued licenses, including us. The minimum net worth requirement for asset management companies is Rs. 500 million. See also “Business—Overview”.
Legislative Framework for Recovery of Debts due to Banks
In fiscal 2003, the Indian Parliament passed the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (as amended, the “Securitization Act”). The Securitization Act provides that a secured creditor may, in respect of loans classified as non-performing in accordance with the Reserve Bank of India guidelines, give notice in writing to the borrower requiring it to discharge its liabilities within 60 days, failing which the secured creditor may take possession of the assets constituting the security for the loan, and exercise management rights in relation thereto, including the right to sell or otherwise dispose of the assets. The Securitization Act also provides for the setting up of asset reconstruction companies regulated by the Reserve Bank of India to acquire assets from banks and financial institutions. The Reserve Bank of India has issued guidelines for asset reconstruction companies in respect of their establishment, registration and licensing by the Reserve Bank of India, and operations. Asset Reconstruction Company (India) Limited, set up by us, Industrial Development Bank of India, State Bank of India and certain other banks and institutions, received registration from the Reserve Bank of India and commenced operation in August 2003. Foreign direct investment of up to 100% through the automatic route is now permitted in the equity capital of asset reconstruction companies and investment by Foreign Institutional Investors registered with the Securities and Exchange Board of India is permitted in security receipts issued by asset reconstruction companies, subject to certain conditions and restrictions. Since April 2017, the Reserve Bank of India has prescribed a minimum net worth of Rs. 1.0 billion on an ongoing basis for asset reconstruction companies.
In November 2004, the government of India issued an ordinance amending the Securitisation Act and subsequently passed this ordinance as an Act. This Act, as amended, provided that a borrower may make an objection or representation to a secured creditor after a notice is issued by the secured creditor to the borrower under such Act demanding payment of dues. The secured creditor has to give reasons to the borrower for not accepting the objection or representation. Further, this Act permits a lender to take over the business of a borrower under the Securitization Act under certain circumstances (unlike the earlier provisions under which only assets could be taken over).
In fiscal 2017, amendments were made to the Securitization Act and the debt recovery acts to further strengthen the recovery process. The Enforcement of Security Interest and Recovery of Debts Law Amendment Act, 2016, was enacted in this regard. As per the Act, it requires the process of possession of collateral by banks, in the event of a default, to be completed by the district magistrate within 30 days. It also empowers the district magistrate to assist banks in taking over the management of the company, where the bank has converted the debt into equity and holds 51.0% or more in the company. A central registry has been created to maintain records of transactions related to secured assets. See also “Supervision and Regulation—Regulations Relating to Sale of Assets to Asset Reconstruction Companies”. However, considering the procedures involved in legal litigations and with borrowers having the option to appeal the decision of the debt recovery tribunal, the process of recovery of loans is delayed.
Corporate Debt Restructuring Forum
The Reserve Bank of India has devised a corporate debt restructuring system to put in place an institutional mechanism for the restructuring of corporate debt. The objective of this framework is to ensure a timely and transparent mechanism for the restructuring of corporate debts of viable entities facing problems, outside the purview of debt recovery tribunals and other legal proceedings. In particular, this framework aims to preserve viable corporations that are affected by certain internal and external factors and minimize the losses to the creditors and other stakeholders through an orderly and coordinated restructuring program. The corporate debt restructuring system is a non-statutory mechanism and a voluntary system based on debtor-creditor and inter-creditor agreements.
Joint Lenders’ Forum
Following the stress faced by the Indian corporate sector and increase in non-performing and restructured corporate loans in the Indian banking sector, the Reserve Bank of India released a Framework for Revitalizing Distressed Assets in the Economy in January 2014. The framework outlines a corrective action plan for early identification of problem loans, timely restructuring of accounts which are considered to be viable, and steps for recovery or sale of unviable accounts. According to the guidelines, banks are required to identify accounts that show signs of stress at an early stage and categorize them into ‘special mention accounts’ based on specified criteria. These accounts should be reported to a central repository maintained by the Reserve Bank of India. This repository is called the Central Repository of Information on Large Credits. Banks are required to mandatorily form a committee called the Joint Lenders’ Forum for accounts where the aggregate exposure of lenders to the account exceeds Rs. 1.0 billion and with repayments overdue by 60 days and the account has been reported by any of the lenders to the central repository. The Joint Lenders’ Forum may explore options for early resolution of stress in the account which may include rectification to regularize the account, restructuring either through the corporate debt restructuring forum or by the joint lenders’ forum itself, or decide on an appropriate recovery process.
Revisions to the guidelines were issued periodically by the Reserve Bank of India to strengthen the resolution process. In September 2015, the Reserve Bank of India issued guidelines which required formation of an empowered group comprising lending banks and also a representative each from the State Bank of India and ICICI Bank as standing members. The final corrective action plan has to be submitted to the empowered group. The guidelines also provide an exit option for those lenders not participating in the rectification or restructuring plan. Further, if the corrective action plan fails, the Joint Lenders’ Forum have the option to initiate strategic debt restructuring to effect change in management. The approval requirement for the corrective action plan was later revised to 50.0% of the lenders by number, as compared to the earlier requirement of 60.0% of lenders by number, and 75.0% by value. This was further revised in May 2017 requiring consent from lenders up to 60.0% by value and 50.0% by number in the Joint Lenders’ Forum. The decision by the Joint Lenders’ Forum was made binding on all member banks. Further, under the strategic debt restructuring, banks were allowed to classify the asset as standard on divesting 26.0% of the shares of the company, lower than the earlier requirement of 51.0%. To avoid a sudden increase in provisioning in case the strategic debt restructuring fails, the guidelines require banks to increase provisions on such accounts to up to 15.0% by the end of the 18-month stand-still period, to be made in equal instalments over four quarters.
Since June 2016, banks have also been allowed to undertake structuring of projects that have commenced commercial operations under the Scheme for Sustainable Structuring of Stressed Assets. The scheme allows the Joint Lenders’ Forum to segregate the debt into the sustainable portion that can be serviced with existing cash flows over the tenor of the loan, and the unsustainable portion that can be restructured by converting it either into equity or preference shares. A two-member Oversight Committee was set up to oversee cases under the Scheme for Sustainable Structuring of Stressed Assets. In May 2017, the Oversight Committee was reconstituted and expanded, and the scope of cases to be referred to the Committee was also expanded to include cases other than under the Scheme for Sustainable Structuring of Stressed Assets and having aggregate banking system exposure greater than Rs. 5.0 billion. See also “Supervision and Regulation—Loan Loss provisions and non-performing assets”.
Insolvency and Bankruptcy Code, 2016
The Insolvency and Bankruptcy Code, 2016, was passed in May 2016 and provides a time bound revival and rehabilitation mechanism. The insolvency resolution process can be initiated at the occurrence of a single instance of default of over Rs. 100,000 by the creditors. It classifies the creditors into financial creditors and operational creditors, which include creditors that provide financial loans and loans arising from the operational nature of the debtor, respectively. Other key features include the provision of a 180-day timeline which may be extended by 90 days when dealing with insolvency resolution applications. Subsequently, the insolvency resolution plan prepared by the insolvency professionals has to be approved by 75.0% of financial creditors, which requires sanction by the adjudicating authority and, if rejected, the adjudicating authority will pass an order for liquidation. The National Company Law Tribunal has been set up as the adjudicating authority, the National Company Law Appellate Tribunal has been set up to hear appeals on the orders of the adjudicating authority with jurisdiction over companies and limited liability entities, and the Insolvency and Bankruptcy Board of India has been set up as the new insolvency regulator overseeing insolvency professionals, information utilities and promote transparency.
The Banking Regulation (Amendment) Ordinance, 2017
In May 2017, the government of India issued an ordinance amending the Banking Regulation Act, 1949 which empowers the Reserve Bank of India to participate in the resolution of stressed assets. The Banking
Regulation (Amendment) Ordinance, 2017 was promulgated on May 4, 2017. The Ordinance amended section 35A of the Banking Regulation Act, 1949 and inserted two new sections 35AA and 35AB. Through this amendment, the Reserve Bank of India is authorized to intervene and instruct banks to resolve specific stressed assets and initiate insolvency resolution process where required. The Reserve Bank of India is also empowered to issue other directions for resolution, and appoint or approve for appointment, authorities or committees to advise banking companies for resolution of stressed assets.
The Reserve Bank of India constituted an Internal Advisory Committee comprising its independent board members to advise on stressed accounts. On the recommendations of the Committee,in June 2017 the Reserve Bank of India issued directions to banks to file for resolution under the Insolvency and Bankruptcy Code with the National Company Law Tribunal in respect of 12 large stressed accounts. With respect to other identified stressed accounts, the banks are required to finalize a resolution plan within six months. In cases where a viable resolution plan is not agreed upon within six months, banks shall be required to file for insolvency proceedings under the Insolvency and Bankruptcy Code.
Structural Reforms
Amendments to the Banking Regulation Act
In December 2012, the Indian Parliament amended the laws governing the banking sector. The amendment to the Banking Regulation Act was enacted in January 2013. The main amendments were as follows:
Discussion Paper on Banking Structure
In August 2013, the Reserve Bank of India released a discussion paper ‘Banking Structure in India — the way forward’. The paper envisages a re-orientation of the banking structure with a view to addressing specific issues like enhancing competition, financing higher growth, providing specialized services and further increasing financial inclusion. The discussion paper proposes a differentiated licensing policy for different types of banks for niche business areas. It advocates a continuous licensing policy for entry of new banks compared to the current system of intermittently issuing licenses. To promote financial inclusion, the paper proposes setting up small banks with geographical limitations for catering to the rural and unorganized segments.
Differentiated licenses
In November 2014, the Reserve Bank of India issued guidelines on licensing of small banks and payments banks as differentiated banks, with the purpose of promoting financial inclusion. These banks would have a minimum capital requirement of Rs. 1.0 billion, and would be limited in their product offering and geographical area of operation. According to the guidelines, payments banks are permitted to accept only demand deposits not exceeding Rs. 100,000 per individual customer, required to invest 75.0% of deposits in government securities of up to one-year maturity and are allowed to sell credit products of other banks as business
correspondents. Small finance banks can provide all basic banking products with at least 50.0% of their portfolio constituting loans up to Rs. 2.5 million and must meet a priority sector lending requirement of 75.0% of adjusted net bank credit. Forty-one applications for payments bank licenses and 72 applications for small finance bank licenses were submitted. In September 2015, the Reserve Bank of India granted in-principle licenses to 10 small finance banks and 11 payments banks. Of these, six small finance banks and four payment banks have begun operations and three payments banks have surrendered, or announced their intention to surrender, their licenses. ICICI Bank is a shareholder in FINO PayTech Limited, which has received a payments bank license and began operations on June 30, 2017. Further, in April 2017, a discussion paper on wholesale and long-term finance banks as differentiated banks was released by the Reserve Bank of India. These banks will focus on lending to infrastructure and core industries which require long-term funding. As per the discussion paper, these banks will have a minimum paid-up equity capital of Rs. 10.0 billion and will be allowed to raise funds through current deposits and term deposits and through issuance of bonds.
On-tap Licensing of Universal Banks
In August 2016, the Reserve Bank of India released guidelines for continuous licensing of universal banks in the private sector. According to the guidelines, the minimum net worth for these banks will be Rs. 5.0 billion and the promoters will be required to hold a minimum of 40.0% of the paid-up capital, which will be locked-in for five years and brought down to 15.0% over a period of 12 years. Eligible promoters include non-banking finance companies, individuals with 10 years of experience in banking and finance, and entities/groups in the private sector that have total assets of at least Rs. 50.0 billion with non-financial business accounting for less than 40% of total assets. Foreign shareholding of up to 74.0% is allowed. Promoting entities that have other group entities shall set up the bank only through the non-operative financial holding company structure. Specialized banking activities can be conducted through a separate entity held under the holding company.
Report on Governance of Boards of Banks in India
In May 2014, the Committee to Review the Governance of Boards of Banks in India submitted its report. The committee recommended a new governance structure for public sector banks and a reduction in the Government’s stake in banks to less than 50.0%. It proposed bringing public sector banks under the purview of the Companies Act and repealing other statutes that govern public sector banks. It also envisaged creation of a Bank Investment Company which would be the de facto holding company of equity stake in banks on behalf of the Government with the powers to govern the public sector banks. A phased transition towards empowering the boards of public sector banks was also proposed which eventually should lead to the Government only acting as an investor rather than exercising ownership functions. With regard to governance in private sector banks, the committee recommended allowing certain types of investors to take larger stakes and permit creation of Authorized Bank Investors comprising of funds that would be permitted to hold a 20.0% equity stake without regulatory approval or 15.0% if the Bank has a seat on the bank’s board. Further, other financial investors should be permitted to hold an equity stake of up to 10% from the current limit of 5.0% stake.
Some recommendations of the committee have already been implemented. In fiscal 2015, the Government decided to separate the functions of non-executive chairman and managing director in public sector banks. Further, the Bank Board Bureau has been constituted which is responsible for deciding appointments of senior officials in public sector banks. This replaces the earlier structure where the appointments were decided by a committee led by the Governor of the Reserve Bank of India. The Bank Board Bureau comprises of six members, and apart from appointment of senior officials, it will also guide public sector banks on strategies for raising capital, dealing with issues of stressed assets, and mergers and consolidation.
Insurance Laws (Amendment) Act, 2015
The Insurance Laws (Amendment) Act, 2015, was passed by the Indian Parliament and notified in March 2015. The Act, among other things, raised the foreign investment limit in the insurance sector from 26.0% to a composite limit of 49.0%, and, eliminated the requirement that promoters of an insurance company reduce their stake to 26.0% after 10 years.
Credit Policy Measures
The Reserve Bank of India issues an annual policy statement setting out its monetary policy stance and announcing various regulatory measures in April of every financial year. Subsequent monetary policy statements are issued on a bi-monthly basis during the year. During fiscal 2017, a committee-based approach was adopted for monetary policy decisions, compared to the earlier approach of decision making happening within the Reserve Bank of India. In June 2016, the Indian government notified amendments to the Reserve
Bank of India Act, 1934, approved by the Indian parliament, for constituting a six-member Monetary Policy Committee comprising of members from the Reserve Bank of India and the government. The Committee is responsible for inflation targets and monetary policy decisions. The first meeting of the Monetary Policy Committee was held in October 2016.
Credit Policy During Fiscal 2016
The repo rate was reduced by 75 basis points during fiscal 2016. In the first bi-monthly monetary policy review for fiscal 2016 announced on April 7, 2015, the Reserve Bank of India kept the repo rate unchanged. In the second bi-monthly monetary policy review announced on June 2, 2015, the Reserve Bank of India reduced the repo rate by 25 basis points from 7.50% to 7.25%. In the fourth bi-monthly monetary policy statement released on September 29, 2015, the Reserve Bank of India reduced the repo rate by 50 basis points from 7.25% to 6.75%. Correspondingly, the reverse repo rate was adjusted from 6.5% to 5.75% and the marginal standing facility rate from 8.5% to 7.75%. In the fifth and sixth bi-monthly monetary policy statements released on December 1, 2015 and February 2, 2016 respectively, the Reserve Bank of India kept the repo rate unchanged.
Other policy announcements included calculation of base rate on the basis of the marginal cost of funds, lowering the risk weight on low-value individual housing loans, reduction in the ceiling on statutory liquidity ratio securities under the held-to-maturity category from 22.0% to 21.5%, and allowing Indian corporations to issue rupee-denominated bonds with a minimum maturity of five years in the overseas market with minimal restrictions on the end use of funds.
Credit Policy During Fiscal 2017
During fiscal 2017, the repo rate was reduced by 50 basis points, with a 25 basis points reduction from 6.75% to 6.50% in April 2016 and another 25 basis points reduction to 6.25% in October 2016. Further, in April 2017, the Reserve Bank of India also narrowed the policy rate corridor for determining the marginal standing facility and the reverse repo rate from 100 basis points to 50 basis points. Accordingly, the reverse repo rate was adjusted to 5.75% and the marginal standing facility rate was revised to 6.75% in October 2016. In subsequent monetary policy announcements, the repo rate was kept unchanged. The Reserve Bank of India also revised the liquidity framework indicating progressive lowering of the average liquidity deficit in the system towards neutrality.
In November 2016, the government of India decided to withdraw legal tender status for high denomination currency notes and to be replaced with new currency notes. This led to a surge in deposits in the Indian banking system leading to a significant increase in liquidity. In line with the objective of maintaining liquidity at near neutrality, the Reserve Bank of India announced an incremental cash reserve ratio of 100.0% of the increase in net demand and time liabilities between September 16, 2016 and November 11, 2016 effective the fortnight beginning November 26, 2016. Later, to facilitate liquidity management operations by the Reserve Bank of India, the Government of India revised the ceiling for issue of securities under the Market Stabilisation Scheme to Rs. 6.00 trillion on December 2, 2016. Subsequently, on December 7, 2016, the Reserve Bank of India withdrew the incremental cash reserve ratio requirement effective the fortnight beginning December 10, 2016. During the three months ended March 31, 2017, the Reserve Bank of India adopted reverse repo transactions and issued securities under the Market Stabilisation Scheme to absorb the surplus liquidity in the system. In the resolution of the Monetary Policy Committee announced in April 2017, the policy rate corridor was narrowed further from 50 basis points to 25 basis points. Accordingly, the reverse repo rate was revised from 5.75% to 6.0% and the marginal standing facility rate from 6.75% to 6.50%. The Reserve Bank of India has also proposed the introduction of a Standing Deposit Facility that will eliminate the requirement of collateral for absorbing liquidity.
Other policy announcements during fiscal 2017 included a reduction in the minimum daily maintenance of cash reserve ratio from 95.0% of net demand and time liabilities to 90.0%. In the resolution of the Monetary Policy Committee in February 2017, the policy stance was changed from accommodative to neutral, while the policy rate was kept on hold.
Credit Policy During Fiscal 2018
The Monetary Policy Committee kept the policy rate unchanged at 6.25% in the bi-monthly monetary policy statement announced in April 2017 and June 2017. Other policy announcements included a reduction in the statutory liquidity ratio from 20.5% of net demand and time liabilities to 20.0% in June 2017.
The following description is a summary of certain sector specificsector-specific laws and regulations in India whichthat are applicable to us. The information detailed in this chapter has been obtained from publications available in the public domain. The regulations set out below mayare not be exhaustive, and are only intended to provide general information.
The mainkey legislation governing commercial banksbanking companies in India is the Banking Regulation Act.Act, 1949. The provisions of the Banking Regulation Act are in addition to and not, save as expressly provided in the Banking Regulation Act, in derogation of the Companies Act and any other law currently in force. Other important laws which govern banking companies in India include the Reserve Bank of India Act, the Negotiable Instruments Act, the1934 and Foreign Exchange Management Act, 1999, Payment and the Banker’s Books Evidence Act.Settlement System Act, 2007, Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Negotiable Instrument Act, 1881 and Insolvency and Bankruptcy Code 2016 as amended from time to time. Additionally, the Reserve Bank of India, from time to time, issues guidelines to be followed by banks. Compliance with all regulatory requirements is evaluated with respect to financial statements under Indian GAAP. Banking companies in India are also governed by the provisions of the Companies Act, 2013 and if such companies are listed on a stock exchange in India, then various regulations of the Securities and Exchange Board of India additionally apply to such companies.
Reserve Bank of India Regulations
Commercial banks in India are required under theThe Banking Regulation Act requires a company to obtain a license from the Reserve Bank of India to carry on banking business in India. This license is subject to such conditions as the Reserve Bank of India may choose to impose. Before granting the license, the Reserve Bank of India must be satisfied that certain conditions are complied with, including,impose, such as, but not limited to, (i) that the bank hashaving adequate capital and earnings prospects, the bank having the ability to pay its present and future depositors in full as their claims accrue; (ii)accrue, and that the affairs of the bank will not be or are not likely to be conducted in a manner detrimental to the interests of present or future depositors; (iii) that the bank has adequate capital and earnings prospects; (iv) that the public interest will be served if such license is granted to the bank; (v) that the general character of the proposed management of the bank will not be prejudicial to the public interest or the interest of its depositors; (vi) that having regard to the banking facilities available in the proposed principal area of operations of the bank, the potential scope for expansion of banks already in existence in the area and other relevant factors the grant of the license would not be prejudicial to the operation and consolidation of the banking system consistent with monetary stability and economic growth; and (vii) any other condition, the fulfillment of which would, in the opinion of the Reserve Bank of India, be necessary to ensure that the carrying on of banking business in India by the bank will not be prejudicial to the public interest or the interests of the depositors. The Reserve Bank of India can cancel the license if the bank, at any point, fails to meet the aboverequired conditions or if the bank ceases to carry on banking operations in India.
ICICI Bank because it is licensed as a banking company, is regulated and supervised by the Reserve Bank of India.India because it is licensed as a banking company. The Reserve Bank of India requires us to furnish statements and information relating to our business. It has issued, among others, guidelines for commercial banks relating to banking activities and prudential guidelines relating to recognition of income, classification of assets, provisioning, exposure norms on concentration risk, valuation of investments and maintenance of capital adequacy. The Reserve Bank of India carries out its risk assessment of banks, under its risk-basedrisk based supervision exercise, on an annual basis. The Reserve Bank of India has also set up a Board for Financial Supervision (“BFS”), under the chairmanship of the Governor of the Reserve Bank of India. The primary objective of BFS is to undertake consolidated supervision of the financial sector comprising Scheduled Commercial and Co-operative Banks, All India Financial Institutions, Local Area Banks, Small Finance Banks, Payments Banks, Credit Information Companies, Non-Banking Finance Companies and Primary Dealers.
231
Requirements of the Banking Regulation Act
Prohibited Business
The Banking Regulation Act specifies the business activities in which a bank may engage. Banks are prohibited from engaging in business activities other than the specified activities.
Reserve Fund
Any bank incorporated in India is required to create a reserve fund to which it must transfer not less than 25.0% of its annual profits before dividends. A bank is required to report any appropriation from this account to the Reserve Bank of India within 21 days, explaining the circumstances leading to such appropriation. The Government of India may, on the recommendation of the Reserve Bank of India, exempt a bank from requirements relating to its reserve fund.
Restriction on Share Capital
Banks were earlier permitted to issue only ordinary shares. In 2013, the Banking Regulation Act was amended to, inter alia, permit banks to also issue preference shares. However, guidelines governing the issuance of preference shares are yet to be issued.
Ownership and Voting Restrictions
The Government of India regulates foreign ownership in Indian banks. Foreign investors (including indirect foreign investment) may own up to 74.0% of the equity share capital of a private sector bank in India subject to rules and regulations issued by the Government of India and the Reserve Bank of India from time to time. While foreign investment of up to 49.0% in private sector banks is under automatic route and does not require any specific approval, foreign investments beyond 49.0% and up to 74.0% require prior approval of the Government of India, unless such investments are otherwise exempted from the requirement for approval. Investments by foreign investors exempted from the requirement for Government of India approval include certain aggregate foreign portfolio investments up to 49.0% or the relevant sectoral cap (whichever is lower) that do not result in the transfer of ownership or control from Indian residents to non-resident investors, and foreign investment through rights and bonus issues fulfilling certain conditions. Additionally, in the case of proposals requiring prior approval of the Government of India, such proposals involving total foreign equity inflow of more than Rs. 50.0 billion, also require approval of the Cabinet Committee on Economic Affairs.
In January 2023, Reserve Bank of India has issued Guidelines on Acquisition and Holding of Shares or Voting Rights in Banking Companies with regard to shareholding in banking company. As per the guidelines, banks are required to have board approved fit and proper criteria for major shareholders (shareholders holding 5.0% or more of the paid up share capital, along with relatives, associate enterprises and persons acting in concert) and continuously monitor the fit and proper status of major shareholders including the information on change in Significant Beneficial Owner (SBO) of its major shareholder. If aggregate holding of a major shareholder falls below 5%, fresh Reserve Bank of India approval to be sought for raising it again to 5% or above.
232
Voting rights are capped at 26.0% for a single shareholder. However, any acquisition of shareholding/voting rights of 5.0% or more will require the prior approval of the Reserve Bank of India.
Regulatory Reporting and Examination Procedures
The Reserve Bank of India is responsible for supervising the Indian banking system under various provisions of the Banking Regulation Act, 1949 and the Reserve Bank of India Act, 1934. The supervision framework is evolving over a period of time and the Reserve Bank of India has been progressively moving in line with Basel “Core Principles for Effective Banking Supervision”. The existing supervisory framework has been modified towards establishing a risk based supervision framework.
This framework is intended to make the supervisory process for banks more efficient and effective, with the Reserve Bank of India applying differentiated supervision to each bank based on its risk profile. A detailed qualitative and quantitative assessment of the bank’s risk is conducted by the supervisor on an ongoing basis and a Risk Assessment Report is issued by the Reserve Bank of India. The Reserve Bank of India has designated a senior supervisory manager for the banks under this framework who will be the single point of contact for a designated bank.
We have been subject to supervision under this framework since fiscal 2013. The Reserve Bank of India also discusses the report with our management team, including the Chairman of the Bank, the Chairman of the Audit Committee, and the Managing Director and CEO. The risk assessment report, along with the report on actions taken by us, has to be placed before our Board of Directors. On approval by our board of directors, we are required to submit the report on actions taken by us to the Reserve Bank of India. See also, “—Loan Loss Provisions and Non-Performing Assets—Asset Classification.”
Appointment and Remuneration of the Chairman, Managing Director and Other Directors
We are required to obtain prior approval of the Reserve Bank of India before we appoint our chairman, managing director and any other executive directors and fix their remuneration. The Reserve Bank of India is authorized to remove an appointee from the posts of chairman, managing director and other executive directors on the grounds of public interest, interest of depositors or to ensure our proper management. Further, the Reserve Bank of India may order meetings of our Board of Directors to discuss any matter in relation to us, appoint observers to such meetings and in general may make such changes to the management as it may deem necessary and may also order the convening of a general meeting of our shareholders to elect new directors. We cannot appoint as a director any person who is a director of another banking company. The Reserve Bank of India has issued guidelines on “fit and proper” criteria for directors of banks. Our directors must satisfy the requirements of these guidelines.
The Reserve Bank of India has issued guidelines on the compensation of wholetime directors/chief executive officers/risk takers and control function staff of private sector and foreign banks operating in India. The guidelines include principles for effective governance of compensation, alignment of compensation with risk taking and effective supervisory oversight and engagement by stakeholders. The guidelines also specify the proportion of cash and non-cash components that may be included in the variable pay. Banks are also required to put in place appropriate modalities to incorporate a malus and clawback mechanism with respect to misconduct and risk, as well as mandatory imposition in the case of divergence in non-performing assets and provisioning beyond the Reserve Bank of India prescribed thresholds for public disclosure.
233
The Reserve Bank of India has issued guidelines on compensation of non-executive directors of private sector banks. According to the guidelines, the Board of Directors, in consultation with its remuneration committee, should formulate and adopt a comprehensive compensation policy for the non-executive directors (other than the part-time, non-executive chairman). In the policy, the Board may provide for the payment of compensation in the form of a profit-related commission, subject to the bank making profits. Such compensation should not exceed Rs. 1 million per annum for each director. Further, as per Reserve Bank of India guideline on Corporate Governance in Banks - Appointment of Directors and Constitution of Committees of the Board dated April 26, 2021, in addition to sitting fees and expenses related to attending meetings of the board and its committees as per extant statutory norms, the bank may provide for payment of compensation to non-executive directors in the form of a fixed remuneration commensurate with an individual director’s responsibilities and demands on time and which are considered sufficient to attract qualified competent individuals. However, such fixed remuneration for a non-executive director, other than the chair of the board, shall not exceed Rs. 2.0 million per annum. Further, private sector banks have to obtain prior approval of the Reserve Bank of India for granting remuneration to the part-time, non-executive chairman under Section 10B(1A)(i) and 35B of the Banking Regulation Act, 1949.
The Reserve Bank of India has also issued guidelines on minimum qualifications and experience required while inviting application for the position of Chief Financial Officer and Chief Technology Officer in banks.
Penalties
The Reserve Bank of India may impose penalties on banks and their employees in case of infringement of regulations under the Banking Regulation Act. The penalty may be a fixed amount or may be related to the amount involved in any contravention of the regulations. The penalty may also include imprisonment.
Assets to be Maintained in India
Every bank is required to ensure that its assets in India (including import-export bills drawn in India and the Reserve Bank of India approved securities, even if the bills and the securities are held outside India) are not less than 75.0% of its demand and time liabilities in India.
Restriction on Creation of Floating Charge
Prior approval of the Reserve Bank of India is required for creating floating charge on our undertaking or property. Currently, all of our borrowings, including bonds, are unsecured.
234
Maintenance of Records
Banks are required to maintain books, records and registers. The Banking Regulation Act specifically requires banks to maintain books and records in a particular manner and file the same with the Registrar of Companies on a periodic basis. The provisions for production of documents and availability of records for inspection by shareholders as stipulated under the Companies Act and the rules thereunder would apply to us as in the case of any company. The Know Your Customer Guidelines framed by the Reserve Bank of India also provide for certain records to be updated at regular intervals. As per the Prevention of Money Laundering Act, 2002, records of a transaction are to be preserved for five years from the date of the transaction between a customer and the bank. The Know-Your-Customer records are required to be preserved for a period of five years from the date of cessation of relationship with the customer. The Banking Companies (Period of Preservation of Records) Rules, 1985 requires such records to be preserved for eight years. The Banking Companies (Period of Preservation of Records) Rules, 1985 requires a bank’s records of books, accounts and other documents relating to stock and share registers to be maintained for a period of eight years.
The Reserve Bank of India has advised system providers to ensure that data relating to payment systems operated by them are stored only in a system located in India. The data should include the full end-to-end transaction details/information collected/carried/processed as part of the message/payment instruction. For the foreign leg of the transaction, if any, the data can also be stored in the foreign country, if required. For directions notified by CERT-In relating to obligation on maintenance of logs of the information and communications technology systems, see “—Information Technology and Cyber Security.”
Governance of Banks
As part of steps taken to strengthen risk management in banks, the Reserve Bank of India has issued guidelines which aim to separate the credit risk management function from the credit approval process and also bring uniformity in the approach followed by banks. As per the guidelines, a board approved policy defining the role and responsibilities of the Chief Risk Officer has to be established, with clearly defined reporting lines either to the Managing Director/Chief Executive Officer or the risk management committee of the bank. The Chief Risk Officer should not have a dual role, report into any business vertical or be given any business targets. The Chief Risk Officer can be removed or transferred only with the approval of the Board. In April 2021, the Reserve Bank of India issued instructions with regard to the Chair and meetings of the board, composition of certain committees of the board, age, tenure and remuneration of directors, and appointment of wholetime directors of banks. The instructions are applicable to private sector banks including small finance banks and wholly owned subsidiaries of foreign banks. As per the guidelines, the Chair of the board has to be an independent director, and the quorum of the board meetings shall be one-third of the total strength of the board or three directors, whichever is higher. The audit committee and the nomination and remuneration committee shall be constituted with only non-executive directors and the risk management committee shall be constituted with majority of non-executive directors. The upper age limit for non-executive directors, including the Chair, is 75 years and the total tenure of a non-executive director on the board of a bank cannot exceed eight years. A re-appointment of the director after completing eight years can be considered after a minimum gap of three years. A wholetime director cannot continue in the post after 15 years, and any reappointment can be considered only after a gap of three years.
235
In 2020, the Reserve Bank of India advised that as part of a robust compliance system, banks are required to have an effective compliance culture, independent compliance function and a strong compliance risk management programme. As per the guidelines, banks shall have a board-approved compliance policy explaining its compliance philosophy, expectations on compliance culture, role of Chief Compliance Officer (“CCO”), processes for managing and reporting on compliance risk throughout the bank. Banks are required to develop and maintain a quality assurance and improvement program covering all aspects of the compliance function and such programs are subject to an independent external review periodically (at least once in every three years). The policy shall be reviewed at least once a year. The selection of the candidate for the post of the COO shall be done on the basis of a well-defined selection process and recommendations made by the senior executive level selection committee constituted by the Board for this purpose. The COO shall be appointed for a minimum fixed tenure of not less than three years.
Appointment of auditors
The appointment of the statutory auditors of banks is subject to the approval of the Reserve Bank of India. In April 2021, the Reserve Bank of India issued revised guidelines for the appointment of statutory auditors and statutory central auditors, of Commercial Banks (excluding Regional Rural Banks), Primary (Urban) Co-operative Banks and Non-Banking Finance Companies including Housing Finance Companies (hereinafter referred to as the entities). The appointment tenure reduced from four years to three years. An audit firm would not be eligible for reappointment in the same entity for six years (two tenures) after completion of full or part of one term of the audit tenure. The time gap between any non-audit works (services mentioned at Section 144 of Companies Act, 2013, Internal assignments, special assignments) by the statutory auditors and statutory central auditors for the Entities or any audit/non-audit works for its Reserve Bank of India regulated group entities should be at least one year, before or after its appointment as statutory auditors and statutory central auditors. However, if an audit firm engaged with audit/non-audit works for the group entities (which are not regulated by the Reserve Bank of India) is being considered by any of the Reserve Bank of India regulated Entities in the Group for appointment as statutory auditors and statutory central auditors, it would be the responsibility of the Board of the concerned Reserve Bank of India regulated entity to ensure that there is no conflict of interest and independence of auditors is ensured, and this should be suitably recorded in the minutes of the meetings of board.
Further, for entities with an asset size of Rs. 150.0 billion and above, the statutory audit will have to be conducted under joint audit by at least two audit firms. The Reserve Bank of India can direct a special audit in the interest of the depositors or in the public interest.
Regulations Relating to the Opening of Branches
Opening of branches and shifting of existing branches are governed by the provisions of Section 23 of the Banking Regulation Act. The Reserve Bank of India may cancel a branch license for violations of the conditions under which the branch license is granted.
The Reserve Bank of India has substantially liberalizedalso put in place a graded enforcement action framework to enable appropriate action in respect of statutory auditors where any lapses in conducting a bank’s statutory audit have been observed. Lapses that would be considered for invoking the branch authorization policy for scheduled commercial banks since fiscal 2014. In May 2017, the descriptionenforcement framework include misstatement of a branch was broadened to include all service delivery points of a bank, including branchesbank’s financial statements, wrong certifications, wrong information given in the Long Form Audit Report, and business correspondent outlets. The guidelines define a banking outlet as a fixed point service delivery unit, manned by either a bank’s staff or its business correspondent, and where services of acceptance of deposits, encashment of checks/cash withdrawal or lending of money are provided for a minimum of four hours per day for at least five days a week. The bank should have a regular off-site and on-site monitoring of the banking outlet to ensure proper supervision, uninterrupted service delivery and timely addressing of customer grievances.
The branch authorization policy is based on the classification of centers into six tiers based on the population size according to the 2011 census. Banks are permitted to open banking outletsvariances in all centers without the prior approval ofaudited financial statements found during the Reserve Bank of India, subjectIndia’s inspection and non-adherence to certain requirements. Banks are mandated to allocate 25.0% of the total number of new banking outlets opened during a year to un-banked rural centers. An unbanked rural centers is defined as a center in tier 5instructions and tier 6 centers that does not have core banking system enabled banking outlets. Restrictions on opening banking outlets in tier 1 centers, which are mainly metropolitan cities, was removed in May 2017 compared to the earlier norm that branches opened in tier 1 centers during a year cannot exceed the total number of branches opened in tier 2 to tier 6 centers during a year. Banks having general permission may shift, merge or close all banking outlets (except rural outlets and sole semi-urban outlets) at their discretion without the approval ofguidelines issued by the Reserve Bank of India. Branches can be shifted
236
Restrictions on Payment of Dividends
The Banking Regulation Act requires banks to locations in centerscompletely write off capitalized expenses and transfer 20.0% of the same or lower tier. The Reserve Bank of India can withhold the general permission granteddisclosed yearly profit to a reserve account before declaring a dividend. Banks have to comply with respectprudential requirements to branch opening and impose penal measures on banks that failbe eligible to meet the requirements. Banks are allowed to set up onsite/offsite Automated Teller Machines (ATMs) at centers/places identified by them, including SEZs.declare dividends.
Capital Adequacy Requirements
We are required to comply with the Reserve Bank of India’s capital adequacy guidelines. The Reserve Bank of India has implemented the Basel III framework in India effective April 1, 2013. The implementation of the Basel III framework is being phased in over several years and will be fully implemented by March 31, 2019.
The total capital of a bank is classified into Tier 1 capital comprising of common equity Tier 1 and Additional Tier 1, and Tier 2 capital. Under the Reserve Bank of India’s Basel III guidelines common equity Tier 1 capital is comprised of paid-up equity capital, reserves consisting of any statutory reserves, other disclosed free reserves, capital reserves representing surplus arising out of sale proceeds of assets, discounted value of revaluation reserves and foreign currency translation reserves. Additional Tier 1 capital includes perpetual debt instruments, perpetual non-cumulative preference shares and any other type of instrument generally notified by the Reserve Bank of India from time to time for inclusion in additional Tier 1 capital. Tier 2 capital includes general provisions and loss reserves, debt capital instruments classified into Tier 2 any other type of instrument generally notified by the Reserve Bank of India from time to time for inclusion in Tier 2 capital.
The Reserve Bank of India’s Basel III guidelines prescribesprescribe a minimum common equity Tier 1 risk-basedrisk-weighted capital ratio of 5.5% and, a minimum Tier 1 risk-based capital ratio of 7.0% and a minimum total risk-based capital ratio of 9.0%. The guidelines require banks to maintain a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets above the minimum requirements to avoid restrictions on capital distributions and discretionary bonus payments; prescribes more stringent adjustments to and deductions from regulatory capital; provide for limited recognition of minority interestspayments.
We were declared a systemically important bank in the regulatory capital of a consolidated banking group; provide for additional capital requirements for derivative exposures; and impose a 4.5% leverage ratio (the ratio of Tier 1 capital to exposure) measure till a final ratio is stipulatedIndia by the Basel Committee by the end of 2017. The capital conservation buffer has been introduced in a phased manner from March 31, 2016. The leverage ratio is being disclosed on a quarterly basis from April 1, 2015 on a consolidated basis. Credit value adjustment risk capital charges for over the counter derivatives were effective from April 1, 2014. In November 2016, the Reserve Bank of India permitted banks to issue perpetual debt instruments that can qualify for inclusion as additional tier 1 capitalin 2015, and debt capital instruments that can qualify for inclusion as tier 2 capital, by way of rupee denominated bonds in the overseas market.
The Basel III guidelines stipulate that additional Tier 1 and Tier 2 capital instruments must have loss absorbency characteristics, which require them to be written down or be converted into common equity at a pre-specified trigger event. The guidelines prescribe two trigger points for instruments issued before March 31, 2019: a common equity Tier 1 ratio of 5.5% of risk-weighted assets before March 31, 2019; and a common equity Tier 1 ratio of 6.125% of risk-weighted assets on and after March 31, 2019. Instruments issued on or after March 31, 2019 must have a pre-specified trigger at common equity Tier 1 ratio of 6.125% of risk-weighted assets. Capital instruments that no longer qualify as additional Tier 1 or Tier 2 capital are being phased out from April 1, 2013, with their recognition capped at 90.0% of the outstanding at December 31, 2012 from April 1, 2013 and reduced by 10 percentage points in each subsequent year. The Reserve Bank of India has permitted temporary write-down features for non-equity capital instruments. The guidelines also permit call options on perpetual debt instruments and non-cumulative preference shares after five years. Banks can issue Tier 2 capital instruments with a minimum maturity of five years. Additionally, banks are allowed to issue additional Tier 1 and Tier 2 capital instruments to retail investors subject to approval of their boards and adherence to investor protection requirements.
Coupons on Basel III instruments are required to be paid out of current year profits, and if current year’s profits are insufficient coupon may be paid out of revenue reserves. In February 2017, the Reserve Bank of India issued amendments with regard to payment of coupon on additional tier 1 capital instruments. As per the revised guidelines, if current year profits are not sufficient, coupon payment may be paid through profits carried forward from previous years, and/or reserves representing appropriation of net profits including statutory reserves. However, this would exclude share premiums, revaluation reserves, foreign currency translation reserves, investment reserves and reserves created on amalgamation. Appropriation from the statutory reserve shall be the last option when all other profit pools/reserves fall short of the coupon amount.
Apart from capital requirements, Basel III also prescribes two new liquidity requirements, the liquidity coverage ratio and the net stable funding ratio. The Reserve Bank of India has issued final guidelines on the liquidity coverage ratio effective from January 1, 2015 in a phased manner, starting with a minimum liquidity coverage ratio requirement of 60.0%, increasing to 100.0% from January 1, 2019. The Reserve Bank of India has also defined categories of assets qualifying as high quality liquid assets. The Reserve Bank of India issued draft guidelines on the net stable funding ratio in May 2015, which are likely to be implemented from January 1, 2018. See also “—Regulations on Asset Liability Management”. The Reserve Bank of India has issued guidelines on capital disclosure requirements in addition to the existing Pillar 3 guidance. The guidelines prescribe reconciliation of all regulatory capital elements with the published financial statements and other disclosure requirements.
In July 2014, the Reserve Bank of India released the framework for domestic systemically important banks. Banks identified as systemically important based on their size, complexity, cross-jurisdictional activities and inter-connectedness in the financial sector would be required to maintain additional common equity Tier 1 capital ranging from 0.2% to 0.8% of risk-weighted assets. This requirement is in addition to the capital conservation buffer. The higher capital requirement for domestic systemically important banks is being implemented in a phased manner from April 1, 2016 to April 1, 2019. The names of banks classified as domestic systemically important banks would be disclosed in the month of August every year. In August 2015, the Reserve Bank of India announced that State Bank of India (with an additional common equity Tier 1 capital ratio requirement of 0.6%) and ICICI Bank (with an additional common equity Tier 1 capital ratio requirement of 0.2% to be phased in) were domestic systemically important banks. We continued to be categorized as a systemically important bank in fiscal 2017. India in subsequent years. The additional common equity Tier 1 requirement for us is 0.05%0.20% of risk-weighted assets.
In February 2015, theThe Reserve Bank of India requires maintenance of a minimum leverage ratio of 4.0% for domestic systemically important banks.
The Reserve Bank of India released the final guidelines on implementation of the counter-cyclical capital buffer for Indian banks.banks in 2015. These guidelines would impose higher capital requirements on banks during periods of high economic growth. The counter-cyclical capital buffer would range from 0% to 2.5% of risk-weighted assets of a bank, based on the variation in the credit-to-GDP ratio from its long-term trend and other parameters. The Reserve Bank of India would pre-announce the buffer at least four quarters prior to implementation. The Reserve Bank of India will also announce guidance regarding the treatment of the surplus capital when the counter-cyclical capital buffer returns to zero. TheAt present, the Reserve Bank of India has stated that at present the economic conditions do not warrant activation ofactivated the counter-cyclical capital buffer.
See also “Operating and Financial Review and Prospects—Capital Resources— Regulatory capital” and “Risk Factors—Risks Relating to Our Business—that arise as a result of our presence in a highly regulated sector – We are subject to capital adequacy and liquidity requirements stipulated by the Reserve Bank of India, including Basel III, as well as general market expectations regarding the level of capital adequacy large Indian private sector banks should maintain, and any inability to maintain adequate capital due to changes in regulations, a lack of access to capital markets, or otherwise may impact our ability to grow and support our businesses” and “ – Risks that arise as a result of our presence in a highly regulated sector – We are subject to liquidity requirements of the Reserve Bank of India, and any inability to maintain adequate liquidity due to changes in regulations, a lack of access to capital markets, or otherwise may impact our ability to grow and support our businessesbusinesses.””.
With respect to computation of risk-weighted assets for capital adequacy purposes, we follow the standardized approach for the measurement of credit and market risks and the basic indicator approach for the measurement of operational risk. In the measurement of risk-weighted assets on account of credit risk, degrees of credit risk expressed as a percentage weighting have been assigned to various balance sheet asset items and off-balance sheet items. The credit equivalent value of off-balance sheet items is determined by applying conversion factors to the notional amount of the off-balance sheet items. The value of each item is multiplied by the relevant risk weight (and conversion factor for off-balance sheet items) to produce risk-adjusted values of assets and off-balance sheet items. Consumer credit exposures have a risk weight of 125.0% and other exposures meeting the qualifying criteria of regulatory retail, defined by the Reserve Bank of India, have a risk weight of 75.0%. Loans secured by residential property have differential risk weights ranging from 35.0% to 75.0% based on the size of the loan and the loan-to-value ratio. Since October 2015, residential housing loans of up to Rs. 3.0 million with a loan-to-value ratio of less than 80% and loans between Rs. 3.0 million and Rs. 7.5 million with a loan-to-value of less than 75.0% were risk-weighted at 35.0% compared to 50% earlier. Loans of up to Rs. 3.0 million with a loan-to-value ratio greater than 80.0% but less than 90.0% and loans between Rs. 3.0 million and Rs. 7.5 million with a loan-to-value between 75.0% and 80.0% were risk-weighted at 50.0%.
Loans greater than Rs. 7.5 million with a loan-to-value of less than 75.0% was risk-weighted at 75.0%. In June 2017, as a countercyclical measure, the risk weights for residential housing loans in some categories were revised. The maximum loan-to-value for loans between Rs. 3.0 million and Rs. 7.5 million was reduced to 80.0%, from the earlier 90.0%. The risk weight on loans greater than Rs. 7.5 million with a loan-to-value of less than 75.0% was revised from 75.0% to 50.0%.
Credit exposures to commercial real estate are risk-weighted at 100.0%, other than residential housing which is risk-weighted at 75.0%. Further, restructured housing loans have an additional risk weight237
The Reserve Bank of India has issued a timetable for the migration of Indian banks to the advanced approaches under the Basel II framework. Banks intending to migrate to the internal models approach for market risk and the standardized approach for operational risk were required to apply to the Reserve Bank of India after April 1, 2010. Banks intending to migrate to the advanced measurement approach for operational risk and internal ratings-based approaches for credit risk are required to apply to the Reserve Bank of India after April 1, 2012. In addition, in December 2011, the Reserve Bank of India issued guidelines on the internal ratings-based approach for calculating capital charges for credit risk. These guidelines prescribe the minimum loss given default levels to be considered for capital adequacy computation and treat restructured assets as non-performing assets for capital adequacy purposes. ICICI Bank is in the process of implementing various projects for migrating to the advanced approaches.
Under Pillar 2 of the Basel framework, banks are required to develop and put in place, with the approval of their boards, an Internal Capital Adequacy Assessment Process commensurate with their size, level of complexity, risk profile and scope of operations. The Reserve Bank of India has also issued guidelines on stress testing to advise banks to put in place appropriate stress testing policies and frameworks, including “sensitivity tests” and “scenario tests”, for the various risk factors, the details and results of which are included in the Internal Capital Adequacy Assessment Process. TheAs per Reserve Bank of India issued updated guidelines on stress testing, in December 2013. According to the guidelines, banks have to carry out stress tests for credit risk and market risk to assess their ability to withstand shocks. The guideline containsguidelines relate to the overall objectives, governance, design and the implementation of stress testingstress-testing program. Banks are required to carry out risk factor basedfactor-based stress testing, scenario basedscenario-based stress testing and stress testing by employing shocks on a bank’s portfolio at a standalone and group level. In addition, banks are also required to create a reverse stress testing framework by March 31, 2015.framework. Banks are classified into three categories based on size of risk-weighted assets. Complex and severe stress testing would be carried out by banks with risk-weighted assets of more than Rs. 2,000.0 billion.
Loan Loss ProvisionsPrompt Corrective Action by the Reserve Bank of India
The Prompt Corrective Action framework is a framework under which banks with weak financial condition are put under watch by the Reserve Bank of India and Non-Performing Assetssubject to restrictions on operations and business. As per the guidelines, a bank may be placed under the framework at any point in time, if it is found to breach any of the parameters prescribed. In November 2021, the Reserve Bank of India reviewed and revised the existing Framework on Prompt Corrective Action (“PCA”). The key criteria for invocation of the PCA include (i) falling below a capital adequacy ratio of 10.25% and/or below a common equity Tier 1 ratio of 6.75%, (ii) exceeding net non-performing asset ratio of 6.0%, or (iii) a leverage ratio of below 4.0%.
Depending upon the extent of breach, the bank may be classified into three risk thresholds and will be accordingly restricted from business expansion and other mandatory action for resolution. Depending on the risk threshold, the actions may include restriction on capital expenditure (other than for technological upgradation within Board approved limits). A bank breaching the risk threshold where the common equity Tier 1 falls below 3.625% could be considered for resolution through tools like amalgamation, reconstruction and winding-up.
Discretionary Corrective Actions now include resolution of the bank by amalgamation or reconstruction (Ref. Section 45 of Banking Regulation Act 1949); a prohibition on expansion of credit/ investment portfolios, other than investment in government securities and other high quality liquid investments; restrictions on or reduction in variable operating costs; and restrictions on or reduction of outsourcing activities and new borrowings.
Exit from being subject to prompt corrective action and withdrawal of restrictions may be considered in the following scenario: (i) if no breaches in risk thresholds in any of the parameters are observed as per four continuous quarterly financial statements, one of which should be an audited annual financial statement (subject to assessment by Reserve Bank of India), or (ii) based on supervisory comfort of the Reserve Bank of India, including an assessment on sustainability of profitability of the bank.
Legal Reserve Requirements
Cash Reserve Ratio
238
A bank is required to maintain a specified percentage of its net demand and time liabilities, excluding interbank deposits, by way of cash reserve with itself and by way of balance in current account with the Reserve Bank of India. In May 2022, the Reserve Bank of India increased the cash reserve ratio by 50 basis points from 4.00% to 4.50% of net demand and time liabilities, effective from the reporting fortnight beginning May 21, 2022.
Statutory Liquidity Ratio
In addition to the cash reserve ratio, a bank is required to maintain a specified percentage of its net demand and time liabilities by way of liquid assets like cash, gold or approved unencumbered securities. Investments in sovereign gold bonds are also allowed to be considered in the calculation of statutory liquidity ratio. Currently, the statutory liquidity ratio is at 18.0%, effective since April 2020.
Liquidity Coverage Ratio
In line with the Basel III framework, banks in India are required to maintain a minimum liquidity coverage ratio which is a ratio of the stock of high quality liquid assets to total net cash outflows over the next 30 calendar days under certain prescribed stressed conditions. The liquidity coverage ratio is designed to ensure that a bank maintains an adequate level of unencumbered high quality liquid assets to meet any acute liquidity requirements over a hypothetical stressed period lasting 30 days and the requirement was phased in over time. A minimum liquidity coverage ratio requirement of 100.0% is required.
Further, as per guidelines issued on liquidity standards, the Reserve Bank of India allows banks, under certain stressed conditions, to avail themselves of a special liquidity facility against certain securities classified as level one high quality liquid assets. The facility, called the Facility to Avail Liquidity for Liquidity Coverage Ratio, is operated by the Reserve Bank of India.
Banks are allowed to avail of funds under the marginal standing facility by dipping into the statutory liquidity ratio upto an additional 2% of a bank’s net demand and time liabilites.
The Reserve Bank of India has permitted the banks to include government securities as Level 1 high quality liquid assets under the facility to avail liquidity for liquidity coverage ratio within the mandatory statutory liquidity ratio requirement of up to 16% of the Bank’s net demand and time liabilites and government securities, to the extent allowed under the marginal standing facility in addition to other eligible assets.
Net Stable Funding Ratio (NSFR)
The Reserve Bank of India has issued guidelines on net stable funding ratio. The ratio promotes resilience over a longer time horizon by requiring banks to fund their activities with more stable sources on an ongoing basis. The net stable funding ratio is defined as the amount of available stable funding relative to the amount of required stable funding. Banks are required to maintain a ratio of at least 100.0% on an ongoing basis.
239
Regulations Relating to Advancing Loans
The provisions of the Banking Regulation Act govern the advancing of loans by banks in India. The Reserve Bank of India also issues directions covering the loan activities of banks. These directions and guidelines issued by the Reserve Bank of India have been consolidated in the Master Circular on “Loans and Advances—Statutory and Other Restrictions.”
Banks are free to determine their own lending rates but each bank must disclose its minimum interest rate which takes into consideration all elements of lending rates that are common across borrowers.
Interest rates on all new floating rate retail loans and loans to micro, small and medium enterprises extended by banks are required to be linked to an external benchmark. The external benchmark include the Reserve Bank of India policy repo rate, Government of India 91-day treasury bill yield, Government of India 182-day treasury bill yield or any other benchmark market interest rate produced by Financial Benchmarks India Private Limited.
Banks are free to offer floating rate loans to other types of borrowers (i.e., corporate borrowers) either on external benchmark or marginal cost of funds based lending rate which is the internal benchmark for such purposes. Banks have to review and publish their marginal cost of funds based lending rate every month on a preannounced date for different maturities, ranging from overnight rate up to one year basis methodology, prescribed by Reserve Bank of India for computation of marginal cost of funds based lending rate.
There shall be no lending below the benchmark rate for a particular maturity for all loans linked to that benchmark.
Under Section 20(1) of the Banking Regulation Act, a bank cannot grant any loans and advances against the security of its own shares and a banking company is prohibited from entering into any commitment for granting any loans or advances to or on behalf of any of its directors, or any firm in which any of its directors is interested as partner, manager, employee or guarantor, or any company (not being a subsidiary of the banking company or a company registered under Section 25 of the Companies Act, 1956 or a government company) of which, or the subsidiary or the holding company of which any of the directors of the bank is a director, managing agent, manager, employee or guarantor or in which he holds substantial interest, or any individual in respect of whom any of its directors is a partner or guarantor. There are certain exemptions in this regard as the explanation to the section provides that “loans or advances” shall not include any transaction which the Reserve Bank of India may specify by general or special order as not being a loan or advance for the purpose of this section.
There are guidelines on loans against equity shares in respect of amount, margin requirement and purpose. The Reserve Bank of India has issued guidelines requiring banks to put in place a policy for exposure to real estate with the approval of their boards. The Reserve Bank of India has also permitted banks to extend financial assistance to Indian companies for acquisition of equity in overseas joint ventures or wholly owned subsidiaries or in other overseas companies, new or existing, as strategic investment. Banks are not permitted to finance acquisitions by companies in India.
240
The Reserve Bank of India has issued instructions regarding sharing of information relating to credit, derivatives and unhedged foreign currency exposures among banks and to put in place an effective mechanism for information sharing. Under this framework, approval of fresh loans and renewal of loans to new and existing borrowers should be done only after obtaining/sharing necessary information.
The Reserve Bank of India guidelines for delivery of bank credit require that for borrowers having an aggregate fund-based working capital limit of Rs. 1.5 billion and above from the banking system, a minimum loan component of 60.0% on the fund-based working capital limits is applicable. Drawing in excess of the minimum loan component threshold would be allowed in the form of cash credit/overdraft facility. The amount and tenor of the loan component may be fixed by banks in consultation with the borrowers, subject to the tenor of the loan component not being less than seven days.
Based on the “Recommendations of the Working group on Digital Lending – Implementation” dated August 10, 2022, Reserve Bank of India issued “Guidelines on Digital Lending” on September 2, 2022. The requirements of the guidelines include calculation of Annual Percentage Rate (APR) and displaying the same in the prescribed format of Key Fact Statement (KFS), providing KFS to the customer, appointing Nodal Grievance Redressal Officer for dealing with complaints/issues related to digital lending, providing cooling off /look up periods during which the borrower can foreclose the loan without paying any penalty, providing digitally signed documents to the borrowers and other requirements. To provide clarity on certain aspects of the guidelines, Reserve Bank of India issued Frequently Asked Questions (FAQ) on Digital Lending Guidelines (DLG) on February 14, 2023.
Directed Lending
Priority Sector Lending
The guidelines on lending to priority sector require commercial banks to lend a certain percentage of bank credit to specific sectors (the priority sectors) such as agriculture, small, micro and medium enterprises, education, housing sector, social infrastructure, renewable energy and loans to start-ups.
The Reserve Bank of India’s total priority sector target is 40.0% of adjusted net bank credit (“ANBC”) or of the credit equivalent amount of off-balance sheet exposure (“CEOBE”), whichever is higher, with sub-targets of 7.5% to micro enterprises within the overall target of 18.0% in agriculture. The target for lending to small and marginal farmers has been increased from 9.0% in fiscal 2022, to 9.5% in fiscal 2023 and will be increased further to 10.0% in fiscal 2024. The target for lending to identified weaker sections of society has been increased from 11.0% in fiscal 2022, to 11.5% in fiscal 2023 and will be increased further to 12.0% in fiscal 2024.
The Reserve Bank of India has notified a new criterion for classifying an enterprise as micro, small and medium from July 2020. Udyam Registration Certificate (“URC”) is necessary for lending to micro, small and medium enterprises to qualify for priority sector. In July 2021, retail and wholesale traders were permitted to register online and obtain URC, resulting in them continuing to qualify under priority sector lending.
241
Investments by banks in securitized assets, outright purchases of loans and assignments are eligible for classification under priority sector if the underlying assets themselves qualified for such treatment. The interest rates charged to ultimate borrowers by the originating entities in such transactions are capped for such transactions to be classified as priority sector.
The Reserve Bank of India has allowed banks to sell and purchase priority sector lending certificates in the event of excess/shortfall in meeting priority sector targets, which may help in reducing the shortfall in priority sector lending. These instruments are issued by banks that have a surplus in priority sector lending or any of its individual sub-segments and are purchased by banks having a shortfall, through a trading portal.
The Reserve Bank of India allows banks to issue long-term bonds for financing infrastructure and low-cost housing. The amount raised by way of these bonds is permitted to be excluded from adjusted net bank credit for the purpose of computing priority sector lending targets, except to the extent that the lending against these bonds is included in priority sector lending.
Banks falling short of their priority sector lending targets are required to contribute allocated amounts to specific Government of India funds (i.e., Rural Infrastructure Development Fund (“RIDF”)), established with National Bank for Agriculture and Rural Development (“NABARD”) and other funds with NABARD/ National Housing Bank (“NHB”)/ Small Industries Development Bank of India (“SIDBI”)/ Micro Units Development & Refinance Agency (“MUDRA”) Limited. The interest rates on contribution to RIDF or any other funds, tenure of deposits, and other features are fixed by the Reserve Bank of India from time to time. The interest rates on these contributions are below market rates.
Export Credit
The Reserve Bank of India allows exporters to avail short-term working capital financing at internationally comparable interest rates. Export credit is available both in rupee as well as in foreign currency. This enables exporters to have access to an internationally competitive financing option. The Reserve Bank of India has allowed exporters with a satisfactory track record of at least three years to receive long-term export advance at concessional rates for execution of long-term supply contracts up to a maximum period of 10 years.
Regulations governing overseas direct investment
In August 2022, Reserve Bank of India along with the Central Government has issued a new Overseas Investment regime (i.e., Foreign Exchange Management (Overseas Investment) Rules, Regulations and Directions) to promote the ease of doing business, to cover wider economic activity and significantly reduce the need for seeking specific approvals from the Reserve Bank of India. The new regime has introduced the Late Submission Fee (LSF) for reporting delays and also the specific guidelines have been prescribed for Overseas Investment in IFSC by persons resident in India.
Regulations on International Trade Settlement in Indian Rupees (“INR”)
242
In July 2022, Reserve Bank of India has notified an additional arrangement for invoicing, payment, and settlement of exports/imports in INR in order to promote growth of global trade with emphasis on exports from India and to support the interest of global trading community in INR. The broad framework for cross border trade transactions in INR is as follows:
a) | All exports and imports trade transactions to be denominated, invoiced and settled in INR. |
b) | AD bank in India may open Special INR VOSTRO of correspondent bank/s of the partner trading country for settlement of trade transactions with any country after obtaining Reserve Bank of India approval. |
c) | The balance in Special INR VOSTRO can be used for Payments for projects and investments, Export/Import advance flow management and Investment in Government Treasury Bills, Government securities and other assets. |
Credit Exposure Limits
As a prudential measure aimed at better risk management and avoidance of concentration of credit risks, the Reserve Bank of India has prescribed credit exposure limits for banks and long-term lending institutions in respect of their lending to individual borrowers and to all companies in a single group (or sponsor group).
The Reserve Bank of India requires banks to fix internal limits of exposure to specific sectors. These limits are subject to periodic review by the banks.
Under Reserve Bank of India guidelines, a borrower having an aggregate fund-based credit limit of Rs. 100.0 billion will be considered a specified borrower. The normally permitted lending limit for specified borrowers is defined as an amount that is 50.0% of the incremental funds raised over and above the aggregate fund-based credit limit. The general provision required on the incremental exposure above the normally permitted lending limit would be 3.0% and the additional risk weight for such exposure over and above the applicable risk weight would be 75.0%.
Further, the Reserve Bank of India has issued guidelines on large borrowers which prescribe a limit of 20.0% and 25.0% of the eligible capital base in respect of exposures to single counterparty and groups of connected counterparties with effect from April 2019. The eligible capital base is defined as the Tier 1 capital of the bank as against the earlier norm of total capital funds. Exposure to a single non-banking finance company or a group of connected non-banking finance companies is restricted to 15.0% and 25.0%, respectively, of the eligible capital base. The definition of exposure for large borrowers includes off-balance sheet items converted into credit exposure equivalents through the use of credit conversion factors used for assessing credit risk under the standardized approach for risk based capital requirements. In June 2019, the Reserve Bank of India introduced an economic inter-dependence criterion in the definition of connected counterparties, which has been applicable since April 2020.
Corporate borrowers having total exposure of Rs. 250 million (100 million from April 2024 onwards and 50 million from April 2025 onwards) and above in the banking system are required to obtain a legal entity identifier registration. A borrower who does not obtain the legal entity identifier is not eligible for renewal or enhancement of credit facilities.
Capital Market Exposure Limits
The Reserve Bank of India guidelines on capital market exposures stipulate that a bank’s exposure to capital markets in all forms (both fund-based and non-fund-based) by way of investments in shares, convertible bonds/debentures, units of equity oriented mutual funds, loans against shares, and secured and unsecured advances to stock brokers, should not exceed 40.0% of its net worth on both a stand-alone and consolidated basis as of March 31 of the previous year.
243
Limits on intra-group transaction and exposures
The Reserve Bank of India guidelines on management of intra-group transactions and exposures for financial conglomerates prescribe quantitative limits for intra-group financial transactions and prudential measures for non-financial transactions. The Reserve Bank of India has prescribed a single group entity exposure limit of 5.0% of paid-up capital and reserves of the bank for non-financial companies and unregulated financial services companies and 10.0% in the case of regulated financial entities. The aggregate group exposure cannot exceed 20.0% of paid-up capital and reserves and surplus in case of all group entities (financial and non-financial) taken together and 10.0% in the case of all non-financial companies and unregulated financial services companies taken together. Banks’ exposures to other banks/financial institutions in the group in the form of equity and other capital instruments are exempted from above limits. If the exposure exceeds the permissible limits, the excess amount would be deducted from common equity Tier 1 capital of the bank.
Master Direction on Transfer of Loan Exposure
In order to provide banks with options to manage liquidity, rebalance their exposure or strategic sales and resolve their non-performing assets, the Reserve Bank of India issued Master Direction – Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 on September 24, 2021. Under these guidelines, the board of directors of a bank must establish a policy for transfer of loans. Originators need to satisfy the Minimum Holding Period requirement (3 months and 6 months) and Minimum Retention Ratio (5% and 10%) as mentioned in extant guideline.
Securitisation involves transactions where credit risk in assets are redistributed by repackaging them into tradeable securities with different risk profiles which may give investors of various classes access to exposures which they otherwise might be unable to access directly. Reserve Bank of India issued the Master Direction (Securitisation of Standard Assets) Directions, 2021 on September 24, 2021.
The securitisation and Transfer of Loan exposure transactions can be executed by Lenders who are Scheduled commercial banks, Primary (Urban) Co-operative Banks/State Co-operative Banks/ Central Co-operative Banks (only for transfer of loan exposures), All India Term Financial Institutions, Small Finance Banks, NBFCs, and HFCs.
Credit Information Bureaus
Pursuant to the Credit Information Companies (Regulation) Act, 2005, every credit institution, including a bank, has to become a member of a credit information bureau and furnish to it such credit information as may be required of the credit institution by the credit information bureau about individuals or groups who enjoy a credit relationship with it. Banks are also required to share information on investments in commercial paper and unhedged foreign currency exposures of borrowers to the credit information companies. Other credit institutions, credit information bureaus and such other persons as the Reserve Bank of India specifies may access such disclosed credit information. Seeking to strengthen the coverage and use of credit information, the Reserve Bank of India standardized the data formats for furnishing of credit information to credit information companies, common classification of credit scores and best practices to be followed by credit information companies.
244
Loan Loss Provisions and Non-Performing Assets
The Reserve Bank of India’s Master Circular on “Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances” dated April 1, 2023 as amended, provides consolidated instructions and guidelines relating to income recognition, asset classification and provisioning standards in the Master Circular on “Prudential Norms on Income Recognition,
Asset Classification and Provisioning pertaining to Advances”. The principal features of the Reserve Bank of India guidelines, which have been implemented with respect to our loans, debentures, lease assets, hire purchases and bills in our Indian GAAP financial statements, are set forth below.standards.
Asset Classification
A non-performing asset is an asset in respect of which any amount of interest or principal is overdue for more than 90 days. In particular, an advance is a non-performing asset where:where interest and/or installment of principal remains overdue for a period of more than 90 days in respect of a term loan; the account remains “out-of-order” (as defined below) in respect of an overdraft or cash credit; the bill remains overdue for a period of more than 90 days in case of bills purchased and discounted; installment of principal or interest remains overdue for two crop seasons for short duration crops or for one crop season for long duration crops; the amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitization transaction.
An account is treated as “out-of-order” if the outstanding balance remains continuously in excess of the approved drawing limit for 90 days. In circumstances where the outstanding balance in the principal operating account is less than the approved drawing limit, but (i) there are no credits continuously for a period of 90 days from the specified due date for payment; or in respect of credit card transactions, if the minimum amount due, as mentioned in the statement, remains overdue for a period of more than 90 days from the payment due date ofmentioned in the balance sheet of the bank or (ii) the credits are not sufficient to cover the interest debited during the same period, these accounts are treated as “out-of-order”.
statement. Interest in respect of non-performing assets is not recognized or credited to the income account unless collected.
Non-performing assets are classified as described below.
Sub-Standard AssetsAssets. : Assets that are non-performing assets for a period not exceeding 12 months. Such an asset has well-defined credit weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the bank will sustain some loss, if deficiencies are not corrected.
Doubtful AssetsAssets. : Assets that are non-performing assetshave remained sub-standard for more thana period of 12 months. A loan classified as doubtful has all the weaknesses inherent in assets that are classified as sub-standard,substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.
Loss AssetsAssets. : Assets on which losses have been identified by the bank or internal or external auditors during the performance of their audit procedures or during the Reserve Bank of India inspection but the amount has not been written off fully.
There are separate guidelines for classification of loans for projects under implementation which are based on the date of commencement of commercial production and date of completion of the project as originally envisaged at the time of financial closure. For infrastructure projects, a loan is classified as non-performing if it failed to commence commercial operations within two years from the documented date of
commencement and for non-infrastructure projects, the loan is classified as non-performing if it failed to commence operations within 12 months from the documented date of commencement. During the three months ended December 31, 2015, against the backdrop of continuing challenges in the corporate sector, the Reserve Bank of India articulated an objective of early and conservative recognition of stress and provisioning, and held discussions with and asked a number of Indian banks, including us, to review certain loan accounts and their classification over the six months ended March 31, 2016. As a result ofthe challenges faced by the corporate sector and thediscussions with and review by the Reserve Bank of India, non-performing assets and provisions of a number of Indian banks, including us, increased significantly during the second half of fiscal 2016. See also “Risk Factors—Risks Relating to Our Business—If regulators continue to impose increasingly stringent requirements regarding non-performing loans and provisioning for such loans, or if the provisions for such loans otherwise increase, our business will suffer” and “Business-Classification of loans”.
Following the government245
Since fiscal 2017, banks have been mandated to make additional disclosures in their financial statements where there is a material divergence in the asset classification and provisioning by banks as compared to that prescribed by the regulator. According to the guidelines, where the additional provisioning requirements assessed by the Reserve Bank of India exceed 15.0% of the published net profits after tax for the reference period, and/or the additional gross non-performing assets identified by the Reserve Bank of India exceed 15.0% of the published incremental gross non-performing assets for the reference period, the same will have to be disclosed in the notes to accounts section of the annual report. The Reserve Bank of India, under its risk-based supervision exercise, carries out the risk assessment of banks on an annual basis. As a part of this assessment, the Reserve Bank of India separately reviews asset classification and provisioning of credit facilities given by banks to its borrowers. This assessment is initiated subsequent to the completion of the annual audit and the publication of audited financial statements for the given financial year. TheAny divergences if any, in classification or provisioning arising out of the supervisory process are given effect to in the financial statements in subsequent periods after conclusion of the exercise. We have made disclosures pertainingSuch divergences are required to such divergencesbe disclosed by banks in our annual report for fiscal 2017.
Restructured Loans
Thetheir financial statements if either the additional provisioning requirement assessed by the Reserve Bank of India has separate guidelinesexceeds 10.0% (5% from fiscal 2024 onwards) of the published profits before provisions and contingencies for restructured loans. Up to year-end fiscal 2015, a fully secured standard loan (other than in specified categories such as personal loans, capital market exposures and commercial real estate exposures) could be restructured by rescheduling the principal repayment and/period, or the interest element without being classified asadditional gross non-performing subject to compliance with prescribed conditions, but separately disclosed as a standard restructured loan. The classificationassets identified by the Reserve Bank of restructured loans as standard restructured loan was subject to compliance with certain conditions such as the loans being fully secured, promoter’s contribution, including additional funds brought in, comprising at least 20.0% of a bank’s sacrifice or 2.0%India exceeds 10.0% (5% from fiscal 2024 onwards) of the restructured debt, whichever is higher. Accounts restructured after April 1, 2015, are required to be classified aspublished incremental gross non-performing exceptassets for restructuringthe reference period, or both. The assessment of project loans on accountdivergence in asset classification and provisioning conducted by the Reserve Bank of delayIndia for ICICI Bank in commencement of operations (as discussed below)fiscal 2020, fiscal 2021 and accounts where the restructuring was proposed prior to April 1, 2015 but effected subsequent to that date.fiscal 2022 did not require any additional disclosures.
With regard to restructuring of projectRestructured loans any extension in repayment of the loan beyond the prescribed period (two years for infrastructure projects and one year for non-infrastructure projects) of the date of commencement of commercial operations from the originally planned date is treated as a restructuring of the account. In cases where projects under implementation have been stalled primarily due to inadequacies of the existing promoters and there is a change in the ownership and management of the borrowing entity, a further period of extension of the date of commencement of commercial operations was permitted by two years.
Standard restructured loans are subject to higher standard asset provisioning requirements and higher risk weights for capital adequacy purposes. The higher standard asset provisioning requirements continue for two years from the commencement of the first payment of interest or principal, whichever is later on the credit facility with the longest period of moratorium. The higher risk weights and provision shall continue until satisfactory performance under the revised payment schedule has been established for one year from the date when the first payment of
interest/principal falls due under the revised schedule. Restructured loans continue to be classified as such until they cease to be subject to the higher standard asset provisioning and/or risk weight requirements.specified period. If the restructured account is overdue as per the revised schedule for a period beyond the minimum period prescribed for classification of a loan as non-performing, it is required to be downgraded to non-performing status with reference to the pre-restructuring payment schedule.
In June 2015, the Reserve Bank of India issued guidelines on strategic debt restructuring providing banks with enhanced capabilities to initiate change of ownership in accounts which fail to achieve the projected viability milestones. The guidelines provide for conversion of debt into equity and acquisition of majority ownership of the borrower by banks. On conversion of debt into equity, banks are allowed to continue with the current asset classification for an 18-month period (stand-still benefit) during which the loan continues to be classified as standard even if the default in payment of interest or principal would otherwise have required the loan to be classified as non-performing. Interest on the loan during this period is not accrued, and is recognized only if received in cash. On transfer of ownership to a new sponsor, the asset can be upgraded to the standard category and refinancing of the debt is allowed without such refinancing being treated as a restructuring. However, in the event a new sponsor is not identified within the 18-month period, the bank has to revert to the earlier asset classification norm as was applicable prior to the stand-still in asset classification. In September 2015, the Reserve Bank of India allowed banks to upgrade the credit facilities extended by banks to standard category even in the event of a change in ownership of the borrower outside strategic debt restructuring. Considering the change in risk profile following the change in management, banks are allowed to refinance the existing debt without treating it as restructuring subject to the bank making provisions for any diminution in fair value of the existing debt. See also ““Risk Factors- Factors—Risks Relating to Our Business- Our standardBusiness—The future trajectory of the COVID-19 pandemic is uncertain and could adversely affect our business, the quality of our loan portfolio includes loans subject to standstill provisions in respect of asset classification”and our financial performance”.
In February 2016, the Reserve Bank of India further revised guidelines with regard to strategic debt restructuring allowing banks to classify the asset as standard on divesting 26.0% of the shares of the company, lower than the earlier requirement of 51.0%. To avoid a sudden increase in provisioning in case the strategic debt restructuring fails, the guidelines require banks to increase provisions on such accounts to up to 15.0% by the end of the 18-month stand-still period, to be made in equal instalments over four quarters. It was further clarified that the benefit of ‘stand-still’ in asset classification will apply from the reference date (i.e. date of decision of strategic debt restructuring) itself. However, if the targeted conversion of debt into equity shares does not take place within 210 days from the review of achievement of milestones/critical conditions, the benefit will cease to exist.
As an additional measure to strengthen the ability of banks to deal with large stressed assets, in June 2016 the Reserve Bank of India issued guidelines introducing the Scheme of Sustainable Structuring of Stressed Assets. Projects that have commenced commercial operations and have aggregate borrowings (including interest) of over Rs. 5.0 billion are eligible to be structured under the scheme. The sustainable debt level should not be less than 50.0% of current funded liabilities. The scheme will be applicable where the Joint Lenders’ Forum assesses the sustainable debt and concludes based on a techno-economic viability assessment that the current sustainable debt can be serviced over its tenor at current levels of cash flows. The portion assessed as unsustainable will be converted into equity or redeemable cumulative optionally convertible preference shares or convertible debentures. The guidelines also require higher provision to be made for the unsustainable portion of the debt. The scheme may include allowing the current promoter to continue with majority shareholding, or bringing in a new promoter, or lenders acquiring majority shareholding through conversion of debt into equity. In November 2016, the Reserve Bank of India revised the guidelines allowing the sustainable portion of the debt to be treated as standard at the time of implementation of the resolution, subject to provisions made upfront, covering the higher of 25.0% of the total outstanding or 50.0% of the unsustainable portion of debt.
In May 2017, the government of India promulgated the Banking Regulation (Amendment) Ordinance, 2017 which is intended to facilitate timely resolution of stressed assets by empowering the Reserve Bank of India. The Ordinance authorizes the Reserve Bank of India to direct banks to resolve specific stressed assets. It amended section 35A of the Banking Regulation Act, 1949 and authorized the Reserve Bank of India to intervene and instruct banks to resolve specific stressed assets and initiate insolvency resolution process where required. The Reserve Bank of India is also empowered to issue other directions for resolution, and appoint or approve for appointment, authorities or committees to advise banking companies for resolution of stressed assets. Subsequently, to facilitate timely decision making under the Joint Lenders’ Forum, the Reserve Bank of India issued guidelines directing banks to adhere to timelines and any resolution plan approved by 60.0% of the creditors by value and 50.0% of the creditors by number at the Joint Lenders’ Forum was made binding on all members. The Overseeing Committee, which was set up to oversee resolution under the Scheme for Sustainable Structuring of Stressed Assets, was reconstituted and expanded and the scope of cases to be referred to the
Overseeing Committee was also expanded to include cases other than under the Scheme for Sustainable Structuring of Stressed Assets having aggregate banking system exposure greater than Rs. 5.00 billion.
Further, in June 2017, the Reserve Bank of India issued directions to banks to file for resolution under the Insolvency and Bankruptcy Code with the National Company Law Tribunal in respect of 12 large stressed accounts. The Reserve Bank of India has also directed banks to maintain a minimum prescribed provision for these cases referred to the National Company Law Tribunal. With respect to other identified stressed accounts, the banks are required to finalize a resolution plan within six months. In cases where a viable resolution plan is not agreed upon within six months, banks shall be required to file for insolvency proceedings under the Insolvency and Bankruptcy Code. See also“Overview of the Indian Financial Sector- Legislative Framework for Recovery of Debts due to Banks”.
Loans classified as sub-standard and doubtful assets can also be restructured. Non-performing accounts on restructuring can be upgraded only when all the outstanding loans or facilities in the account perform satisfactorily for a period of at least one year from the commencement of the first payment of interest or principal, whichever is later, on the credit facility with the longest period of moratorium.
Since fiscal 2014, banks have been mandated to disclose further details on accounts restructured in their annual reports. This includes disclosing accounts restructured on a cumulative basis excluding the standard restructured accounts which cease to attract higher provision and/or higher risk weight, the provisions made on restructured accounts under various categories and details of movement of restructured accounts.
Provisioning and Write-Offswrite-offs
Provisions under Indian GAAP are based on guidelines specific to the classification of the assets. The following guidelines apply to the various asset classifications:
Standard Assets: The allowances on the performing portfolios are based on guidelines issued by |
An additional provision between 0%-0.8% is required from April 1, 2014 on standard loans to entities having unhedged foreign currency exposure. Banks also have to make an accelerated provision of 5.0% on the loans overdue for 61-90 days and where the formation of the Joint Lenders’ Forum, required for such accounts, has been delayed. See also “—Framework for Early Identification of Stress and Information Sharing”. Further, standard loans require a higher provision of 5.0% in case any director of the company appears more than once in the list of willful defaulters. In case of fraud accounts, 100.0% provisioning has to be made with the option to make the provision over a period of four quarters. The provision requirement pertaining to fraud accounts is computed after adjusting for any financial collateral that may be available and is eligible under Basel III capital adequacy computation.
In a guideline issued in April 2017, the Reserve Bank of India. The provisioning requirement is a uniform rate of 0.4% for all standard assets except certain advances which require provision in the range of 0.25% to 2%:
Reserve Bank of India requiresguidelines require banks to maintain provisions for standard assets at rates higher than the regulatory requirement in respect of advances to stressed sectors of the economy. BanksFor assets referred to the National Company Law Tribunal under the Insolvency and Bankruptcy Code, banks have to put in place a Board-approved policy for making highermake provisions based on evaluationto the extent of risk50.0% of the secured portion and stress in various sectors. The policy will have to be reviewed on a quarterly basis. As an immediate step,100.0% of the Reserve Bankunsecured portion of India required banks to review the telecom sector by June 30, 2017.outstanding loans.
Sub-standard Assets: A provision of 15.0% is required for all substandard assets as compared to the previous requirement of 10.0%. A provision of 25.0% is required for accounts that are unsecured. Unsecured infrastructure loan accounts classified as substandard require provisioning of 20.0%.
246 Doubtful Assets: A 100.0% provision/write-off is required against the unsecured portion of a doubtful asset and is charged against income. For the secured portion of assets classified as doubtful, a 25.0% provision is required for assets that have been classified as doubtful for a year, a 40.0% provision is required for assets that have been classified as doubtful for one to three years and a 100.0% provision is required for assets classified as doubtful for more than three years. The value assigned to the collateral securing a loan is the amount reflected on the borrower’s books or the realizable value determined by third-party appraisers. Loss Assets: The entire asset is required to be written off or provided for. |
Restructured Loans: The provision on restructured loans is required to be equal to the difference between the fair value of the loan before and after restructuring. The fair value of the loan before restructuring is computed as the present value of cash flows representing the interest at the existing rate charged on the loan before restructuring and the principal. The fair value of the loan after restructuring is computed as the present value of cash flows representing the interest at the rate charged under the loan’s restructured terms and the principal. Both sets of cash flows are discounted at the bank’s base rate as on the date of restructuring plus the appropriate term premium and credit risk premium for the borrower category on the date of restructuring. In July 2015, the Reserve Bank of India issued guidelines on the discount rate for computing the present value of future cash flows of a restructured account. The guideline prescribes that a rate equal to the actual interest rate charged to the borrower before restructuring should be used to discount the future cash flows for the purpose of determining the diminution in fair value of the loan on restructuring. A weighted average interest rate may be used as the discounting rate for accounts having multiple credit facilities with varying interest rates.
The Reserve Bank of India has issued prudential norms on income recognition, asset classification and provisioning pertaining to advances which covers norms relating to creation and utilization of floating provisions (i.e., provisions which are not made in respect of specific non-performing assets or are made in excess of regulatory requirements for provisions for standard assets). The floating provisions outstanding at year-end can be used only for contingencies under extraordinary circumstances for making specific provisions against non-performing accounts after obtaining approval from the board of directors and with the prior permission of the Reserve Bank of India. It also clarified that the extraordinary circumstances refer to losses which do not arise in the normal course of business and are exceptional and non-recurring in nature, such as natural calamities, civil unrest, collapse of currency, general melt down in the markets affecting the entire financial system and exceptional credit losses. Floating provisions for advances and investments must be held separately and cannot be reversed by credit to the profit and loss account. Until utilization of such provisions, they can be netted off from gross non-performing assets to compute the net non-performing assets. Alternatively, floating provisions could be treated as part of Tier 2 capital within the overall ceiling of 1.25% of total risk-weighted assets.
In October 2009, the Reserve Bank of India advised Indian banks to increase their total provisioning coverage ratio, including floating provisions and prudential/technical write-offs, to 70.0% by September 30, 2010. The Reserve Bank of India allowed the banks to include prudential/technical write-off in both the gross non-performing assets and the provisions held in the calculation of provisioning coverage ratio. The Reserve Bank of India permitted us to achieve the stipulated level of provisioning coverage of 70.0% in a phased manner by March 31, 2011. We reached the required 70.0% in December 2010. In April 2011, the Reserve Bank of India stipulated that banks would be required to maintain their provisioning coverage ratios with reference to their gross non-performing assets position at September 30, 2010 and not on an ongoing basis. The Reserve Bank of India further clarified that any surplus provisioning should not be written back but should be segregated into a “counter-cyclical provisioning buffer” and that banks will be allowed to use this buffer to make specific provisions for non-performing assets during a system-wide downturn. For instance, considering the slowdown in economic growth and rising asset quality concerns during fiscal 2014, as a counter-cyclical measure, the Reserve Bank of India allowed banks to utilize up to 33.0% of the counter-cyclical provisioning buffer or floating provisions held as on March 31, 2013, for making accelerated or additional provisions towards non-performing assets during fiscal 2014. Further, in March 2015, the Reserve Bank of India increased the limit to 50.0% of the counter-cyclical provisioning buffer or floating provisions held as on December 31, 2014, for making accelerated or additional provisions towards non-performing assets during fiscal 2015. See also “Risk Factors—Risks Relating to Our Business—If regulators continue to impose increasingly stringent requirements regarding non-performing loans and provisioning for such loans, or if the provisions for such loans otherwise increase, our business will suffer”.
To limit the volatility of loan loss provisioning over the course of an economic cycle, the Reserve Bank of India released a discussion paper on a dynamic loan loss provisioning framework in March 2012. The framework proposes to replace the existing general provisioning standards and recommends that banks make provisions on their loan book every year based on historical loss experience in various categories of loans. In those years where the bank’s actual provisions are higher than the computed dynamic provisions requirement, the bank can draw down from existing dynamic provisions to the extent of the difference, subject to the retention of a specified minimum level of dynamic provisions. The final guidelines on the dynamic provisioning framework and its implementation have not been issued. The Reserve Bank of India indicated in early 2014 that the framework would be implemented as economic conditions improve along with an improvement in the banking system. In the meantime, banks are expected to develop necessary capabilities to compute their long term average annual expected loss for different asset classes in a step towards switching to the dynamic provisioning framework.
Under the Banking Regulation Act, banking companies in India are required to comply with the directions of the Reserve Bank of India, including guidelines issued with respect to asset identification, asset classification and provisioning by banking companies. While preparing the financial statements under Indian GAAP, banking companies are required to comply with all regulatory requirements, including such directions issued by the Reserve Bank of India. The Reserve Bank of India has issued a circular on February 11,in 2016 instructing all scheduled commercial banks in India to comply with the Indian Accounting Standards (Ind AS)(“Ind AS”) for financial statements for accounting periods beginning April 1, 2018, subject to any guideline or direction issued bystatements. In 2019 the Reserve Bank of India in this regard. Therefore, beginning withdeferred the financial statements inimplementation of the Ind AS until further notice as legislative amendments recommended were still under the consideration of the Government of India. In fiscal 2019, all asset identification, asset classification and2023, Reserve Bank of India, through its discussion paper on “Introduction of Expected Credit Loss framework for provisioning by banking companies will bebanks” has proposed to adopt expected credit loss framework based on Ind AS, subject to any further guideline or direction issuedapproach used in International Financial Reporting Standard 9, supplemented by regulatory backstops wherever necessary. The draft guidelines on the expected credit loss framework is awaited from Reserve Bank of India.
Guidelines on SaleFramework for Compromise Settlements and Purchase of Non-performing AssetsTechnical Write-offs
In orderJune 2023, Reserve Bank of India issued guideline on Framework for Compromise Settlements and Technical Write-offs requiring Bank to provideput a board approved policy for setting necessary condition precedents such as minimum ageing, deterioration in collateral value and certain other parameters including staff accountability, delegation of power, cooling period etc. for taking fresh exposure. Further, the guideline requires that in case of partial technical write-offs, the prudential requirements in respect of residual exposure, including provisioning and asset classifications shall be with reference to the original exposure.
Automation of income recognition, asset classification and provisioning process in banks with option to resolve their non-performing assets,
In 2020 the Reserve Bank of India issued guidelines on the salea circular for automation of income recognition, asset classification and purchase of non-performing assets among banks, financial institutions and non-banking finance companies.provisioning processes in banks. As per these guidelines, the board of directorsthis circular, all borrower accounts and investments of the bank must establish a policyshould be covered in the automated IT based system for asset classification, upgradation and provisioning processes. The asset classification rules should be configured in the purchase and sale of non-performing assets. Purchases and sales of non-performing assets must be without recourse to the seller and on a cash basis,system in compliance with the entire consideration being paid upfront.regulatory requirements. The purchasing bank must hold the non-performingsystem based asset on its booksclassification should be an ongoing exercise for at least 12 months before it can sell the asset to another bank. The asset cannot be sold back to the original seller.upgrades and downgrades of borrower accounts.
Guidelines Relating to Use of Recovery Agents by BanksPriority Sector Lending
In April 2008, the Reserve BankThe guidelines on lending to priority sector require commercial banks to lend a certain percentage of India issued guidelines for those banks which are engaging recovery agents. bank credit to specific sectors (the priority sectors) such as agriculture, small, micro and medium enterprises, education, housing sector, social infrastructure, renewable energy and loans to start-ups.
The Reserve Bank of India has asked banks to put in place a due diligence process for the engagementIndia’s total priority sector target is 40.0% of recovery agents, structured to cover, among others, individuals involved in the recovery process. Banks are expected to communicate details of recovery agents to borrowers and have in place a grievance redressal mechanism pertaining to the recovery process. The Reserve Bank of India has advised banks to initiate a training course for current and prospective recovery agents to ensure prudent recovery practices. In case of persistent complaints received by the Reserve Bank of India regarding violation of guidelines, the Reserve Bank of India may consider imposing a ban on theadjusted net bank from engaging recovery agents.
Regulations Relating to Sale of Assets to Asset Reconstruction Companies
The Securitization Act, also known as the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), provides for the sale of financial assets by banks and financial institutions to asset reconstruction companies. The Reserve Bank of India has issued guidelines to banks on the process to be followed for sales of financial assets to asset reconstruction companies. These guidelines provide that a bank may sell financial assets to an asset reconstruction company provided the asset is a non-performing asset. These assets are to be sold on a ‘without recourse’ basis, only. A bank may sell a standard asset only if the borrower has a consortiumcredit (“ANBC”) or multiple banking arrangements, at least 75.0% by value of the total loans to the borrower are classified as non-performing and at least 75.0% by valuecredit equivalent amount of the banks and financial institutions in the consortium or multiple banking arrangements agree to the sale. In fiscal 2015, the Reserve Bank of India had also permitted banks to sell standard loans overdue for more than 60 days and reported as special mention accounts to asset reconstruction companies. The banks selling financial assets should ensure that there is no known liability devolving on them and that they do not assume any operational, legal or any other type of risks relating to the financial assets sold. Further, banks may not sell financial assets at a contingent price with an agreement to bear a part of the shortfall on ultimate realization. However, banks may sell specific financial assets with an agreement to share in any surplus realized by the asset reconstruction
company in the future. While each bank is required to make its own assessment of the value offered in the sale before accepting or rejecting an offer for purchase of financial assets by an asset reconstruction company, in consortium or multiple banking arrangements where more than 75.0% by value of the banks or financial institutions accept the offer, the remaining banks or financial institutions are obliged to accept the offer. Consideration for the sale may be in the form of cash, bonds or debentures or security receipts or pass-through certificates issued by the asset reconstruction company or trusts set up by it to acquire the financial assets.
Banks can also invest in security receipts or pass-through certificates issued by the asset reconstruction company or trusts set up by it to acquire the financial assets. The Reserve Bank of India has also issued guidelines governing the affairs of securitization and reconstructions companies. The guideline provides norms relating to period of realization of assets by securitization and reconstruction company, mandatory holding of security receipts, period for formulating plan of recovery etc.
Banks are also allowed to reverse the excess provision in case a non-performing asset is sold to asset reconstruction companies at a value whichoff-balance sheet exposure (“CEOBE”), whichever is higher, thanwith sub-targets of 7.5% to micro enterprises within the net book value subjectoverall target of 18.0% in agriculture. The target for lending to realizationsmall and marginal farmers has been increased from 9.0% in cashfiscal 2022, to 9.5% in fiscal 2023 and necessary disclosures. The quantum of excess provision reversed to the profit and loss account is limited to the extent to which cash received exceeds the net book value of the non-performing assets sold. In the event the sale value is lower than the net book value, banks are allowed to spread over the shortfall from the sale of non-performing assets over a period of two years as per guidelines issued in May 2015. This dispensation was available for non-performing assets sold up to March 31, 2016. However, as per guidelines issued in June 2016 by the Reserve Bank of India, the dispensation was extended up to March 31, 2017, and the period to spread over the shortfall was restricted to four quarters from the quarter in which the sale took place. For assets sold to asset reconstruction companies during fiscal 2017, in case full provisioning remains to be made as on March 31, 2017, on close of financial year, banks should debit the ‘other reserves’ component of the balance sheet (which are reserves created for the un-provided amount at the end of the financial year). Banks should proportionately reverse the debits to ‘other reserves’ and complete the provisioning by debiting profit and loss account, in the subsequent quarters of the next financial year. Further, securitization companies and asset reconstruction companies are not permitted to acquire any non-performing financial assets from their sponsor banks on a bilateral basis. However, they may participate in auctions of non-performing assets by their sponsor banks.
Pursuant to the powers conferred on the Government under section 20 of the SARFAESI Act, the Ministry of Finance established the central electronic registry, which became operational from March 31, 2011. Henceforth, all transactions relating to securitization, reconstruction of financial assets and the transactions relating to mortgage by deposit of title deeds to secure any loan or advances granted by banks and financial institutions are to be registered in the central electronic registry within 30 days of such transaction. The records will be availableincreased further to 10.0% in fiscal 2024. The target for search by any lender or any other person interestedlending to identified weaker sections of society has been increased from 11.0% in dealing with the propertyfiscal 2022, to 11.5% in fiscal 2023 and are designed to prevent frauds involving multiple lending against the same security as well as to prevent fraudulent sale of property without disclosing any existing security interest over such property.
In September 2016, the Reserve Bank of India issued revised guidelines relating to sale of non-performing assets by banks to securitization companies/reconstruction companies. Key features of the revised guidelines include allowing banks to sell such assets to non-banking finance companies, while earlier only sale to securitization companies/asset reconstruction companies were allowed. The framework requires using an e-auction platform and has introduced a floor of provisioning for investment in security receipts backed by stressed assets. The provisioning is at the rate applicable to the underlying loans, assuming that the loans will notionally continue in the books of the bank, because more than 50.0% of the security receipts are held by the bank that sold loans since April 1, 2017. The threshold on security receipts held by the bank that is selling loans will be reducedincreased further to 10.0% from April 2018. The framework also prescribes additional disclosure requirements and offering first right of refusal to securitization companies/asset reconstruction companies which has already acquired a significant share of the asset through the auction process.
Framework for Early Identification of Stress and Information Sharing
In February 2014, the Reserve Bank of India issued a “Framework for Revitalizing Distressed Assets12.0% in the Economy”. The framework outlines an action plan for early identification of problem cases, creating a central repository of information on large credits, timely restructuring of accounts which are considered to be viable, and taking prompt steps by banks for recovery or sale of unviable accounts. Accounts have to be categorized into ‘special mention accounts’ based on specified criteria. Banks are required to have three sub-categories of special mention accounts depending on the classification of accounts between the standard category and the sub-standard category. SMA-0 category includes accounts where the principal or interest payment is not overdue for more than 30 days but are showing incipient signs of stress; SMA-1 includes
accounts where the principal or interest payment is overdue between 31-60 days; and SMA-2 which includes accounts where the principal or interest payment is overdue between 61-90 days.
Joint Lenders’ Forums are required to be formed to formulate corrective action plans within stipulated timelines, and in case the forum fails to agree on an action plan, it would result in accelerated provisioning. A requirement for independent evaluation of large value restructuring proposals has also been specified. An independent evaluation of large value restructuring with a focus on viability and fair sharing of gains and losses between promoters and creditors has been mandated. The framework is effective from April 1, 2014. In May 2017, following the promulgation of the Banking Regulation (Amendment) Ordinance, 2017, the Reserve Bank of India issued guidelines to facilitate timely decision making under the Joint Lenders’ Forum. The Reserve Bank of India directed banks to adhere to timelines or face monetary penalties. Any resolution plan approved by 60.0% of the creditors by value and 50.0% of the creditors by number at the Joint Lenders’ Forum was made binding on all members. The Joint Lenders’ Forum was permitted to prepare the corrective action plan either by way of flexible structuring of project loans, changing in ownership through strategic debt restructuring, scheme for sustainable structuring of stressed assets or any other mechanism as permitted by the Reserve Bank of India. See also “Overview of the Indian Financial Sector—Legislative Framework for Recovery of Debts due to Banks—Joint Lenders’ Forum” and “Overview of the Indian Financial Sector- Legislative Framework for Recovery of Debts due to Banks- The Banking Regulation (Amendment) Ordinance, 2017”. Willful defaulters will normally not be eligible for restructuring, unless the Joint Lenders’ Forum on assessment concludes that the account can be restructured.fiscal 2024.
The Reserve Bank of India issued guidelines in May 2015 providinghas notified a frameworknew criterion for dealing with loan frauds. The guidelines relate to detection, reporting and monitoring of fraud accounts. They prescribe continuous monitoring and red flagging of accounts based on early warning signals for accounts above Rs. 500 million. They also require reporting frauds on the Reserve Bank of India’s central repository of information on large credits for dissemination to other banks and decision-making by the Joint Lenders’ Forum in case of consortium or multiple banking arrangements. The framework also illustrates checks/investigations during the different stages of the loan life-cycle and timelines have been defined to complete the due diligence for evaluation ofclassifying an account. Restructuring or grant of additional facilities would not be available in case of fraud or red flagged accounts. There are provisioning guidelines relating to fraud accounts that require banks to make a provision for the entire amount due to the bank over a period of four quarters.
In March 2016, the Reserve Bank of India issued a revised framework for the revival and rehabilitation ofenterprise as micro, small and medium enterprises. The guidelines are applicablefrom July 2020. Udyam Registration Certificate (“URC”) is necessary for loans givenlending to micro, small and medium enterprises with loan limitsto qualify for priority sector. In July 2021, retail and wholesale traders were permitted to register online and obtain URC, resulting in them continuing to qualify under priority sector lending.
241
Investments by banks in securitized assets, outright purchases of loans and assignments are eligible for classification under priority sector if the underlying assets themselves qualified for such treatment. The interest rates charged to Rs. 250 million, including accounts under consortium or multiple banking arrangements. Restructuring of micro, small and medium enterprises’ loan accounts with exposure of above Rs. 250.0 million continueultimate borrowers by the originating entities in such transactions are capped for such transactions to be governed by the guidelines on corporate debt restructuring and Joint Lenders’ Forum mechanism.
Regulations Relating to Advancing Loansclassified as priority sector.
The provisions of the Banking Regulation Act govern the advancing of loans by banks in India. The Reserve Bank of India also issues directions covering the loan activities of banks. These directions and guidelines issued by the Reserve Bank of India have been consolidated annually in the Master Circular on “Loans and Advances—Statutory and Other Restrictions”. These guidelines and directions are revised from time to time by the Reserve Bank of India.
Banks are free to determine their own lending rates but each bank must disclose its minimum interest rate which takes into consideration all elements of lending rates that are common across borrowers. The base rate replaced the benchmark prime lending rate as the standard on July 1, 2010 and was applicable for loans made up to March 31, 2016. During the period when the base rate was applicable as the minimum rate for loans, banks were not permitted to lend below the base rate except for Differential Rate of Interest advances, loans to banks’ own employees and retired employees and loans to banks’ depositors against their own deposits. Banks could determine their final lending rates on loans and advances with reference to the base rate and by including such other customer specific charges as they consider appropriate. Until such time that loans linked to the benchmark prime lending rate existed, banks had to announce both the benchmark prime lending rate and the base rate.
In April 2014, the Reserve Bank of India’s Working Group on Pricing of Credit submitted its report proposing to increase transparency and fairness in credit pricing. The committee recommended that banks should compute the base rate on the basis of marginal cost of funds and there should be a board approved policy delineating the various components that determine the spread that is charged to a customer. It was further recommended that the spread charged to a customer cannot be increased except when the credit risk profile of
the customer deteriorates. Also, the periodicity of the interest rate reset should be notified in advance at the time of sanctioning the loan, and any change in interest rates can be made only on pre-specified dates irrespective of the changes made in the base rate. Banks should be able to demonstrate to the Reserve Bank of India the rationale of the pricing policy. Based on the recommendations of the committee, in January 2015, the Reserve Bank of India revised the guidelines on the methodology for calculation of base rate. Banks had the flexibility to choose the methodology for calculating the cost of funds, the basis for which could include the average cost of funds or marginal cost of funds. The interest rate on deposits forming part of the calculation, should be chosen for the tenor having the largest share in the deposit base of the bank. Further, banks were required to review the methodology every three years against the earlier requirement of five years. These guidelines were effective from February 19, 2015.
In December 2015, the Reserve Bank of India issued final guidelines on the computation of lending rates based on marginal cost of funds. The Marginal Cost of Funds based Lending Rate is applicable on incremental lending from April 1, 2016 and is a tenor linked benchmark. The guidelines clarify the methodology to compute the marginal cost of funds based lending rate, which comprises of marginal cost of funds, negative carry on account of cash reserve ratio, operating costs and tenor premium. The guidelines specified categories of loans which can be priced without linkage to the marginal cost of funds based lending rate. Banks have to review and publish their marginal cost of funds based lending rate every month on a pre-announced date for different maturities ranging from overnight rate up to one year. The periodicity of reset shall be one year or lower. Loans linked to the base rate can continue till repayment or renewal with existing borrowers having the option to move to the marginal cost of funds based lending rate linked loan at mutually acceptable terms. Interest rates for all floating rate loans and fixed rate loans (including the fixed rate portion of hybrid loans) of tenor up to three years cannot be less than the marginal cost of funds based lending rate.
Under Section 20(1) of the Banking Regulation Act, a bank cannot grant any loans and advances against the security of its own shares and a banking company is prohibited from entering into any commitment for granting any loans or advances to or on behalf of any of its directors, or any firm in which any of its directors is interested as partner, manager, employee or guarantor, or any company (not being a subsidiary of the banking company or a company registered under Section 25 of the Companies Act or a government company) of which, or the subsidiary or the holding company of which any of the directors of the bank is a director, managing agent, manager, employee or guarantor or in which he holds substantial interest, or any individual in respect of whom any of its directors is a partner or guarantor. There are certain exemptions in this regard as the explanation to the section provides that ‘loans or advances’ shall not include any transaction which the Reserve Bank of India may specify by general or special order as not being a loan or advance for the purpose of this section.
There are guidelines on loans against equity shares in respect of amount, margin requirement and purpose. The Reserve Bank of India has issued guidelines requiring banks to put in place a policy for exposure to real estate with the approval of their boards. The policy should include exposure limits, collaterals to be considered, collateral cover and margins and credit authorization. The Reserve Bank of India has also permitted banks to extend financial assistance to Indian companies for acquisition of equity in overseas joint ventures or wholly owned subsidiaries or in other overseas companies, new or existing, as strategic investment. Banks are not permitted to finance acquisitions by companies in India. With regard to mortgages, the Reserve Bank of India has imposed a ceiling of 75.0% on the loan-to-value ratio in respect of housing loans exceeding Rs. 7.5 million. However, small value loans of less than Rs. 3.0 million are permitted to have a loan-to-value ratio not exceeding 90.0% subject to appropriate risk weight and loans from Rs. 3.1 million to Rs. 7.5 million can have a loan-to-value ratio of 80% subject to appropriate risk weight. For loans where the cost of the house/dwelling unit is less than Rs. 1.0 million, the Reserve Bank of India has allowed banks to include stamp duty, registrationsell and other documentation charges topurchase priority sector lending certificates in the costevent of excess/shortfall in meeting priority sector targets, which may help in reducing the house/dwelling unit for the purposeshortfall in priority sector lending. These instruments are issued by banks that have a surplus in priority sector lending or any of calculating the loan-to-value ratio from March 2015. In November 2012, theits individual sub-segments and are purchased by banks having a shortfall, through a trading portal.
The Reserve Bank of India issued instructions regarding sharing of information relating to credit, derivatives and unhedged foreign currency exposures among banks and to put in place an effective mechanism for information sharing. Also, from January 1, 2013, sanction of fresh loans and renewal of loans to new and existing borrowers should be done only after obtaining/sharing necessary information. In September 2013, the Reserve Bank of India announced the creation of a central repository of large common exposures across banks, to be based on submissions made by banks to the Reserve Bank of India on exposures of more than Rs. 100.0 million to individuals and entities. Subsequently, the limit was reduced to Rs 50 million and above.
In order to ensure adequate credit flow to infrastructure projects, the Reserve Bank of India allowedallows banks to issue long-term bonds for financing infrastructure projects and low-cost housing in July 2014. Thesehousing. The amount raised by way of these bonds must have a minimum maturity of seven years and are exempted from reserve requirements, such as cash
reserve ratio and statutory liquidity ratio, and are alsois permitted to be deductedexcluded from adjusted net bank credit for the purpose of computing priority sector lending targets.targets, except to the extent that the lending against these bonds is included in priority sector lending.
Banks falling short of their priority sector lending targets are required to contribute allocated amounts to specific Government of India funds (i.e., Rural Infrastructure Development Fund (“RIDF”)), established with National Bank for Agriculture and Rural Development (“NABARD”) and other funds with NABARD/ National Housing Bank (“NHB”)/ Small Industries Development Bank of India (“SIDBI”)/ Micro Units Development & Refinance Agency (“MUDRA”) Limited. The interest rates on contribution to RIDF or any other funds, tenure of deposits, and other features are fixed by the Reserve Bank of India from time to time. The interest rates on these contributions are below market rates.
Export Credit
The Reserve Bank of India allows exporters to avail short-term working capital financing at internationally comparable interest rates. Export credit is available both in rupee as well as in foreign currency. This enables exporters to have access to an internationally competitive financing option. The Reserve Bank of India has also issued guidelines in July 2014 permitting flexible structuringallowed exporters with a satisfactory track record of at least three years to receive long-term export advance at concessional rates for execution of long-term project loans to infrastructure and other core industries. According to the guidelines, banks are permitted to structure long-term project loans with the intent of refinancing these loans at periodic intervals without such refinancing being considered as restructuring. Such loans could have tenors linked to the economic life of the project and can extendsupply contracts up to 25 years and the fundamental viabilitya maximum period of the project would be established on the basis of all requisite financial and non-financial parameters. The amortization schedule of the loans can be modified once during the course of the loan without classifying them as restructured loans provided they meet certain specific requirements, such as being a standard asset with no loss on the net present value and the debt amortization is scheduled within 85.0% of the economic life of the project. While the flexible structuring of long-term project loans was initially applicable to the infrastructure sector and other core industries, this flexibility was extended to loans in all sectors from November 2016.10 years.
Regulations governing overseas direct investment
In August 2014,2022, Reserve Bank of India along with the Central Government has issued a new Overseas Investment regime (i.e., Foreign Exchange Management (Overseas Investment) Rules, Regulations and Directions) to promote the ease of doing business, to cover wider economic activity and significantly reduce the need for seeking specific approvals from the Reserve Bank of India. The new regime has introduced the Late Submission Fee (LSF) for reporting delays and also the specific guidelines have been prescribed for Overseas Investment in IFSC by persons resident in India.
Regulations on International Trade Settlement in Indian Rupees (“INR”)
242
In July 2022, Reserve Bank of India has notified an additional arrangement for invoicing, payment, and settlement of exports/imports in INR in order to promote growth of global trade with emphasis on exports from India and to support the interest of global trading community in INR. The broad framework for cross border trade transactions in INR is as follows:
a) | All exports and imports trade transactions to be denominated, invoiced and settled in INR. |
b) | AD bank in India may open Special INR VOSTRO of correspondent bank/s of the partner trading country for settlement of trade transactions with any country after obtaining Reserve Bank of India approval. |
c) | The balance in Special INR VOSTRO can be used for Payments for projects and investments, Export/Import advance flow management and Investment in Government Treasury Bills, Government securities and other assets. |
Credit Exposure Limits
As a prudential measure aimed at better risk management and avoidance of concentration of credit risks, the Reserve Bank of India has prescribed credit exposure limits for banks and long-term lending institutions in respect of their lending to individual borrowers and to all companies in a single group (or sponsor group).
The Reserve Bank of India requires banks to fix internal limits of exposure to specific sectors. These limits are subject to periodic review by the banks.
Under Reserve Bank of India guidelines, a borrower having an aggregate fund-based credit limit of Rs. 100.0 billion will be considered a specified borrower. The normally permitted lending limit for specified borrowers is defined as an amount that is 50.0% of the incremental funds raised over and above the aggregate fund-based credit limit. The general provision required on the incremental exposure above the normally permitted lending limit would be 3.0% and the additional risk weight for such exposure over and above the applicable risk weight would be 75.0%.
Further, the Reserve Bank of India has issued guidelines on large borrowers which prescribe a limit of 20.0% and 25.0% of the eligible capital base in respect of exposures to single counterparty and groups of connected counterparties with effect from April 2019. The eligible capital base is defined as the Tier 1 capital of the bank as against the earlier norm of total capital funds. Exposure to a single non-banking finance company or a group of connected non-banking finance companies is restricted to 15.0% and 25.0%, respectively, of the eligible capital base. The definition of exposure for large borrowers includes off-balance sheet items converted into credit exposure equivalents through the use of credit conversion factors used for assessing credit risk under the standardized approach for risk based capital requirements. In June 2019, the Reserve Bank of India introduced an economic inter-dependence criterion in the definition of connected counterparties, which has been applicable since April 2020.
Corporate borrowers having total exposure of Rs. 250 million (100 million from April 2024 onwards and 50 million from April 2025 onwards) and above in the banking system are required to obtain a legal entity identifier registration. A borrower who does not obtain the legal entity identifier is not eligible for renewal or enhancement of credit facilities.
Capital Market Exposure Limits
The Reserve Bank of India guidelines on capital market exposures stipulate that a bank’s exposure to capital markets in all forms (both fund-based and non-fund-based) by way of investments in shares, convertible bonds/debentures, units of equity oriented mutual funds, loans against shares, and secured and unsecured advances to stock brokers, should not exceed 40.0% of its net worth on both a stand-alone and consolidated basis as of March 31 of the previous year.
243
Limits on intra-group transaction and exposures
The Reserve Bank of India guidelines on management of intra-group transactions and exposures for financial conglomerates prescribe quantitative limits for intra-group financial transactions and prudential measures for non-financial transactions. The Reserve Bank of India has prescribed a single group entity exposure limit of 5.0% of paid-up capital and reserves of the bank for non-financial companies and unregulated financial services companies and 10.0% in the case of regulated financial entities. The aggregate group exposure cannot exceed 20.0% of paid-up capital and reserves and surplus in case of all group entities (financial and non-financial) taken together and 10.0% in the case of all non-financial companies and unregulated financial services companies taken together. Banks’ exposures to other banks/financial institutions in the group in the form of equity and other capital instruments are exempted from above limits. If the exposure exceeds the permissible limits, the excess amount would be deducted from common equity Tier 1 capital of the bank.
Master Direction on Transfer of Loan Exposure
In order to provide banks with options to manage liquidity, rebalance their exposure or strategic sales and resolve their non-performing assets, the Reserve Bank of India issued Master Direction – Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 on September 24, 2021. Under these guidelines, the board of directors of a bank must establish a policy for transfer of loans. Originators need to satisfy the Minimum Holding Period requirement (3 months and 6 months) and Minimum Retention Ratio (5% and 10%) as mentioned in extant guideline.
Securitisation involves transactions where credit risk in assets are redistributed by repackaging them into tradeable securities with regarddifferent risk profiles which may give investors of various classes access to refinancingexposures which they otherwise might be unable to access directly. Reserve Bank of existing project loans. AccordingIndia issued the Master Direction (Securitisation of Standard Assets) Directions, 2021 on September 24, 2021.
The securitisation and Transfer of Loan exposure transactions can be executed by Lenders who are Scheduled commercial banks, Primary (Urban) Co-operative Banks/State Co-operative Banks/ Central Co-operative Banks (only for transfer of loan exposures), All India Term Financial Institutions, Small Finance Banks, NBFCs, and HFCs.
Credit Information Bureaus
Pursuant to the Credit Information Companies (Regulation) Act, 2005, every credit institution, including a bank, has to become a member of a credit information bureau and furnish to it such credit information as may be required of the credit institution by the credit information bureau about individuals or groups who enjoy a credit relationship with it. Banks are also required to share information on investments in commercial paper and unhedged foreign currency exposures of borrowers to the credit information companies. Other credit institutions, credit information bureaus and such other persons as the Reserve Bank of India specifies may access such disclosed credit information. Seeking to strengthen the coverage and use of credit information, the Reserve Bank of India standardized the data formats for furnishing of credit information to credit information companies, common classification of credit scores and best practices to be followed by credit information companies.
244
Loan Loss Provisions and Non-Performing Assets
The Reserve Bank of India’s Master Circular on “Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances” dated April 1, 2023 as amended, provides consolidated instructions and guidelines banks are permittedrelating to refinance such loans by wayincome recognition, asset classification and provisioning standards.
Asset Classification
In particular, an advance is a non-performing asset where interest and/or installment of fullprincipal remains overdue for a period of more than 90 days in respect of a term loan; the account remains “out-of-order” (as defined below) in respect of an overdraft or partial take-out financing, even withoutcash credit; the bill remains overdue for a pre-determined agreement with other banks, without such refinancing being considered as restructuring. In theperiod of more than 90 days in case of partial take-out financing,bills purchased and discounted; installment of principal or interest remains overdue for two crop seasons for short duration crops or for one crop season for long duration crops; the amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitization transaction.
In respect of derivative transactions, the overdue receivables related to positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment; or in respect of credit card transactions, if the minimum 25.0%amount due, as mentioned in the statement, remains overdue for a period of more than 90 days from the payment due date mentioned in the statement. Interest in respect of non-performing assets is not recognized or credited to the income account unless collected. Non-performing assets are classified as described below.
Sub-Standard Assets. Assets that are non-performing assets for a period not exceeding 12 months. Such an asset has well-defined credit weaknesses that jeopardize the liquidation of the outstanding loan value must be taken overdebt and are characterized by the new setdistinct possibility that the bank will sustain some loss, if deficiencies are not corrected.
Doubtful Assets. Assets that have remained sub-standard for a period of lenders12 months. A loan classified as againstdoubtful has all the earlier requirementweaknesses inherent in assets that are classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of 50.0%. Suchcurrently known facts, conditions and values, highly questionable and improbable.
Loss Assets. Assets on which losses have been identified by the bank or internal or external auditors during the performance of their audit procedures or during the Reserve Bank of India inspection but the amount has not been written off fully.
There are separate guidelines for classification of loans should be ‘standard’ infor projects under implementation which are based on the booksdate of commencement of commercial production and date of completion of the existing banksproject as originally envisaged at the time of financial closure.
245
The Reserve Bank of India, under its risk-based supervision exercise, carries out the refinancingrisk assessment of banks on an annual basis. As a part of this assessment, the Reserve Bank of India separately reviews asset classification and should have started commercial operations. Also,provisioning of credit facilities given by banks to its borrowers. This assessment is initiated subsequent to the total exposure of all institutional lenders to such projects must be a minimum of Rs. 10.0 billion. This facility would be available only once during the lifecompletion of the existing project loan.annual audit and the publication of audited financial statements for the given financial year. Any divergences in classification or provisioning arising out of the supervisory process are given effect in the financial statements in subsequent periods after conclusion of the exercise. Such divergences are required to be disclosed by banks in their financial statements if either the additional provisioning requirement assessed by the Reserve Bank of India exceeds 10.0% (5% from fiscal 2024 onwards) of the published profits before provisions and contingencies for the period, or the additional gross non-performing assets identified by the Reserve Bank of India exceeds 10.0% (5% from fiscal 2024 onwards) of the published incremental gross non-performing assets for the reference period, or both. The assessment of divergence in asset classification and provisioning conducted by the Reserve Bank of India for ICICI Bank in fiscal 2020, fiscal 2021 and fiscal 2022 did not require any additional disclosures.
Directed LendingRestructured loans
Standard restructured loans are subject to higher standard asset provisioning requirements and higher risk weights for capital adequacy purposes. The higher risk weights and provision shall continue until satisfactory performance under the revised payment schedule has been established for the specified period. If the restructured account is overdue as per the revised schedule for a period beyond the minimum period prescribed for classification of a loan as non-performing, it is required to be downgraded to non-performing status with reference to the pre-restructuring payment schedule.
See also “Risk Factors—Risks Relating to Our Business—The future trajectory of the COVID-19 pandemic is uncertain and could adversely affect our business, the quality of our loan portfolio and our financial performance”.
Provisioning and write-offs
Provisions under Indian GAAP are based on guidelines specific to the classification of the assets. The following guidelines apply to the various asset classifications:
Standard Assets: The allowances on the performing portfolios are based on guidelines issued by the Reserve Bank of India. The provisioning requirement is a uniform rate of 0.4% for all standard assets except certain advances which require provision in the range of 0.25% to 2%:
Reserve Bank of India guidelines require banks to maintain provisions for standard assets at rates higher than the regulatory requirement in respect of advances to stressed sectors of the economy. For assets referred to the National Company Law Tribunal under the Insolvency and Bankruptcy Code, banks have to make provisions to the extent of 50.0% of the secured portion and 100.0% of the unsecured portion of the outstanding loans.
Sub-standard Assets: A provision of 15.0% is required for all substandard assets as compared to the previous requirement of 10.0%. A provision of 25.0% is required for accounts that are unsecured. Unsecured infrastructure loan accounts classified as substandard require provisioning of 20.0%.
246
Doubtful Assets: A 100.0% provision/write-off is required against the unsecured portion of a doubtful asset and is charged against income. For the secured portion of assets classified as doubtful, a 25.0% provision is required for assets that have been classified as doubtful for a year, a 40.0% provision is required for assets that have been classified as doubtful for one to three years and a 100.0% provision is required for assets classified as doubtful for more than three years. The value assigned to the collateral securing a loan is the amount reflected on the borrower’s books or the realizable value determined by third-party appraisers.
Loss Assets: The entire asset is required to be written off or provided for.
Under the Banking Regulation Act, banking companies in India are required to comply with the directions of the Reserve Bank of India, including guidelines issued with respect to asset identification, asset classification and provisioning by banking companies. While preparing the financial statements under Indian GAAP, banking companies are required to comply with all regulatory requirements, including such directions issued by the Reserve Bank of India. The Reserve Bank of India issued a circular in 2016 instructing all scheduled commercial banks in India to comply with the Indian Accounting Standards (“Ind AS”) for financial statements. In 2019 the Reserve Bank of India deferred the implementation of the Ind AS until further notice as legislative amendments recommended were still under the consideration of the Government of India. In fiscal 2023, Reserve Bank of India, through its discussion paper on “Introduction of Expected Credit Loss framework for provisioning by banks” has proposed to adopt expected credit loss framework based on approach used in International Financial Reporting Standard 9, supplemented by regulatory backstops wherever necessary. The draft guidelines on the expected credit loss framework is awaited from Reserve Bank of India.
Framework for Compromise Settlements and Technical Write-offs
In June 2023, Reserve Bank of India issued guideline on Framework for Compromise Settlements and Technical Write-offs requiring Bank to put a board approved policy for setting necessary condition precedents such as minimum ageing, deterioration in collateral value and certain other parameters including staff accountability, delegation of power, cooling period etc. for taking fresh exposure. Further, the guideline requires that in case of partial technical write-offs, the prudential requirements in respect of residual exposure, including provisioning and asset classifications shall be with reference to the original exposure.
Automation of income recognition, asset classification and provisioning process in banks
In 2020 the Reserve Bank of India issued a circular for automation of income recognition, asset classification and provisioning processes in banks. As per this circular, all borrower accounts and investments of the bank should be covered in the automated IT based system for asset classification, upgradation and provisioning processes. The asset classification rules should be configured in the system in compliance with the regulatory requirements. The system based asset classification should be an ongoing exercise for upgrades and downgrades of borrower accounts.
Priority Sector Lending
The guidelines on lending to priority sector require commercial banks to lend a certain percentage of their adjusted net bank credit to specific sectors (the priority sectors), such as agriculture, small, micro and smallmedium enterprises, micro-credit, education, housing sector, social infrastructure, renewable energy and housing finance. loans to start-ups.
The target forReserve Bank of India’s total priority sector advancestarget is set at 40.0% of adjusted net bank credit (which is net bank credit plus those investments made by banks in non-statutory liquidity bonds/debentures that are included in the held-to-maturity category, investments eligible to be treated as priority sector, investments in eligible government funds on account of priority sector shortfall, outstanding priority sector lending certificates excluding long-term bonds for infrastructure and affordable housing eligible for exemptions, and eligible advances extended in India against the incremental foreign currency deposits qualifying for exemption from CRR/SLR requirement)(“ANBC”) or of the credit equivalent amount of off-balance sheet exposure (“CEOBE”), whichever is higher, aswith sub-targets of March 317.5% to micro enterprises within the overall target of the previous18.0% in agriculture. The target for lending to small and marginal farmers has been increased from 9.0% in fiscal year. Banks falling short2022, to 9.5% in fiscal 2023 and will be increased further to 10.0% in fiscal 2024. The target for lending to identified weaker sections of their priority sector lending targets are requiredsociety has been increased from 11.0% in fiscal 2022, to contribute amounts equivalent11.5% in fiscal 2023 and will be increased further to the shortfall to specific Government funds like the Rural Infrastructure Development Fund, established by the National Bank for Agriculture and Rural Development, or funds with other financial institutions.12.0% in fiscal 2024.
The Reserve Bank of India released revised priority sector lending guidelines in April 2015 which have been applicable since fiscal 2016. The overall targethas notified a new criterion for priority sector lending continue to be 40.0% of adjusted net bank credit or of the credit equivalent amount of off-balance sheet exposure, whicheverclassifying an enterprise as micro, small and medium from July 2020. Udyam Registration Certificate (“URC”) is higher; earlier sub-targets in advances to the agricultural sector of 13.5% direct lending and 4.5% indirect lending were combined and sub-targets of 8.0%necessary for lending to micro, small and marginal farmers and 7.5% lending targetmedium enterprises to micro-enterprises were introduced. These sub-targets were to be achieved in a phased manner by March 2017. Sectors qualifyingqualify for priority sector lending have been broadenedsector. In July 2021, retail and wholesale traders were permitted to include medium enterprises, social infrastructureregister online and renewable energy. Priority sector lending achievements are being evaluated on a quarterly average basis from fiscal 2017. Accordingobtain URC, resulting in them continuing to the guidelines, foreign banks with less than 20 branches will also now be required to meetqualify under priority sector lending targets of 40.0% of adjusted net bank credit, on par with domestic banks by fiscal 2020. Further, in July 2015, the Reserve Bank of India directed banks to maintain direct lending to non-corporate farmers at the banking system’s average level for the last three years, failing which banks will attract penalties for shortfall. The Reserve Bank of India would notify the banks of the banking system’s average level at the beginning of each year. The target for fiscal 2017 was set at 11.70% of adjusted net bank credit. The Reserve Bank of India has also directed banks to continue to pursue the target of 13.5% of adjusted net bank credit towards lending to borrowers who constituted the direct agriculture lending category under the earlier guidelines.lending.
241
Investments by banks in securitized assets, outright purchases of loans and assignments are eligible for classification under priority sector if the underlying assets themselves qualified for such treatment. The interest
rates charged to ultimate borrowers by the originating entities in such transactions are capped for such transactions to be classified as priority sector.
Banks falling short of their priority sector lending targets are required to contribute amounts equivalent to the shortfall to specific Government funds. The contribution is made by subscribing to bonds issued with a maturity of up to seven years. The interest rates on these contributions are below market rates and are generally set depending on the bank rate as set by the Reserve Bank of India. In May 2014, the Reserve Bank of India issued guidelines allowinghas allowed banks to include the outstanding mandated investments in these Government funds at March 31 of the fiscal year to be treated as part of indirect agriculturesell and count towards overallpurchase priority sector target achievement. Investments at March 31 of the preceding year would also be includedlending certificates in the adjusted net bank credit which forms the base for computationevent of the priority sector and sub-segment lending requirements. In December 2014, the Reserve Bank of India restructured the classification of shortfall and interest rates payable to banks on funds placed with the National Bank for Agriculture and Rural Development, the Small Industries Development Bank of India and the National Housing Bank towards excess/shortfall in meeting priority sector obligations. For accounting periods commencing April 1, 2015, amounts equivalent totargets, which may help in reducing the shortfall placed with specific Government funds is included under Schedule 11, under ‘other assets’ in the balance sheetpriority sector lending. These instruments are issued by banks that have a surplus in priority sector lending or any of its individual sub-segments and are purchased by banks from the earlier categorization under investments.having a shortfall, through a trading portal.
In April 2016, theThe Reserve Bank of India allowed banks to trade their priority sector portfolio by selling or buying priority sector lending certificates. Scheduled commercial banks, regional rural banks, local area banks, small finance banks and urban co-operative banks can participate in this trade. Four types of certificates for the categories of agriculture, small and marginal farmers, micro enterprises and general category certificates have been allowed. There will be no transfer of risks or loan assets in these transactions. A bank can issue priority sector lending certificates up to 50.0% of the previous year’s priority sector lending achievement. The certificates will expire on March 31 and will not be valid beyond the last reporting date for the fiscal year. The calculation of priority sector lending would be the sum of the outstanding priority sector lending portfolio and the net priority sector lending certificates purchased.
Considering the volatility in the currency market, as a one-time measure in fiscal 2014, the Reserve Bank of India allowed incremental foreign currency non-resident bank deposits and non-resident (external) rupee deposits with a maturity of three years and above to be exempted from maintenance of reserve requirements including cash reserve ratio and statutory liquidity ratio. This benefit was available on deposits received between July 26, 2013 and March 7, 2014. Advances extended against such incremental foreign currency deposits were allowed to be excluded from the computation of adjusted net bank credit for priority sector lending targets. These advances would be eligible for exclusion from adjusted net bank credit till their repayment. Further, in fiscal 2015, the Reserve Bank of India allowedallows banks to issue long-term bonds for financing infrastructure and low-cost housing. The amount raised by way of these bonds is permitted to be excluded from adjusted net bank credit for the purpose of computing priority sector lending targets, except to the extent that the lending against these bonds is included in priority sector lending.
The ReserveBanks falling short of their priority sector lending targets are required to contribute allocated amounts to specific Government of India funds (i.e., Rural Infrastructure Development Fund (“RIDF”)), established with National Bank for Agriculture and Rural Development (“NABARD”) and other funds with NABARD/ National Housing Bank (“NHB”)/ Small Industries Development Bank of India is also focused(“SIDBI”)/ Micro Units Development & Refinance Agency (“MUDRA”) Limited. The interest rates on promoting financial inclusion,contribution to RIDF or any other funds, tenure of deposits, and has envisaged a number of steps in this direction. The Committee on Comprehensive Financial Services for Small Businesses and Low-income Households, in its report released in January 2014, has proposed a differentiated banking system with creation of new payments and wholesale banks. Accepting these proposals,other features are fixed by the Reserve Bank of India has issued in-principle licensesfrom time to 11 payments banks and has indicated releasing a papertime. The interest rates on licensing of wholesale banks. The committee has further recommended giving certain non-bank entities direct access to the settlement systems and allowing non-deposit taking non-bank finance companies to act as business correspondents. The committee has also proposed a new framework for priority sector lending along with a new method for computation of priority sector targets based on district and sector wise credit penetration.these contributions are below market rates.
With a view to ensure adequate flow of credit to the micro and small enterprises, in April 2014 the Reserve Bank of India advised banks to provide differential interest rates for such borrowers. While pricing the loan, banks have to take into account incentives made available to micro and small enterprises in the form of credit guarantee cover and the zero risk weight applicable to such guaranteed loans for capital adequacy purposes. In July 2016, the Reserve Bank of India issued directions for lending to the micro, small and medium enterprises sector which take into consideration the recommendations of the Prime Minister’s Task Force on lending to micro, small and medium enterprises. As per the recommendations, banks are required to achieve 20.0% year-on-year growth in credit to micro and small enterprises, 10.0% growth in the number of micro enterprises account and 60.0% of total lending to micro, small and medium enterprises as on the preceding March 31 should be to micro enterprises.
Export Credit
The Reserve Bank of India allows exporters to avail short-term working capital financing at internationally comparable interest rates. Export credit is available both in rupee as well as in foreign currency. This enables exporters to have access to an internationally competitive financing option. Pursuant to existing guidelines, 12.0% of a bank’s adjusted net bank credit is required to be in the form of export credit. This target is in addition to the priority sector lending target of 40.0% of adjusted net bank credit. We provide export credit for pre-shipment and post-shipment requirements of exporter borrowers in rupees and foreign currencies. In May 2014, theThe Reserve Bank of India has allowed exporters with a satisfactory track record of at least three years to receive long-term export advance at concessional rates for execution of long-term supply contracts up to a maximum period of 10 years.
Responsibilities of Chief Risk OfficerRegulations governing overseas direct investment
As partIn August 2022, Reserve Bank of steps takenIndia along with the Central Government has issued a new Overseas Investment regime (i.e., Foreign Exchange Management (Overseas Investment) Rules, Regulations and Directions) to strengthen risk management in banks, in April 2017,promote the ease of doing business, to cover wider economic activity and significantly reduce the need for seeking specific approvals from the Reserve Bank of India issued guidelines which aimed to separate credit risk management function fromIndia. The new regime has introduced the credit sanction processLate Submission Fee (LSF) for reporting delays and also bring uniformitythe specific guidelines have been prescribed for Overseas Investment in the approach followedIFSC by banks. As per the guidelines, a Board approved policy defining the role and responsibilities of the Chief Risk Officer has to be established, with clearly defined reporting lines either to the Managing Director/Chief Executive Officer or the risk management committee of the bank. The Chief Risk Officer should not have a dual role, report into any business vertical or be given any business targets. The Chief Risk Officer can be removed or transferred only with the approval of the Board.persons resident in India.
Regulations on International Trade Settlement in Indian Rupees (“INR”)
242
In July 2022, Reserve Bank of India has notified an additional arrangement for invoicing, payment, and settlement of exports/imports in INR in order to promote growth of global trade with emphasis on exports from India and to support the interest of global trading community in INR. The broad framework for cross border trade transactions in INR is as follows:
a) | All exports and imports trade transactions to be denominated, invoiced and settled in INR. |
b) | AD bank in India may open Special INR VOSTRO of correspondent bank/s of the partner trading country for settlement of trade transactions with any country after obtaining Reserve Bank of India approval. |
c) | The balance in Special INR VOSTRO can be used for Payments for projects and investments, Export/Import advance flow management and Investment in Government Treasury Bills, Government securities and other assets. |
Credit Exposure Limits
As a prudential measure aimed at better risk management and avoidance of concentration of credit risks, the Reserve Bank of India has prescribed credit exposure limits for banks and long-term lending institutions in respect of their lending to individual borrowers and to all companies in a single group (or sponsor group). These measures are consolidated in the Reserve Bank of India’s Master Circular on exposure norms dated July 1, 2015. The limits currently set by the Reserve Bank of India are as follows:
The Reserve Bank of India requires banks to fix internal limits of exposure to specific sectors. These limits are subject to periodic review by the banks. We have fixed a ceiling of 15.0% on our exposure to any one industry (other than retail loans) and monitor our exposures accordingly.
As an interim measure to promote a central clearing of standardized over-the-counter derivative products through a central counterparty, in January 2014, theUnder Reserve Bank of India issued guidelines allowing a bank’s clearing exposure to qualifying central counterparties to be outside of the ceiling of 15.0% of its capital funds applicable to a single counterparty. Other exposures to qualifying central counterparties such as loans, credit lines, investments in the capital of central counterparty, liquidity facilities, etc. would continue to be within the
existing ceiling of 15.0% of capital funds to a single counterparty. However, all exposures of a bank to a non-qualifying central counterparty should be within the exposure ceiling of 15.0%.
In May 2016, the Reserve Bank of India issued a discussion paper proposing limits on the banking system’s exposure to large borrowers and requires higher standard for asset provisioning and risk weights on incremental exposures beyond the normally permitted lending limits. Draft guidelines were issued in August 2016 and the final guidelines in December 2016. According to the guidelines, a borrower having an aggregate fund-based credit limit of Rs. 250.0100.0 billion at any time during fiscal 2018 will be considered a largespecified borrower. This limit will be gradually reduced to Rs. 150.0 billion in fiscal 2019 and to Rs. 100.0 billion from fiscal 2020 onwards. The normally permitted lending limit for specified borrowers is defined as an amount that is 50.0% of the incremental funds raised over and above the aggregate fund-based credit limit. The general provision required on the incremental exposure above the normally permitted lending limit would be 3.0% and the additional risk weight for such exposure over and above the applicable risk weight would be 75.0%. The framework became applicable from April 1, 2017 with respect to identification of specified borrowers. The disincentive mechanism in terms of additional provisioning and higher risk weights will become applicable from April 1, 2018.
Further, in December 2016, the Reserve Bank of India has issued additional final guidelines toon large borrowers effective from April 1, 2019. The framework prescribeswhich prescribe a limit of 20.0% and 25.0% of the eligible capital base in respect of exposures to single counterparty and groups of connected counterparties.counterparties with effect from April 2019. The eligible capital base is defined as the tierTier 1 capital of the bank as against the currentearlier norm of total capital funds. Exposure to a single non-banking finance company andor a group of connected non-banking finance companies is restricted to 15.0% and 25.0%, respectively, of the eligible capital base. The definition of exposure for large borrowers includes off-balance sheet items converted into credit exposure equivalents through the use of credit conversion factors used for assessing credit risk under the standardized approach for risk based capital requirements. In June 2019, the Reserve Bank of India introduced an economic inter-dependence criterion in the definition of connected counterparties, which has been applicable since April 2020.
Corporate borrowers having total exposure of Rs. 250 million (100 million from April 2024 onwards and 50 million from April 2025 onwards) and above in the banking system are required to obtain a legal entity identifier registration. A borrower who does not obtain the legal entity identifier is not eligible for renewal or enhancement of credit facilities.
Limits onCapital Market Exposure to Non-banking Finance CompaniesLimits
The Reserve Bank of India has issued guidelines which restricton capital market exposures stipulate that a bank’s exposure to non-banking finance companies. Exposurecapital markets in all forms (both lendingfund-based and investment, including off-balance sheet exposures)non-fund-based) by way of investments in shares, convertible bonds/debentures, units of equity oriented mutual funds, loans against shares, and secured and unsecured advances to stock brokers, should not exceed 40.0% of its net worth on both a bank to a non-banking finance companystand-alone and asset financing company is restricted to 10.0% and 15.0% respectivelyconsolidated basis as of March 31 of the bank’s capital funds as per the last audited balance sheet. This limit can be exceeded by an additional 5.0% if the excess exposure is on account of on-lending by the non-banking finance company/asset finance company to the infrastructure sector. Exposure to non-banking infrastructure finance companies has been restricted to 15.0% of bank’s capital funds with a provision to increase it to 20.0% if the same is on account of funds on-lent to the infrastructure sector.previous year.
243
Limits on intra-group transaction and exposures
In February 2014, theThe Reserve Bank of India issued guidelines on management of intra-group transactiontransactions and exposures for financial conglomerates. The guidelinesconglomerates prescribe quantitative limits for intra-group financial transactions and prudential measures for non-financial transactions. The Reserve Bank of India has prescribed a single group entity exposure limit of 5.0% of paid-up capital and reserves of the bank for non-financial companies and unregulated financial services companies and 10.0% in the case of regulated financial entities. The aggregate group exposure cannot exceed 20.0% of paid-up capital and reserves and surplus in case of all group entities (financial and non-financial) taken together and 10.0% in the case of all non-financial companies and unregulated financial services companies taken together. Banks’ exposures to other banks/financial institutions in the group in the form of equity and other capital instruments are exempted from above limits. In case a bank’s current intra-group exposure is more than the limits stipulated in the guidelines, it should bring down the exposure within the limits before March 31, 2016. If the exposure exceeds the permissible limits, after March 31, 2016, the excess amount would be deducted from common equity Tier 1 capital of the bank.
Regulations Relating to Investments and Capital MarketMaster Direction on Transfer of Loan Exposure Limits
In termsorder to provide banks with options to manage liquidity, rebalance their exposure or strategic sales and resolve their non-performing assets, the Reserve Bank of Section 19(2)India issued Master Direction – Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 on September 24, 2021. Under these guidelines, the board of directors of a bank must establish a policy for transfer of loans. Originators need to satisfy the Minimum Holding Period requirement (3 months and 6 months) and Minimum Retention Ratio (5% and 10%) as mentioned in extant guideline.
Securitisation involves transactions where credit risk in assets are redistributed by repackaging them into tradeable securities with different risk profiles which may give investors of various classes access to exposures which they otherwise might be unable to access directly. Reserve Bank of India issued the Master Direction (Securitisation of Standard Assets) Directions, 2021 on September 24, 2021.
The securitisation and Transfer of Loan exposure transactions can be executed by Lenders who are Scheduled commercial banks, Primary (Urban) Co-operative Banks/State Co-operative Banks/ Central Co-operative Banks (only for transfer of loan exposures), All India Term Financial Institutions, Small Finance Banks, NBFCs, and HFCs.
Credit Information Bureaus
Pursuant to the Credit Information Companies (Regulation) Act, 2005, every credit institution, including a bank, has to become a member of a credit information bureau and furnish to it such credit information as may be required of the credit institution by the credit information bureau about individuals or groups who enjoy a credit relationship with it. Banks are also required to share information on investments in commercial paper and unhedged foreign currency exposures of borrowers to the credit information companies. Other credit institutions, credit information bureaus and such other persons as the Reserve Bank of India specifies may access such disclosed credit information. Seeking to strengthen the coverage and use of credit information, the Reserve Bank of India standardized the data formats for furnishing of credit information to credit information companies, common classification of credit scores and best practices to be followed by credit information companies.
244
Loan Loss Provisions and Non-Performing Assets
The Reserve Bank of India’s Master Circular on “Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances” dated April 1, 2023 as amended, provides consolidated instructions and guidelines relating to income recognition, asset classification and provisioning standards.
Asset Classification
In particular, an advance is a non-performing asset where interest and/or installment of principal remains overdue for a period of more than 90 days in respect of a term loan; the account remains “out-of-order” (as defined below) in respect of an overdraft or cash credit; the bill remains overdue for a period of more than 90 days in case of bills purchased and discounted; installment of principal or interest remains overdue for two crop seasons for short duration crops or for one crop season for long duration crops; the amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitization transaction.
In respect of derivative transactions, the overdue receivables related to positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment; or in respect of credit card transactions, if the minimum amount due, as mentioned in the statement, remains overdue for a period of more than 90 days from the payment due date mentioned in the statement. Interest in respect of non-performing assets is not recognized or credited to the income account unless collected. Non-performing assets are classified as described below.
Sub-Standard Assets. Assets that are non-performing assets for a period not exceeding 12 months. Such an asset has well-defined credit weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the bank will sustain some loss, if deficiencies are not corrected.
Doubtful Assets. Assets that have remained sub-standard for a period of 12 months. A loan classified as doubtful has all the weaknesses inherent in assets that are classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.
Loss Assets. Assets on which losses have been identified by the bank or internal or external auditors during the performance of their audit procedures or during the Reserve Bank of India inspection but the amount has not been written off fully.
There are separate guidelines for classification of loans for projects under implementation which are based on the date of commencement of commercial production and date of completion of the project as originally envisaged at the time of financial closure.
245
The Reserve Bank of India, under its risk-based supervision exercise, carries out the risk assessment of banks on an annual basis. As a part of this assessment, the Reserve Bank of India separately reviews asset classification and provisioning of credit facilities given by banks to its borrowers. This assessment is initiated subsequent to the completion of the annual audit and the publication of audited financial statements for the given financial year. Any divergences in classification or provisioning arising out of the supervisory process are given effect in the financial statements in subsequent periods after conclusion of the exercise. Such divergences are required to be disclosed by banks in their financial statements if either the additional provisioning requirement assessed by the Reserve Bank of India exceeds 10.0% (5% from fiscal 2024 onwards) of the published profits before provisions and contingencies for the period, or the additional gross non-performing assets identified by the Reserve Bank of India exceeds 10.0% (5% from fiscal 2024 onwards) of the published incremental gross non-performing assets for the reference period, or both. The assessment of divergence in asset classification and provisioning conducted by the Reserve Bank of India for ICICI Bank in fiscal 2020, fiscal 2021 and fiscal 2022 did not require any additional disclosures.
Restructured loans
Standard restructured loans are subject to higher standard asset provisioning requirements and higher risk weights for capital adequacy purposes. The higher risk weights and provision shall continue until satisfactory performance under the revised payment schedule has been established for the specified period. If the restructured account is overdue as per the revised schedule for a period beyond the minimum period prescribed for classification of a loan as non-performing, it is required to be downgraded to non-performing status with reference to the pre-restructuring payment schedule.
See also “Risk Factors—Risks Relating to Our Business—The future trajectory of the COVID-19 pandemic is uncertain and could adversely affect our business, the quality of our loan portfolio and our financial performance”.
Provisioning and write-offs
Provisions under Indian GAAP are based on guidelines specific to the classification of the assets. The following guidelines apply to the various asset classifications:
Standard Assets: The allowances on the performing portfolios are based on guidelines issued by the Reserve Bank of India. The provisioning requirement is a uniform rate of 0.4% for all standard assets except certain advances which require provision in the range of 0.25% to 2%:
Reserve Bank of India guidelines require banks to maintain provisions for standard assets at rates higher than the regulatory requirement in respect of advances to stressed sectors of the economy. For assets referred to the National Company Law Tribunal under the Insolvency and Bankruptcy Code, banks have to make provisions to the extent of 50.0% of the secured portion and 100.0% of the unsecured portion of the outstanding loans.
Sub-standard Assets: A provision of 15.0% is required for all substandard assets as compared to the previous requirement of 10.0%. A provision of 25.0% is required for accounts that are unsecured. Unsecured infrastructure loan accounts classified as substandard require provisioning of 20.0%.
246
Doubtful Assets: A 100.0% provision/write-off is required against the unsecured portion of a doubtful asset and is charged against income. For the secured portion of assets classified as doubtful, a 25.0% provision is required for assets that have been classified as doubtful for a year, a 40.0% provision is required for assets that have been classified as doubtful for one to three years and a 100.0% provision is required for assets classified as doubtful for more than three years. The value assigned to the collateral securing a loan is the amount reflected on the borrower’s books or the realizable value determined by third-party appraisers.
Loss Assets: The entire asset is required to be written off or provided for.
Under the Banking Regulation Act, banks should not hold sharesbanking companies in any company except as provided in sub-section (1) of that Act, whether as pledgee, mortgagee or absolute owner, of an amount exceeding 30.0%India are required to comply with the directions of the paid-up share capitalReserve Bank of that company or 30.0%India, including guidelines issued with respect to asset identification, asset classification and provisioning by banking companies. While preparing the financial statements under Indian GAAP, banking companies are required to comply with all regulatory requirements, including such directions issued by the Reserve Bank of its own paid-up share capital and reserves, whichever is less. Further,India. The Reserve Bank of India issued a circular in terms2016 instructing all scheduled commercial banks in India to comply with the Indian Accounting Standards (“Ind AS”) for financial statements. In 2019 the Reserve Bank of Section 19(3)India deferred the implementation of the Banking Regulation Act,Ind AS until further notice as legislative amendments recommended were still under the consideration of the Government of India. In fiscal 2023, Reserve Bank of India, through its discussion paper on “Introduction of Expected Credit Loss framework for provisioning by banks” has proposed to adopt expected credit loss framework based on approach used in International Financial Reporting Standard 9, supplemented by regulatory backstops wherever necessary. The draft guidelines on the expected credit loss framework is awaited from Reserve Bank of India.
Framework for Compromise Settlements and Technical Write-offs
In June 2023, Reserve Bank of India issued guideline on Framework for Compromise Settlements and Technical Write-offs requiring Bank to put a board approved policy for setting necessary condition precedents such as minimum ageing, deterioration in collateral value and certain other parameters including staff accountability, delegation of power, cooling period etc. for taking fresh exposure. Further, the guideline requires that in case of partial technical write-offs, the prudential requirements in respect of residual exposure, including provisioning and asset classifications shall be with reference to the original exposure.
Automation of income recognition, asset classification and provisioning process in banks should not hold shares, whether as pledgee, mortgagee or absolute owner,
In 2020 the Reserve Bank of India issued a circular for automation of income recognition, asset classification and provisioning processes in any company in the management of which any managing director or managerbanks. As per this circular, all borrower accounts and investments of the bank isshould be covered in any manner concerned or interested.the automated IT based system for asset classification, upgradation and provisioning processes. The asset classification rules should be configured in the system in compliance with the regulatory requirements. The system based asset classification should be an ongoing exercise for upgrades and downgrades of borrower accounts.
Guidelines Relating to Use of Recovery Agents by Banks
The Reserve Bank of India guidelines on capital market exposures stipulate thathas asked banks to put in place a bank’s exposuredue diligence process for the engagement of recovery agents, structured to capital marketscover, among others, individuals involved in all forms (both fund basedthe recovery process. Banks are expected to communicate details of recovery agents to borrowers and non-fund based) by wayhave in place a grievance redressal mechanism pertaining to the recovery process. The Reserve Bank of investments in shares, convertible bonds/debentures, units of equity oriented mutual funds, loans against shares,India has advised banks to initiate a training course for current and secured and unsecured advancesprospective recovery agents to stock brokers, should not exceed 40.0% of its net worth on both a stand-alone and consolidated
basis as of March 31 of the previous year. Within this overall limit, direct investments in shares, convertible bonds/debentures, and units of equity oriented mutual funds and all exposures to venture capital funds have been restricted to 20.0% of their net worth on both a stand-alone and consolidated basis. Further, in July 2011,support prudent recovery practices. In August 2022, the Reserve Bank of India stipulatedadvised that the Regulated Entities (“REs") shall strictly ensure that they or their agents do not resort to intimidation or harassment of any kind, either verbal or physical, against any person in their debt collection efforts, including acts intended to humiliate publicly or intrude upon the privacy of the debtors' family members, referees and friends, sending inappropriate messages either on mobile or through social media, making threatening and/ or anonymous calls, persistently calling the borrower, or other similar acts.
247
Legislative Framework for Enforcement of Security by Banks for Non-performing Assets/Recovery of debts due to Banks
The SARFAESI Act provides that a bank’s investmentssecured creditor may, in liquid schemesrespect of debt oriented mutual funds are subject to a prudential cap of 10.0% of the bank’s net worthloans classified as of March 31 of the previous year. The above guidelines are also applicable at a consolidated level.
Investment by banksnon-performing in specified instruments which are issued by other banks or financial institutions and are eligible for capital status for the investee bank/financial institution should not exceed 10.0% of the investing bank’s capital funds. Further, the banks/financial institutions should not acquire any fresh stake in a bank’s equity shares, if by such acquisition, the investing bank’s or financial institution’s holding exceeds 5.0% of the investee bank’s equity capital. The guideline earlier required banks to obtain prior approval ofaccordance with the Reserve Bank of India guidelines, give notice in writing to the borrower requiring it to discharge its liabilities within 60 days, failing which the secured creditor may, inter alia, take possession of the assets constituting the security for equity investmentthe loan, take over the management of the business of the borrower, appoint a person to manage the secured assets taken in a company engaged in the financial sector which was revised in September 2015possession and the requirementlike with the ultimate objective of recovering the money due to the bank. Additionally, under SARFAESI, a central registry has been established, known as the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (“CERSAI”), to register the security interst of banks on the borrower’s assets and only if the banks register their security interest with CERSAI that the remedy under SARFAESI shall be available to them. The SARFAESI Act also provides for setting up of asset reconstruction companies regulated by the Reserve Bank of India’sIndia to acquire stressed assets from banks and financial institutions. In 2021, National Asset Reconstruction Company Limited (“NARCL”), a government entity, was incorporated and registered with the Reserve Bank of India as an asset reconstruction company under SARFAESI for aggregation and resolution of non-performing assets in the banking industry.
See also “—Regulations Relating to Sale of Assets to Asset Reconstruction Companies”.
The SARFAESI Act focuses on improving the rights of banks and financial institutions and other specified secured creditors as well as asset reconstruction companies by providing that such secured creditors can take over management control of a borrower company upon default and/or sell assets without the intervention of courts, in accordance with the provisions of the SARFAESI Act.
The Recovery of Debts and Bankruptcy Act, 1993 provides for establishment of Debt Recovery Tribunals for expeditious adjudication and recovery of debts due to any bank or Public Financial Institution or to a consortium of banks and Public Financial Institutions. Under this Act, the procedures for recoveries of debt have been simplified and time frames have been fixed for speedy disposal of cases. Upon establishment of the Debt Recovery Tribunal, no court or other authority can exercise jurisdiction in relation to matters covered by this Act, except the higher courts in India in certain circumstances.
Resolution of Stressed Assets
Insolvency and Bankruptcy Code, 2016
The Insolvency and Bankruptcy Code, 2016, provides a time-bound revival and rehabilitation mechanism. The corporate insolvency resolution process can be initiated by the creditors on occurrence of a default above a specific threshold amount. It classifies the creditors into financial creditors (which have extended financial debts) and operational creditors (which have provided goods and services). Other key features include specific timelines for dealing with insolvency resolution applications. The insolvency resolution plan has to be approved by a majority of financial creditors, which requires approval was removed subjectby the adjudicating authority and, if rejected, the adjudicating authority may pass an order for liquidation. The National Company Law Tribunal has been set up as the adjudicating authority, the National Company Law Appellate Tribunal has been set up to prescribed conditions.hear appeals on the orders of the adjudicating authority with jurisdiction over companies and limited liability entities, and the Insolvency and Bankruptcy Board of India has been set up as the new insolvency regulator overseeing insolvency professionals, information utilities and promote transparency.
248
Regulations Relating to Sale of Assets to Asset Reconstruction Companies
The Reserve Bank of India has issued detailedguidelines to banks on the process to be followed for sales of financial assets to asset reconstruction companies in the Master Direction on Transfer of Loans. These guidelines provide that a bank may sell financial assets to an asset reconstruction company provided the asset is a non-performing asset. These assets are to be sold on a “without recourse” basis, only. The banks selling financial assets should seek to ensure that there is no known liability devolving on them and that they do not assume any operational, legal or any other type of risks relating to the financial assets sold. Further, banks may not sell financial assets at a contingent price with an agreement to bear a part of the shortfall on ultimate realization.
Banks can also invest in security receipts or pass-through certificates issued by the asset reconstruction company or trusts set up by it to acquire the financial assets. The Reserve Bank of India has also issued guidelines governing the affairs of asset reconstruction companies. The guideline provides norms relating to period of realization of assets by asset reconstruction company, mandatory holding of security receipts, period for formulating plan of recovery, and other norms. Asset reconstruction companies are not permitted to acquire any non-performing financial assets from their sponsor banks on a bilateral basis. However, they may participate in auctions of non-performing assets by their sponsor banks.
Framework for Early Identification of Stress and Information Sharing
The Reserve Bank of India has issued a “Framework for Revitalizing Distressed Assets in the Economy.” The framework outlined an action plan for early identification of problem cases, creating a central repository of information on large credits, timely restructuring of accounts which were considered to be viable, and taking prompt steps by banks for recovery or sale of unviable accounts. Accounts have to be categorized into “special mention accounts” based on specified criteria. The Reserve Bank of India issued the Prudential Framework for Resolution of Stressed Assets in 2019. The framework additionally required banks to undertake a review of the borrower within 30 days of a default in the borrower account and enter into an inter-creditor agreement during the 30-day review period to decide rules for finalization and implementation of the resolution plan.
See also “Supervision and Regulation—Legislative Framework for Recovery of Debts due to Banks” and “Supervision and Regulation—Legislative Framework for Recovery of Debts due to Banks— Resolution of Stressed Assets—The Banking Regulation (Amendment) Ordinance, 2017”.
249
Reserve Bank of India guidelines provide a framework for dealing with loan frauds. The guidelines relate to detection, reporting and monitoring of fraud accounts and prescribe continuous monitoring and red flagging of accounts based on early warning signals for accounts above Rs. 30 million. The guidelines also require reporting frauds on the Reserve Bank of India’s central repository of information on large credits for dissemination to other banks and enabling decision-making among banks in case of consortium or multiple banking arrangements. The framework also illustrates checks/investigations during the different stages of the loan life cycle and timelines have been defined to complete the due diligence for evaluation of an account. Restructuring or grant of additional facilities would not be available in case of fraud or red-flagged accounts. There are provisioning guidelines relating to fraud accounts that require banks to make a provision.
Regulations Relating to the Opening of Branches
Opening of branches and relocation of existing branches are governed by the provisions of Section 23 of the Banking Regulation Act.
Banks are permitted to open banking outlets in Tier 1 to Tier 6 centers without the prior approval of the Reserve Bank of India, subject to certain requirements. Banks are mandated to allocate 25.0% of the total number of new banking outlets opened during a year to unbanked rural centers. An unbanked rural center is defined as an area classified as Tier 5 and Tier 6 centers that does not have core banking system enabled banking outlets.
A banking outlet is a fixed point service delivery unit, manned by either a bank’s staff or its business correspondent, and where services of acceptance of deposits, encashment of checks/cash withdrawal or lending of money are provided for a minimum of four hours per day for at least five days a week.
With an aim to increase the reach of digital banking services, the Reserve Bank of India issued guidelines on investmentssetting up of Digital Banking Units by commercial banks. These are fixed point business units having minimum digital infrastructure to offer digital banking products and services. These digital banking units will be treated as banking outlets.
Regulations Governing Use of Business Correspondents
To increase the outreach of banking and promote greater financial inclusion, the Reserve Bank of India allows banks in non-statutory liquidity ratio securities. These guidelines apply to primary market subscriptionsengage business correspondents for providing banking and secondary market purchases. Pursuant to these guidelines, banks are prohibited from investing in non-statutory liquidity ratio securities with an original maturity of less than one year,financial services at locations other than commercial paper, certificatesa bank branch. Business correspondents offer a limited range of depositsbanking services at low cost, as setting up a brick and mortar branch may not be viable in all areas. Banks are required to take full responsibility for the acts of omission and commission of the business correspondents that they engage and to conduct due diligence for minimizing agency risks. The entities permitted to act as business correspondents included individuals such as retired bank employees, retired teachers, individual owners of small, independent grocery stores, medical and fair price shops and certain non-convertible debentures with originalother individuals. The non-individual entities include non-government organizations or initial maturitymicrofinance institutions set up under societies/trust acts, societies registered under mutually aided cooperative societies acts of up to one year issued by corporationsvarious states, or the Cooperative Societies Acts of various states, not-for-profit companies and non-banking finance companies.post offices. Banks are also prohibitedallowed to engage companies with large and widespread retail outlets and registered under the Companies Act and non-deposit taking non-banking financial companies as business correspondents. Further, with a view to scale up the business correspondent channel, the Reserve Bank of India requires the board of banks to review the operations and payment of remuneration to business correspondents at least once every six months. The Reserve Bank of India has also proposed to create a registry of business correspondents.
250
Regulations Relating to Deposits
The Reserve Bank of India permits banks to independently determine interest rates offered on term deposits. However, banks cannot pay interest on current account deposits. Interest rates payable on savings deposits are not regulated. However, a uniform interest rate on savings deposits must be paid on deposits up to Rs. 100,000 and differential rates can be paid on deposits of over Rs. 100,000. The payment of interest on savings deposits is calculated on daily product basis.
Domestic time deposits and rupee-denominated non-resident ordinary accounts have a minimum maturity of seven days. Rupee denominated non-resident external rupee accounts have a minimum maturity of one year and foreign currency denominated for non-resident Indians have a minimum maturity of one year and a maximum maturity of five years.
Banks are allowed to offer differential rates of interests on domestic term deposits and for bulk term deposits are of Rs. 20 million and above.
The Reserve Bank of India allows banks to offer early withdrawal facility in a term deposit as a distinguishing feature for offering differential rates of interest. All term deposits of individuals of Rs. 1.5 million and below should, necessarily, have premature withdrawal facility. For all other term deposits, customers should be given the option to choose between term deposits either with or without premature withdrawal facility. Banks will be required to disclose in advance the schedule of interest rates payable on deposits.
Banks are free to determine the interest rates on non-resident (external) rupee deposits and ordinary non-resident accounts. However, the interest rates cannot exceed the rate offered by the bank on comparable domestic rupee deposits.
In view of the impending discontinuance of certain tenors of US$-LIBOR as a benchmark rate, the interest rates on foreign currency non-resident (B) deposits shall be linked to a widely accepted overnight alternative reference rate for the respective currency.
With a view to increasing the availability of financial services across regions and population segments, the Reserve Bank of India has advised banks to make available a basic savings bank deposit account without having the requirement of any minimum balance.
The Reserve Bank India’s Framework for acceptance of Green Deposits came into effect from investingJune 1, 2023.The purpose of the framework is to encourage REs to offer green deposits to customers, protect the interests of the depositors, aid customers to achieve their sustainability agenda, address greenwashing concerns and help augment the flow of credit to green activities and projects.
251
Regulations Relating to Payments
On January 5, 2021, the Reserve Bank of India decided to introduce the Legal Entity Identifier system for single payment transactions of value Rs.500 million and above undertaken by non-individual entities using centralised payment systems like real time gross settlement (RTGS) and national electronic funds transfer (NEFT). These directions were effective from April 1, 2021.
In January 2020, the Reserve Bank of India advised banks to issue or re-issue, all cards (physical and virtual) and enable them for use only at contact based points of usage like ATMs and point of sale (“PoS”) devices within India. The banks shall provide cardholders a facility for enabling card-not-present (for domestic and international online transactions) transactions, card-present (for international transactions) transactions and contactless transactions. For existing cards, issuers may decide whether to disable the card-not-present (domestic and international) transactions, card-present (international) transactions and contactless transaction rights. Existing cards that have never been used for online (card not present) / international / contactless transactions shall be mandatorily disabled for this purpose.
On August 6, 2020, the Reserve Bank of India advised that authorised payment system operators (including banks and non-banks) and their participants to implement an online dispute resolution system for resolving customer disputes and grievances pertaining to digital payments, using a system-driven and rule-based mechanism with zero or minimal manual intervention by January 2021. The payment system operators shall provide access to such a system to its participating members via payment system participants.
In February 2021, the Reserve Bank of India issued master directions on digital payment security controls, which provides necessary guidelines for the regulated entities to set up a robust governance structure and implement common minimum standards of security controls for channels like internet, mobile banking, card payments, among others. This is to create an enhanced environment for customers to use digital payment products in unrated securities. A bank’s investmentmore safe and secure manner. The guidelines have been effective since August 18, 2021.
The Reserve Bank of India in unlisted non-statutory liquidity ratio securitiesits circular dated September 7, 2021 has enhanced applicability of card tokenisation services to Card-on-File Tokenisation services as well. Further, card issuers have been permitted to offer card tokenisation services as Token Service Providers. Further, the Reserve Bank of India in its circular dated January 3, 2022 has issued a framework for carrying out digital payments in offline mode using cards, wallets, mobile devices, and other modes of digital payments.
Regulations Relating to Customer Service and Customer Protection
Enhancing customer service and customer protection is a focus area for the Reserve Bank of India and has regularly emphasized on offering efficient, fair and speedy customer service. In this regard, the Reserve Bank of India has issued several guidelines.
The Reserve Bank of India has issued a charter of customer rights, which provides the broad overarching principles for the protection of bank customers. The charter describes five basic rights of bank customers which are the right to fair treatment, the right to transparency, fair and honest dealing, the right to suitability, the right to privacy and the right to grievance redress and compensation.
252
The Reserve Bank of India has issued procedural guidelines for redressal of grievances by an internal ombudsman. Internal Ombudsman Scheme covers appointment/tenure, roles and responsibilities, procedural guideline and oversight mechanism for the internal Ombudsman. Internal Ombudsman examine all customer grievances including complaints of deficiency in service on the part of the bank as also those listed under Clause 8 of the Banking Ombudsman Scheme, 2006 (as amended from time to time) received by banks and which are partly or wholly rejected by bank's internal grievance redressal mechanism. In order to further strengthen the customer grievance redressal mechanism in banks, the Reserve Bank of India has decided to put in place a comprehensive framework including enhanced disclosures by banks on customer complaints, recovery of cost of redressal from banks for the maintainable complaints received against them in Offices of Banking Ombudsman in excess of the peer group average, and undertaking intensive review of the grievance redressal mechanism and supervisory action against banks that fail to improve their redressal mechanism in a time bound manner.
The Reserve Bank of India has integrated all the existing three Ombudsman schemes, which were (i) the Banking Ombudsman Scheme, 2006; (ii) the Ombudsman Scheme for Non-Banking Financial Companies, 2018; and (iii) the Ombudsman Scheme for Digital Transactions, 2019, into a single scheme known as the Integrated Ombudsman Scheme, 2021.
The Reserve Bank of India has issued directions to banks for determining customer liability in case of Unauthorized Electronic Banking Transaction. The facility of electronic transactions (other than ATM cash withdrawals) may not exceed 10.0%be offered to customers who do not provide mobile numbers. The Reserve Bank of its total investmentIndia has advised banks to clearly define the rights and obligations of customers in non-statutory liquidity ratio securities atcase of unauthorized transactions in specified scenarios. Further, banks are required to formulate/revise their customer relations policy, with approval of their Boards, to cover aspects of customer protection, including the endmechanism of creating customer awareness on the risks and responsibilities involved in electronic banking transactions and customer liability in cases of unauthorized electronic banking transaction. The Reserve Bank of India has extended the customer protection framework to prepaid payment instruments (PPIs) as well. In March 2020, the Reserve Bank of India issued guidelines to regulate the activities of payment aggregators and has also provided baseline technology-related recommendations to payment gateways.
The Reserve Bank of India does not allow entities regulated by it, including banks, to deal in virtual currencies or to provide services facilitating any person or entity in dealing with or settling virtual currencies. Such services include maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them and transfer/receipt of money in accounts relating to purchase/sale of virtual currencies.
Personal Data Protection and Privacy
ICICI Bank is committed to protecting the privacy of individuals whose personal data it holds, and processing such personal data in a way that is consistent with applicable laws. It is important for employees and businesses to protect customer data and follow the applicable privacy laws in India and overseas locations to ensure safety and security of data. We believe that the data privacy framework should be in line with the evolving regulatory changes and digital transformation.
253
The Bank has a global presence in several overseas jurisdictions including Hong Kong, Singapore, United States, United Kingdom, Canada, China, Dubai International Financial Centre and Bahrain. We are committed to ensuring compliance with applicable laws across these jurisdictions. We have an integrated and centralized strategy for achieving data privacy compliance across all jurisdictions. A set of principles have been defined with respect to handling customer data. There is a mechanism in place for reporting any form of personal data incident which is accessible to all employees in the Bank. Any kind of personal data related incidents reported through the service request undergoes a detailed investigation and report of same is shared by Data Protection Officer (DPO) with senior members of the preceding fiscal year. However,Bank from the bank’s investmentsInformation Security Group, Operational Risk Management Group, Fraud Management Group, Human Resources, Compliance and the Legal Team on a monthly basis.
The Bank periodically updates its Personal Data Protection Standard to cover the personal data protection regulatory requirements for the Bank and its overseas offices to reflect the changes in unlisted non-statutory liquidity ratio securities may exceeddata protection laws and regulations. The Personal Data Protection Standard of the 10.0% limitBank was reviewed by an additional 10.0%international law firm and was further updated and strengthened in fiscal 2022.
Privacy regulations require the personal data of customers to be protected throughout its entire lifecycle. Accordingly, the Bank has undertaken several comprehensive measures such as categorizing all personal data and sensitive personal data as ‘Confidential Information’, providedkeeping record of all its processing activities, entering into non-disclosure and confidentiality agreements with employees and third parties who are privy to personal data of the investment iscustomers and providing customers the option to exercise various rights which they enjoy under applicable data protection regulations and incident handling procedures.
Regulations Governing Mobile Banking
The Reserve Bank of India permits Indian banks to offer mobile banking services to their customers. Transactions involving a debit to the customer’s account should have a two-level authentication to execute the transaction. The Reserve Bank of India has issued guidelines requiring banks to provide easy registration for mobile banking services, including generation of the personal identification number through multiple channels. While use of mobile banking services for cross-border transactions was previously restricted, the restriction was subsequently removed. Services on mobile applications can now be used for both rupee based transaction in securitization papersthe domestic market and for undertaking cross-border transactions.
Regulations Governing Prepaid Payment Instruments
The Reserve Bank of India has issued master directions on issuance and operation of prepaid payment instruments. Issuers are required to have Board approved policy for infrastructure projectsissuance of various types/categories of prepaid instruments, engaging agents, co-branding arrangement, re-validation of gift instruments and bonds/debenturesall related activities. Pre-paid instruments (or minimum-detail Prepaid Payment Instruments) in small amounts up to Rs. 10,000 can be issued by securitization companiesaccepting minimum details and reconstruction companies setare required to be converted into full-KYC Prepaid Payment Instruments within 24 months from the date of issuance if facility of cash loading / reloading is provided. Prepaid Payment Instruments up underto Rs. 200,000 can be issued after completing KYC of the SecuritizationPrepaid Payment Instrument holder. Gift instrument can be issued up to a maximum value of Rs. 10,000. Prepaid Payment Instruments (other than gift Prepaid Payment Instruments and ReconstructionMass Transit System Prepaid Payment Instruments) shall necessarily have additional factor of Financial Assetsauthentication. The aspects of co-branded prepaid instruments, fraud prevention, customer protection, grievance handling and Enforcementinformation system audit are also highlighted in the directions.
254
Deposit Insurance
Demand and registeredtime deposits accepted by Indian banks must be insured with the Deposit Insurance and Credit Guarantee Corporation, a wholly owned subsidiary of the Reserve Bank of India. In December 2007,The limit on insurance coverage for depositors in insured banks was raised from Rs. 100,000 to Rs. 500,000 per depositor from February 4, 2020. Banks are required to pay the insurance premium for the eligible amount to the Deposit Insurance and Credit Guarantee Corporation on a semi-annual basis. The cost of the insurance premium cannot be passed on to the customer. Under the Companies Act, 2013, deposit insurance is mandatory for companies accepting deposits.
The Depositor Education and Awareness Fund Scheme, 2014—Section 26A of the Banking Regulation Act, 1949
The Reserve Bank of India has advised that banks shall calculate the cumulative balances in all eligible accounts which are unclaimed for more than 10 years along with interest accrued, and the amount due in each calendar month shall be transferred on the last working day of the subsequent month.
Borrowings by Banks in India
The Reserve Bank of India has permitted banks to borrow and lend in Call, Notice and Term Money Markets as per the internal board approved limits within the prescribed prudential limits for inter-bank liabilities (“IBL”).
(a) | The IBL of a bank should not exceed 200% of its net worth as on March 31 of the previous year. However, individual banks may, with the approval of their Boards of Directors, fix a lower limit for their inter-bank liabilities, keeping in view their business model. |
(b) | The banks whose CRAR is at least 25% more than the minimum CRAR (9%) (i.e., 11.25%) as on March 31, of the previous year, are allowed to have a higher limit up to 300% of the net worth for IBL. |
(c) | The limit prescribed above will include only fund based IBL within India (including inter-bank liabilities in foreign currency to banks operating within India). In other words, IBL outside India are excluded. |
The Reserve Bank of India has allowed banks to borrow funds from their overseas branches and correspondent banks (including borrowings for financing export credit, external commercial borrowings and overdrafts from their head office/nostro account) up to a limit of 100.0% of unimpaired Tier 1 capital or US$10 million, whichever is higher.
255
The aforesaid limit applies to the aggregate amount availed of by all the offices and branches in India from all their branches or correspondents abroad and also includes overseas borrowings in gold for funding domestic gold loans. Capital funds raised by issue of innovative perpetual debt instruments and other overseas borrowings with the specific approval of the Reserve Bank of India permitted bankswill continue to invest in unrated bondsbe outside the limit of corporations engaged in infrastructure activities within the ceiling100.0% of 10.0% for unlisted non-statutory liquidity ratio securities in order to encourage flow of credit to the infrastructure sector.unimpaired Tier 1 capital.
In July 2014, banks were allowed to issue long-term bonds for financing infrastructure projects and low-cost housing. Banks were not allowed to invest in the bonds issued by other banks. In June 2015, however, the Reserve Bank of Indiaare permitted banks to invest in bonds issued by other banks. These investments are subject to certain conditions including (i) investments in these bonds are not considered for the purpose of calculation of net demand and time liabilities, (ii) they are not held under the held-to-maturity category, (iii) a bank’s investment in these bonds cannot exceed 2.0% of its Tier 1 capital or 5.0% of the issue size, and (iv) an investing bank's aggregate holding in such bonds will be capped at 10.0% of its total non-statutory liquidity ratio investments .
In November 2016, the Reserve Bank of India allowed banks to raise funds through issuance of rupee denominated bonds overseas. Banks have beenThe Reserve Bank of India has permitted banks to issue perpetual debt instruments that can qualify for inclusion as additional tierTier 1 capital and debt capital instruments that can qualify for inclusion as tierTier 2 capital, by way of rupee denominated bonds in the overseas market, if it is reservedand long-term bonds for financing infrastructure and affordable housing projects.
In April 2017,Gold Monetization Scheme and Sovereign Gold Bonds
As per the gold monetization scheme of the Reserve Bank of India, permitted banks are allowed to participatemobilize gold deposits and provide loans against these deposits. The minimum deposit under the gold deposit scheme at any one time is 10 grams of raw gold. The short-term bank deposits are allowed for a minimum of one to three years, and treated as on-balance sheet liability, and medium-term deposits of five to seven years and long-term of 12-15 years. The medium and long-term deposits will be the liability of the Indian central government. The redemption of medium and long-term deposits, at the option of the depositor, can be either in Real Estate Investment Trusts and Infrastructure Investment Trusts within the overall ceilingIndian rupee equivalent of 20.0%the value of a bank’s net worth permitted for directthe deposited gold or in the gold itself.
The Reserve Bank of India has also issued guidelines on sovereign gold bonds with investments in shares, convertible bonds/debentures, units of equity-oriented mutual funds and exposures to venture capital funds.such bonds being eligible for statutory liquidity ratio calculations. The investment in sovereign gold bond is restricted based on the investor type. The bonds could also be used as collateral for loans.
Further,Regulations Relating to Know Your Customer and Anti-Money Laundering
The Prevention of Money Laundering Act (“PMLA”), 2002, seeks to prevent and criminalize money laundering and terrorist financing in line with recommendations made by the Financial Action Task Force. This Act lays down the obligations on designated entities (including banks) for maintaining records and reporting certain transactions to the Financial Intelligence Unit. It also lists out the predicate offences, appointment of the Designated Director and Principal Officer and their respective obligations under the Act. Prevention of Money Laundering Rules (“PMLR”), 2005 have also been framed under this Act. Both the PMLA and PMLR are amended from time to time.
Reserve Bank of India has also provided directions in line with the PMLA and PMLR. It cover key aspects including customer acceptance policy, customer due-diligence procedures, monitoring of transactions risk management, regulatory reporting, training of employees and independent audit of AML/KYC framework. These directions are updated from time to time.
256
Pursuant to recent amendments to the PMLA and PMLR, changes have also been made in the Reserve Bank of India Master Direction on KYC, 2016. Major amendments include: identification of Beneficial Owner exemptions; threshold changes for new and legacy cases; amended definitions of Group, Politically Exposed Person, Non-Profit Organisation and Shell banks; increases in the scope of record management; removal of the positive confirmation requirement in case current address and address in Aadhar is different; adoption of artificial intelligence and machine learning for effective monitoring; introduction of Aadhaar OTP based e-KYC in non-face to face mode for periodic updation; defined procedures for implementation of section 12A of the Weapons of Mass Destruction and their Delivery Systems (Prohibited of Unlawful Activities) Act, 2005; and deletion of the words “adverse action against the customers should be avoided” from “Periodic updation of KYC” clause.
Regulations Relating to Investments
Banks are required to undertake investment activities as per the terms and conditions specified in the extant Reserve Bank of India guideline on Classification, Valuation and Operation of Investment Portfolio of Commercial Banks. Banks are required to adopt a Board approved comprehensive investment policy.
The entire investment portfolio (including SLR securities and non-SLR securities) is to be classified under three categories: ‘Held to Maturity’ (“HTM”), ‘Available for Sale’ (“AFS”) and ‘Held for Trading’ (“HFT”). The category of the investment shall be decided by the bank at the time of acquisition.
Investments under HTM category shall not exceed 25% of the bank’s total investments except for certain investments as stipulated by Reserve Bank of India.
Securities eligible for HTM category are SLR securities, Non-SLR securities (with certain conditions), Recapitalisation Bonds, Equity of subsidiaries and joint ventures, Long-term bonds issued by Infrastructure companies, Unquoted shares/bonds/units of Category I and II Alternative Investment Funds (“AIFs”) for initial period of three years.
The securities acquired with the intention to trade by taking advantage of the short term price/interest rate movements shall be classified under HFT. The investments classified under HFT shall be sold within 90 days. The securities which do not fall under HTM or HFT categories shall be classified under AFS.
Shifting of investments
Banks shall have the freedom to shift investments to/from HTM with the approval of the Board of Directors once at the beginning of the accounting year. Banks shall have the freedom to shift investments from AFS to HFT with the approval of their Board of Directors/ ALCO (Asset Liability Committee) / Investment Committee. Shifting of investments from HFT to AFS shall be permitted only in exceptional circumstances where the bank is not in a position to sell the security within 90 days due to tight liquidity conditions, or extreme volatility, or market becoming unidirectional.
In case of sales/transfers to/from HTM category exceeds 5% of the book value of investment held in HTM at the beginning of the year, banks shall disclose in the ‘Notes to Accounts’ to the Financial Statements the market value of the investments held in the HTM category. Banks shall also disclose the excess of book value over market value for which provision is not made.
257
Bank’s investment in unlisted non-SLR securities shall not exceed 10 percent of its total investment by banks in liquid or short-term debt schemes of mutual funds with weighted average maturity of portfolio of not more than one year is subject to a prudential cap of 10.0% of their net worthnon-SLR securities as on March 31 of the previous year.
A 125.0% risk weight is assigned to all capital market exposures.
Banks’ Investment Classification and Valuation Norms
The key features of the Reserve Bank of India guidelines on categorization and valuation of banks’ investment portfolio are given below.
The held-to-maturity category can include statutory liquidity ratio securities up to a specified percentage of the demand and time liabilities and certain non-statutory liquidity ratio securities, including fresh recapitalization bonds received from the government of India towards recapitalization requirement and held in the investment portfolio, investment in the equity of subsidiaries and joint ventures and investment in long-term bonds (with a minimum residual maturity of seven years) issued by companies engaged in infrastructure activities. The minimum residual maturity of seven years should be at the time of investment in these bonds. Once invested, banks may continue to classify these investments under the held-to-maturity category even if the residual maturity falls below seven years subsequently. However banks’ investments in long term bonds issued by other banks for their financing of infrastructure and affordable housing loans are not to be held in the held-to-maturity category. The level of government securities portfolio permitted to be included in the held-to-maturity category has been consistently reduced from 25.0% in 2013 to at the current ceiling of 20.0% since June 2017. To align the ceiling on statutory liquidity ratio holdings under the held-to-maturity category with the regulatory requirement of statutory liquidity ratio, in December 2015 the Reserve Bank of India advised that banks are permitted to exceed the limit of 25.0% of total investments under the held-to-maturity category provided that the excess is comprised of statutory liquidity ratio securities. The Reserve Bank of India has been consistently reducing the proportion of total statutory liquidity ratio in the held-to-maturity category.
Held-to-maturity securities need not be marked to market and are carried at acquisition cost, unless it is more than the face value, in which case the premium should be amortized over the period remaining to maturity. Investments under available-for-sale category are marked to market at quarterly intervals or at more frequent intervals and held-for-trading securities valued at market at monthly intervals or at more frequent intervals and
provided for as in the case of those in the available for sale category. Depreciation or appreciation for each basket within the available-for-sale and held-for-trading categories is aggregated. Net appreciation in each basket, if any, which is not realized, is ignored, while net depreciation is provided for.
Investments in security receipts or pass through certificates issued by asset reconstruction companies or trusts set up by asset reconstruction companies should be valued at the lower of: (a) the redemption value of the security receipts or pass through certificates; and (b) the net book value (defined as book value less provisions held) of the financial asset. However, if the instrument issued by securitization/asset reconstruction companies is limited to the actual realization of the financial asset assigned to the instrument, the net asset value should be obtained from the securitization/asset reconstruction companies for valuation of the investments.
On December 19, 2013, the Reserve Bank of India issued guidelines permitting banks to participate in interest rate futures for the dual purpose of hedging the risk in the underlying investment portfolio and to take a trading position. However, banks are not allowed to undertake transactions in interest rate futures on behalf of their clients.
Limit on Transactions through Individual BrokersCash Reserve Ratio
238
A bank is required to maintain a specified percentage of its net demand and time liabilities, excluding interbank deposits, by way of cash reserve with itself and by way of balance in current account with the Reserve Bank of India. In May 2022, the Reserve Bank of India increased the cash reserve ratio by 50 basis points from 4.00% to 4.50% of net demand and time liabilities, effective from the reporting fortnight beginning May 21, 2022.
GuidelinesStatutory Liquidity Ratio
In addition to the cash reserve ratio, a bank is required to maintain a specified percentage of its net demand and time liabilities by way of liquid assets like cash, gold or approved unencumbered securities. Investments in sovereign gold bonds are also allowed to be considered in the calculation of statutory liquidity ratio. Currently, the statutory liquidity ratio is at 18.0%, effective since April 2020.
Liquidity Coverage Ratio
In line with the Basel III framework, banks in India are required to maintain a minimum liquidity coverage ratio which is a ratio of the stock of high quality liquid assets to total net cash outflows over the next 30 calendar days under certain prescribed stressed conditions. The liquidity coverage ratio is designed to ensure that a bank maintains an adequate level of unencumbered high quality liquid assets to meet any acute liquidity requirements over a hypothetical stressed period lasting 30 days and the requirement was phased in over time. A minimum liquidity coverage ratio requirement of 100.0% is required.
Further, as per guidelines issued on liquidity standards, the Reserve Bank of India allows banks, under certain stressed conditions, to avail themselves of a special liquidity facility against certain securities classified as level one high quality liquid assets. The facility, called the Facility to Avail Liquidity for Liquidity Coverage Ratio, is operated by the Reserve Bank of India.
Banks are allowed to avail of funds under the marginal standing facility by dipping into the statutory liquidity ratio upto an additional 2% of a bank’s net demand and time liabilites.
The Reserve Bank of India has permitted the banks to include government securities as Level 1 high quality liquid assets under the facility to avail liquidity for liquidity coverage ratio within the mandatory statutory liquidity ratio requirement of up to 16% of the Bank’s net demand and time liabilites and government securities, to the extent allowed under the marginal standing facility in addition to other eligible assets.
Net Stable Funding Ratio (NSFR)
The Reserve Bank of India has issued guidelines on net stable funding ratio. The ratio promotes resilience over a longer time horizon by requiring banks to fund their activities with more stable sources on an ongoing basis. The net stable funding ratio is defined as the amount of available stable funding relative to the amount of required stable funding. Banks are required to maintain a ratio of at least 100.0% on an ongoing basis.
239
Regulations Relating to Advancing Loans
The provisions of the Banking Regulation Act govern the advancing of loans by banks in India. The Reserve Bank of India also issues directions covering the loan activities of banks. These directions and guidelines issued by the Reserve Bank of India requirehave been consolidated in the Master Circular on “Loans and Advances—Statutory and Other Restrictions.”
Banks are free to determine their own lending rates but each bank must disclose its minimum interest rate which takes into consideration all elements of lending rates that are common across borrowers.
Interest rates on all new floating rate retail loans and loans to micro, small and medium enterprises extended by banks are required to appoint brokers for transactions in securities. These guidelines also require that a disproportionate part of the bank’s business should not be transacted only through one broker or a few brokers. If for any reason this limit is breached,linked to an external benchmark. The external benchmark include the Reserve Bank of India has stipulatedpolicy repo rate, Government of India 91-day treasury bill yield, Government of India 182-day treasury bill yield or any other benchmark market interest rate produced by Financial Benchmarks India Private Limited.
Banks are free to offer floating rate loans to other types of borrowers (i.e., corporate borrowers) either on external benchmark or marginal cost of funds based lending rate which is the internal benchmark for such purposes. Banks have to review and publish their marginal cost of funds based lending rate every month on a preannounced date for different maturities, ranging from overnight rate up to one year basis methodology, prescribed by Reserve Bank of India for computation of marginal cost of funds based lending rate.
There shall be no lending below the benchmark rate for a particular maturity for all loans linked to that benchmark.
Under Section 20(1) of the boardBanking Regulation Act, a bank cannot grant any loans and advances against the security of its own shares and a banking company is prohibited from entering into any commitment for granting any loans or advances to or on behalf of any of its directors, or any firm in which any of its directors is interested as partner, manager, employee or guarantor, or any company (not being a subsidiary of the banking company or a company registered under Section 25 of the Companies Act, 1956 or a government company) of which, or the subsidiary or the holding company of which any of the directors of the bank should be informed onis a half yearly basisdirector, managing agent, manager, employee or guarantor or in which he holds substantial interest, or any individual in respect of such occurrence and ratify such action.
Prohibition on Short-Selling
Thewhom any of its directors is a partner or guarantor. There are certain exemptions in this regard as the explanation to the section provides that “loans or advances” shall not include any transaction which the Reserve Bank of India permits scheduled commercial banksmay specify by general or special order as not being a loan or advance for the purpose of this section.
There are guidelines on loans against equity shares in respect of amount, margin requirement and primary dealers to undertake short sale of central government dated securities, subject to the short position being covered within a maximum period of three months. The short positions have to be covered only by outright purchase of an equivalent amount of the same security.purpose. The Reserve Bank of India has permittedissued guidelines requiring banks to sell government securities already contractedput in place a policy for purchase, provided thatexposure to real estate with the purchase contract is confirmed and the contract is guaranteed by Clearing Corporationapproval of India Limited, or the security is contracted for purchase from the Reserve Bank of India. Each security is deliverable or receivable on a net basis for a particular settlement cycle.their boards. The Reserve Bank of India has also permitted a “when issued” marketbanks to extend financial assistance to Indian companies for acquisition of equity in government securitiesoverseas joint ventures or wholly owned subsidiaries or in orderother overseas companies, new or existing, as strategic investment. Banks are not permitted to further strengthen the debt management framework.finance acquisitions by companies in India.
In February 2015,
240
The Reserve Bank of India permitted re-repohas issued instructions regarding sharing of government securities, including state developmentinformation relating to credit, derivatives and unhedged foreign currency exposures among banks and to put in place an effective mechanism for information sharing. Under this framework, approval of fresh loans and treasury bills, acquired under reverse repo subjectrenewal of loans to prescribed conditions. In May 2016, thenew and existing borrowers should be done only after obtaining/sharing necessary information.
The Reserve Bank of India also permitted re-repoguidelines for delivery of securities received under its Liquidity Adjustment Facilitybank credit require that for borrowers having an aggregate fund-based working capital limit of Rs. 1.5 billion and above from the banking system, a minimum loan component of 60.0% on the fund-based working capital limits is applicable. Drawing in excess of the minimum loan component threshold would be allowed in the form of cash credit/overdraft facility. The amount and tenor of the loan component may be fixed by banks in consultation with market participants.the borrowers, subject to the tenor of the loan component not being less than seven days.
IntroductionBased on the “Recommendations of Credit Default Swaps for Corporate Bonds
In fiscal 2012, the Working group on Digital Lending – Implementation” dated August 10, 2022, Reserve Bank of India introduced credit default swapsissued “Guidelines on corporate bonds. Banks are allowed to undertake such transactions, both as market makers as well as users. Commercial banks are eligible to act as market makers provided they fulfill the criteria of a minimum 11.0% capital adequacy ratio with a Tier 1 ratio of at least 7.0%, and a net non-performing assets ratio of less than 3.0%. Banks’ net credit exposuresDigital Lending” on account of credit default swaps cannot exceed 10.0%September 2, 2022. The requirements of the investment portfolioguidelines include calculation of unlisted/unrated bonds.
Credit default swaps were earlier allowed onlyAnnual Percentage Rate (APR) and displaying the same in the prescribed format of Key Fact Statement (KFS), providing KFS to the customer, appointing Nodal Grievance Redressal Officer for dealing with complaints/issues related to digital lending, providing cooling off /look up periods during which the borrower can foreclose the loan without paying any penalty, providing digitally signed documents to the borrowers and other requirements. To provide clarity on listed corporate bonds and unlisted but rated bondscertain aspects of infrastructure companies. In January 2013, this was expanded to include unlisted but rated corporate bonds. Further, credit default swaps were permitted on securities with original maturities of up to one year such as commercial papers, certificates of deposit, and non-convertible debentures with original maturities of less than one year.
Subsidiaries and Other Financial and Non-Financial Sector Investments
Banks need prior permission of the guidelines, Reserve Bank of India issued Frequently Asked Questions (FAQ) on Digital Lending Guidelines (DLG) on February 14, 2023.
Directed Lending
Priority Sector Lending
The guidelines on lending to incorporatepriority sector require commercial banks to lend a subsidiary. certain percentage of bank credit to specific sectors (the priority sectors) such as agriculture, small, micro and medium enterprises, education, housing sector, social infrastructure, renewable energy and loans to start-ups.
The Reserve Bank of India’s total priority sector target is 40.0% of adjusted net bank credit (“ANBC”) or of the credit equivalent amount of off-balance sheet exposure (“CEOBE”), whichever is higher, with sub-targets of 7.5% to micro enterprises within the overall target of 18.0% in agriculture. The target for lending to small and marginal farmers has been increased from 9.0% in fiscal 2022, to 9.5% in fiscal 2023 and will be increased further to 10.0% in fiscal 2024. The target for lending to identified weaker sections of society has been increased from 11.0% in fiscal 2022, to 11.5% in fiscal 2023 and will be increased further to 12.0% in fiscal 2024.
The Reserve Bank of India has notified a new criterion for classifying an enterprise as micro, small and medium from July 2020. Udyam Registration Certificate (“URC”) is necessary for lending to micro, small and medium enterprises to qualify for priority sector. In July 2021, retail and wholesale traders were permitted to register online and obtain URC, resulting in them continuing to qualify under priority sector lending.
241
Investments by banks in securitized assets, outright purchases of loans and assignments are eligible for classification under priority sector if the underlying assets themselves qualified for such treatment. The interest rates charged to ultimate borrowers by the originating entities in such transactions are capped for such transactions to be classified as priority sector.
The Reserve Bank of India has allowed banks to sell and purchase priority sector lending certificates in the event of excess/shortfall in meeting priority sector targets, which may help in reducing the shortfall in priority sector lending. These instruments are issued by banks that have a surplus in priority sector lending or any of its individual sub-segments and are purchased by banks having a shortfall, through a trading portal.
The Reserve Bank of India allows banks to issue long-term bonds for financing infrastructure and low-cost housing. The amount raised by way of these bonds is permitted to be excluded from adjusted net bank credit for the purpose of computing priority sector lending targets, except to the extent that the lending against these bonds is included in priority sector lending.
Banks falling short of their priority sector lending targets are required to maintain an “arms’ length” relationshipcontribute allocated amounts to specific Government of India funds (i.e., Rural Infrastructure Development Fund (“RIDF”)), established with our subsidiariesNational Bank for Agriculture and Rural Development (“NABARD”) and other funds with mutualNABARD/ National Housing Bank (“NHB”)/ Small Industries Development Bank of India (“SIDBI”)/ Micro Units Development & Refinance Agency (“MUDRA”) Limited. The interest rates on contribution to RIDF or any other funds, sponsored by us in regard to business parameters such as not taking undue advantage in borrowing/lending funds, transferring/selling/buyingtenure of securities at ratesdeposits, and other than market rates, giving special consideration for
securities transactions, in supporting/financing the subsidiary or financing our clients through them when wefeatures are not able or not permitted to do so ourselves. We have to observe the prudential norms stipulatedfixed by the Reserve Bank of India from time to time,time. The interest rates on these contributions are below market rates.
Export Credit
The Reserve Bank of India allows exporters to avail short-term working capital financing at internationally comparable interest rates. Export credit is available both in rupee as well as in foreign currency. This enables exporters to have access to an internationally competitive financing option. The Reserve Bank of India has allowed exporters with a satisfactory track record of at least three years to receive long-term export advance at concessional rates for execution of long-term supply contracts up to a maximum period of 10 years.
Regulations governing overseas direct investment
In August 2022, Reserve Bank of India along with the Central Government has issued a new Overseas Investment regime (i.e., Foreign Exchange Management (Overseas Investment) Rules, Regulations and Directions) to promote the ease of doing business, to cover wider economic activity and significantly reduce the need for seeking specific approvals from the Reserve Bank of India. The new regime has introduced the Late Submission Fee (LSF) for reporting delays and also the specific guidelines have been prescribed for Overseas Investment in IFSC by persons resident in India.
Regulations on International Trade Settlement in Indian Rupees (“INR”)
242
In July 2022, Reserve Bank of India has notified an additional arrangement for invoicing, payment, and settlement of exports/imports in INR in order to promote growth of global trade with emphasis on exports from India and to support the interest of global trading community in INR. The broad framework for cross border trade transactions in INR is as follows:
a) | All exports and imports trade transactions to be denominated, invoiced and settled in INR. |
b) | AD bank in India may open Special INR VOSTRO of correspondent bank/s of the partner trading country for settlement of trade transactions with any country after obtaining Reserve Bank of India approval. |
c) | The balance in Special INR VOSTRO can be used for Payments for projects and investments, Export/Import advance flow management and Investment in Government Treasury Bills, Government securities and other assets. |
Credit Exposure Limits
As a prudential measure aimed at better risk management and avoidance of concentration of credit risks, the Reserve Bank of India has prescribed credit exposure limits for banks and long-term lending institutions in respect of our underwriting commitments. Pursuanttheir lending to such prudential norms, our underwriting orindividual borrowers and to all companies in a single group (or sponsor group).
The Reserve Bank of India requires banks to fix internal limits of exposure to specific sectors. These limits are subject to periodic review by the underwriting commitment of our subsidiaries under any single obligation shall not exceed 15.0% of an issue.banks.
Under the Reserve Bank of India guidelines, a bank’s equity investmentsborrower having an aggregate fund-based credit limit of Rs. 100.0 billion will be considered a specified borrower. The normally permitted lending limit for specified borrowers is defined as an amount that is 50.0% of the incremental funds raised over and above the aggregate fund-based credit limit. The general provision required on the incremental exposure above the normally permitted lending limit would be 3.0% and the additional risk weight for such exposure over and above the applicable risk weight would be 75.0%.
Further, the Reserve Bank of India has issued guidelines on large borrowers which prescribe a limit of 20.0% and 25.0% of the eligible capital base in respect of exposures to single counterparty and groups of connected counterparties with effect from April 2019. The eligible capital base is defined as the Tier 1 capital of the bank as against the earlier norm of total capital funds. Exposure to a subsidiarysingle non-banking finance company or a financial services company (includinggroup of connected non-banking finance companies is restricted to 15.0% and 25.0%, respectively, of the eligible capital base. The definition of exposure for large borrowers includes off-balance sheet items converted into credit exposure equivalents through the use of credit conversion factors used for assessing credit risk under the standardized approach for risk based capital requirements. In June 2019, the Reserve Bank of India introduced an economic inter-dependence criterion in the definition of connected counterparties, which has been applicable since April 2020.
Corporate borrowers having total exposure of Rs. 250 million (100 million from April 2024 onwards and 50 million from April 2025 onwards) and above in the banking system are required to obtain a financial institution, a stock or other exchange or a depository) whichlegal entity identifier registration. A borrower who does not obtain the legal entity identifier is not eligible for renewal or enhancement of credit facilities.
Capital Market Exposure Limits
The Reserve Bank of India guidelines on capital market exposures stipulate that a subsidiary,bank’s exposure to capital markets in all forms (both fund-based and non-fund-based) by way of investments in shares, convertible bonds/debentures, units of equity oriented mutual funds, loans against shares, and secured and unsecured advances to stock brokers, should not exceed 10.0%40.0% of its net worth on both a stand-alone and consolidated basis as of March 31 of the bank’sprevious year.
243
Limits on intra-group transaction and exposures
The Reserve Bank of India guidelines on management of intra-group transactions and exposures for financial conglomerates prescribe quantitative limits for intra-group financial transactions and prudential measures for non-financial transactions. The Reserve Bank of India has prescribed a single group entity exposure limit of 5.0% of paid-up sharecapital and reserves of the bank for non-financial companies and unregulated financial services companies and 10.0% in the case of regulated financial entities. The aggregate group exposure cannot exceed 20.0% of paid-up capital and reserves and surplus in case of all group entities (financial and non-financial) taken together and 10.0% in the total investments made incase of all subsidiariesnon-financial companies and all non-subsidiaryunregulated financial services companies should not exceed 20.0%taken together. Banks’ exposures to other banks/financial institutions in the group in the form of equity and other capital instruments are exempted from above limits. If the exposure exceeds the permissible limits, the excess amount would be deducted from common equity Tier 1 capital of the bank’s paid-upbank.
Master Direction on Transfer of Loan Exposure
In order to provide banks with options to manage liquidity, rebalance their exposure or strategic sales and resolve their non-performing assets, the Reserve Bank of India issued Master Direction – Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 on September 24, 2021. Under these guidelines, the board of directors of a bank must establish a policy for transfer of loans. Originators need to satisfy the Minimum Holding Period requirement (3 months and 6 months) and Minimum Retention Ratio (5% and 10%) as mentioned in extant guideline.
Securitisation involves transactions where credit risk in assets are redistributed by repackaging them into tradeable securities with different risk profiles which may give investors of various classes access to exposures which they otherwise might be unable to access directly. Reserve Bank of India issued the Master Direction (Securitisation of Standard Assets) Directions, 2021 on September 24, 2021.
The securitisation and Transfer of Loan exposure transactions can be executed by Lenders who are Scheduled commercial banks, Primary (Urban) Co-operative Banks/State Co-operative Banks/ Central Co-operative Banks (only for transfer of loan exposures), All India Term Financial Institutions, Small Finance Banks, NBFCs, and HFCs.
Credit Information Bureaus
Pursuant to the Credit Information Companies (Regulation) Act, 2005, every credit institution, including a bank, has to become a member of a credit information bureau and furnish to it such credit information as may be required of the credit institution by the credit information bureau about individuals or groups who enjoy a credit relationship with it. Banks are also required to share information on investments in commercial paper and unhedged foreign currency exposures of borrowers to the credit information companies. Other credit institutions, credit information bureaus and such other persons as the Reserve Bank of India specifies may access such disclosed credit information. Seeking to strengthen the coverage and use of credit information, the Reserve Bank of India standardized the data formats for furnishing of credit information to credit information companies, common classification of credit scores and best practices to be followed by credit information companies.
244
Loan Loss Provisions and Non-Performing Assets
The Reserve Bank of India’s Master Circular on “Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances” dated April 1, 2023 as amended, provides consolidated instructions and guidelines relating to income recognition, asset classification and provisioning standards.
Asset Classification
In particular, an advance is a non-performing asset where interest and/or installment of principal remains overdue for a period of more than 90 days in respect of a term loan; the account remains “out-of-order” (as defined below) in respect of an overdraft or cash credit; the bill remains overdue for a period of more than 90 days in case of bills purchased and discounted; installment of principal or interest remains overdue for two crop seasons for short duration crops or for one crop season for long duration crops; the amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitization transaction.
In respect of derivative transactions, the overdue receivables related to positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment; or in respect of credit card transactions, if the minimum amount due, as mentioned in the statement, remains overdue for a period of more than 90 days from the payment due date mentioned in the statement. Interest in respect of non-performing assets is not recognized or credited to the income account unless collected. Non-performing assets are classified as described below.
Sub-Standard Assets. Assets that are non-performing assets for a period not exceeding 12 months. Such an asset has well-defined credit weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the bank will sustain some loss, if deficiencies are not corrected.
Doubtful Assets. Assets that have remained sub-standard for a period of 12 months. A loan classified as doubtful has all the weaknesses inherent in assets that are classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.
Loss Assets. Assets on which losses have been identified by the bank or internal or external auditors during the performance of their audit procedures or during the Reserve Bank of India inspection but the amount has not been written off fully.
There are separate guidelines for classification of loans for projects under implementation which are based on the date of commencement of commercial production and date of completion of the project as originally envisaged at the time of financial closure.
245
The Reserve Bank of India, under its risk-based supervision exercise, carries out the risk assessment of banks on an annual basis. As a part of this assessment, the Reserve Bank of India separately reviews asset classification and provisioning of credit facilities given by banks to its borrowers. This assessment is initiated subsequent to the completion of the annual audit and the publication of audited financial statements for the given financial year. Any divergences in classification or provisioning arising out of the supervisory process are given effect in the financial statements in subsequent periods after conclusion of the exercise. Such divergences are required to be disclosed by banks in their financial statements if either the additional provisioning requirement assessed by the Reserve Bank of India exceeds 10.0% (5% from fiscal 2024 onwards) of the published profits before provisions and contingencies for the period, or the additional gross non-performing assets identified by the Reserve Bank of India exceeds 10.0% (5% from fiscal 2024 onwards) of the published incremental gross non-performing assets for the reference period, or both. The assessment of divergence in asset classification and provisioning conducted by the Reserve Bank of India for ICICI Bank in fiscal 2020, fiscal 2021 and fiscal 2022 did not require any additional disclosures.
Restructured loans
Standard restructured loans are subject to higher standard asset provisioning requirements and higher risk weights for capital adequacy purposes. The higher risk weights and reserves. However,provision shall continue until satisfactory performance under the caprevised payment schedule has been established for the specified period. If the restructured account is overdue as per the revised schedule for a period beyond the minimum period prescribed for classification of a loan as non-performing, it is required to be downgraded to non-performing status with reference to the pre-restructuring payment schedule.
See also “Risk Factors—Risks Relating to Our Business—The future trajectory of the COVID-19 pandemic is uncertain and could adversely affect our business, the quality of our loan portfolio and our financial performance”.
Provisioning and write-offs
Provisions under Indian GAAP are based on guidelines specific to the classification of the assets. The following guidelines apply to the various asset classifications:
Standard Assets: The allowances on the performing portfolios are based on guidelines issued by the Reserve Bank of India. The provisioning requirement is a uniform rate of 0.4% for all standard assets except certain advances which require provision in the range of 0.25% to 2%:
Reserve Bank of India guidelines require banks to maintain provisions for standard assets at rates higher than the regulatory requirement in respect of advances to stressed sectors of the economy. For assets referred to the National Company Law Tribunal under the Insolvency and Bankruptcy Code, banks have to make provisions to the extent of 50.0% of the secured portion and 100.0% of the unsecured portion of the outstanding loans.
Sub-standard Assets: A provision of 15.0% is required for all substandard assets as compared to the previous requirement of 10.0%. A provision of 25.0% is required for accounts that are unsecured. Unsecured infrastructure loan accounts classified as substandard require provisioning of 20.0% does not apply, nor.
246
Doubtful Assets: A 100.0% provision/write-off is required against the unsecured portion of a doubtful asset and is charged against income. For the secured portion of assets classified as doubtful, a 25.0% provision is required for assets that have been classified as doubtful for a year, a 40.0% provision is required for assets that have been classified as doubtful for one to three years and a 100.0% provision is required for assets classified as doubtful for more than three years. The value assigned to the collateral securing a loan is the prior approvalamount reflected on the borrower’s books or the realizable value determined by third-party appraisers.
Loss Assets: The entire asset is required to be written off or provided for.
Under the Banking Regulation Act, banking companies in India are required to comply with the directions of the Reserve Bank of India, required, if investments inincluding guidelines issued with respect to asset identification, asset classification and provisioning by banking companies. While preparing the financial servicesstatements under Indian GAAP, banking companies are heldrequired to comply with all regulatory requirements, including such directions issued by the Reserve Bank of India. The Reserve Bank of India issued a circular in 2016 instructing all scheduled commercial banks in India to comply with the Indian Accounting Standards (“Ind AS”) for financial statements. In 2019 the Reserve Bank of India deferred the implementation of the Ind AS until further notice as legislative amendments recommended were still under the “held-for-trading” category,consideration of the Government of India. In fiscal 2023, Reserve Bank of India, through its discussion paper on “Introduction of Expected Credit Loss framework for provisioning by banks” has proposed to adopt expected credit loss framework based on approach used in International Financial Reporting Standard 9, supplemented by regulatory backstops wherever necessary. The draft guidelines on the expected credit loss framework is awaited from Reserve Bank of India.
Framework for Compromise Settlements and are not held beyond 90 days. Investments in overseas banking subsidiaries is excluded from this 20.0% limit.Technical Write-offs
In September 2015,June 2023, Reserve Bank of India issued guideline on Framework for Compromise Settlements and Technical Write-offs requiring Bank to put a board approved policy for setting necessary condition precedents such as minimum ageing, deterioration in collateral value and certain other parameters including staff accountability, delegation of power, cooling period etc. for taking fresh exposure. Further, the guideline requires that in case of partial technical write-offs, the prudential requirements in respect of residual exposure, including provisioning and asset classifications shall be with reference to the original exposure.
Automation of income recognition, asset classification and provisioning process in banks
In 2020 the Reserve Bank of India issued a circular for automation of income recognition, asset classification and provisioning processes in banks. As per this circular, all borrower accounts and investments of the bank should be covered in the automated IT based system for asset classification, upgradation and provisioning processes. The asset classification rules should be configured in the system in compliance with the regulatory requirements. The system based asset classification should be an ongoing exercise for upgrades and downgrades of borrower accounts.
Guidelines Relating to Use of Recovery Agents by Banks
The Reserve Bank of India has asked banks to put in place a due diligence process for the engagement of recovery agents, structured to cover, among others, individuals involved in the recovery process. Banks are expected to communicate details of recovery agents to borrowers and have in place a grievance redressal mechanism pertaining to the recovery process. The Reserve Bank of India has advised banks to initiate a training course for current and prospective recovery agents to support prudent recovery practices. In August 2022, the Reserve Bank of India advised that banks which have a capital adequacy ratiothe Regulated Entities (“REs") shall strictly ensure that they or their agents do not resort to intimidation or harassment of 10.0%any kind, either verbal or more and have also made net profits as of March 31physical, against any person in their debt collection efforts, including acts intended to humiliate publicly or intrude upon the privacy of the previous year need not approachdebtors' family members, referees and friends, sending inappropriate messages either on mobile or through social media, making threatening and/ or anonymous calls, persistently calling the borrower, or other similar acts.
247
Legislative Framework for Enforcement of Security by Banks for Non-performing Assets/Recovery of debts due to Banks
The SARFAESI Act provides that a secured creditor may, in respect of loans classified as non-performing in accordance with the Reserve Bank of India for prior approval for equity investmentsguidelines, give notice in financial service companies where after such investment,writing to the holdingborrower requiring it to discharge its liabilities within 60 days, failing which the secured creditor may, inter alia, take possession of the bank remains less than 10.0%assets constituting the security for the loan, take over the management of the investee company's paid-up capital,business of the borrower, appoint a person to manage the secured assets taken in possession and the holdinglike with the ultimate objective of recovering the bank, alongmoney due to the bank. Additionally, under SARFAESI, a central registry has been established, known as the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (“CERSAI”), to register the security interst of banks on the borrower’s assets and only if the banks register their security interest with its subsidiaries or joint ventures or entities, continuesCERSAI that the remedy under SARFAESI shall be available to remain less than 20.0%them. The SARFAESI Act also provides for setting up of the investee company's paid-up capital.
Underasset reconstruction companies regulated by the Reserve Bank of India regulations,to acquire stressed assets from banks and financial institutions. In 2021, National Asset Reconstruction Company Limited (“NARCL”), a bank’s equity investments in companies engaged in non-financial services activities are subject to a limit of 10.0% of the investee company’s paid-up share capital or 10.0% of the bank’s paid-up share capitalgovernment entity, was incorporated and reserves, whichever is less. For the purpose of this limit, equity investments held under the “held-for-trading” category are included. Investments within these limits would not require prior approval ofregistered with the Reserve Bank of India. Equity investmentsIndia as an asset reconstruction company under SARFAESI for aggregation and resolution of non-performing assets in the banking industry.
See also “—Regulations Relating to Sale of Assets to Asset Reconstruction Companies”.
The SARFAESI Act focuses on improving the rights of banks and financial institutions and other specified secured creditors as well as asset reconstruction companies by providing that such secured creditors can take over management control of a borrower company upon default and/or sell assets without the intervention of courts, in accordance with the provisions of the SARFAESI Act.
The Recovery of Debts and Bankruptcy Act, 1993 provides for establishment of Debt Recovery Tribunals for expeditious adjudication and recovery of debts due to any non-financial services company heldbank or Public Financial Institution or to a consortium of banks and Public Financial Institutions. Under this Act, the procedures for recoveries of debt have been simplified and time frames have been fixed for speedy disposal of cases. Upon establishment of the Debt Recovery Tribunal, no court or other authority can exercise jurisdiction in relation to matters covered by this Act, except the higher courts in India in certain circumstances.
Resolution of Stressed Assets
Insolvency and Bankruptcy Code, 2016
The Insolvency and Bankruptcy Code, 2016, provides a time-bound revival and rehabilitation mechanism. The corporate insolvency resolution process can be initiated by the creditors on occurrence of a default above a specific threshold amount. It classifies the creditors into financial creditors (which have extended financial debts) and operational creditors (which have provided goods and services). Other key features include specific timelines for dealing with insolvency resolution applications. The insolvency resolution plan has to be approved by a majority of financial creditors, which requires approval by the adjudicating authority and, if rejected, the adjudicating authority may pass an order for liquidation. The National Company Law Tribunal has been set up as the adjudicating authority, the National Company Law Appellate Tribunal has been set up to hear appeals on the orders of the adjudicating authority with jurisdiction over companies and limited liability entities, and the Insolvency and Bankruptcy Board of India has been set up as the new insolvency regulator overseeing insolvency professionals, information utilities and promote transparency.
248
Regulations Relating to Sale of Assets to Asset Reconstruction Companies
The Reserve Bank of India has issued guidelines to banks on the process to be followed for sales of financial assets to asset reconstruction companies in the Master Direction on Transfer of Loans. These guidelines provide that a bank may sell financial assets to an asset reconstruction company provided the asset is a non-performing asset. These assets are to be sold on a “without recourse” basis, only. The banks selling financial assets should seek to ensure that there is no known liability devolving on them and that they do not assume any operational, legal or entities which are bank’s subsidiaries, associatesany other type of risks relating to the financial assets sold. Further, banks may not sell financial assets at a contingent price with an agreement to bear a part of the shortfall on ultimate realization.
Banks can also invest in security receipts or joint ventures, and mutual funds managedpass-through certificates issued by the asset reconstruction company or trusts set up by it to acquire the financial assets. The Reserve Bank of India has also issued guidelines governing the affairs of asset reconstruction companies. The guideline provides norms relating to period of realization of assets by asset managementreconstruction company, mandatory holding of security receipts, period for formulating plan of recovery, and other norms. Asset reconstruction companies controlledare not permitted to acquire any non-performing financial assets from their sponsor banks on a bilateral basis. However, they may participate in auctions of non-performing assets by the bank shouldtheir sponsor banks.
Framework for Early Identification of Stress and Information Sharing
The Reserve Bank of India has issued a “Framework for Revitalizing Distressed Assets in the aggregate not exceed 20%Economy.” The framework outlined an action plan for early identification of problem cases, creating a central repository of information on large credits, timely restructuring of accounts which were considered to be viable, and taking prompt steps by banks for recovery or sale of unviable accounts. Accounts have to be categorized into “special mention accounts” based on specified criteria. The Reserve Bank of India issued the Prudential Framework for Resolution of Stressed Assets in 2019. The framework additionally required banks to undertake a review of the investee company’s paid-up share capital. Any investment byborrower within 30 days of a bankdefault in excess of 10.0%the borrower account and enter into an inter-creditor agreement during the 30-day review period to decide rules for finalization and implementation of the investee company’s paid-up share capital, but not exceeding 30.0%, requires the approvalresolution plan.
See also “Supervision and Regulation—Legislative Framework for Recovery of Debts due to Banks” and “Supervision and Regulation—Legislative Framework for Recovery of Debts due to Banks— Resolution of Stressed Assets—The Banking Regulation (Amendment) Ordinance, 2017”.
249
Reserve Bank of India guidelines provide a framework for dealing with loan frauds. The guidelines relate to detection, reporting and monitoring of fraud accounts and prescribe continuous monitoring and red flagging of accounts based on early warning signals for accounts above Rs. 30 million. The guidelines also require reporting frauds on the Reserve Bank of India.India’s central repository of information on large credits for dissemination to other banks and enabling decision-making among banks in case of consortium or multiple banking arrangements. The framework also illustrates checks/investigations during the different stages of the loan life cycle and timelines have been defined to complete the due diligence for evaluation of an account. Restructuring or grant of additional facilities would not be available in case of fraud or red-flagged accounts. There are provisioning guidelines relating to fraud accounts that require banks to make a provision.
A bank may hold equityRegulations Relating to the Opening of Branches
Opening of branches and relocation of existing branches are governed by the provisions of Section 23 of the Banking Regulation Act.
Banks are permitted to open banking outlets in excess of 10.0% of a non-financial services investee company’s paid-up capitalTier 1 to Tier 6 centers without the prior approval of the Reserve Bank of India, ifsubject to certain requirements. Banks are mandated to allocate 25.0% of the additional acquisitiontotal number of new banking outlets opened during a year to unbanked rural centers. An unbanked rural center is made through a restructuring of debt or corporate debt restructuring, strategic debt restructuring or is acquired by the bank in order to protect its interest on loans/investments made in a company. However, banksdefined as an area classified as Tier 5 and Tier 6 centers that does not have to submit to the Reserve Bank of India a time bound action plan for disposal of such shares within a specified period.core banking system enabled banking outlets.
Regulations Relating to SecuritizationA banking outlet is a fixed point service delivery unit, manned by either a bank’s staff or its business correspondent, and where services of Loansacceptance of deposits, encashment of checks/cash withdrawal or lending of money are provided for a minimum of four hours per day for at least five days a week.
In February 2006,With an aim to increase the reach of digital banking services, the Reserve Bank of India issued guidelines on securitizationsetting up of standard assetsDigital Banking Units by bankscommercial banks. These are fixed point business units having minimum digital infrastructure to offer digital banking products and services. These digital banking units will be treated as banking outlets.
Regulations Governing Use of Business Correspondents
To increase the outreach of banking and promote greater financial institutions. With a view to developing an orderly and healthy securitization market, and ensuring alignment of originators and investors’ interests,inclusion, the Reserve Bank of India issued guidelines on securitizationallows banks to engage business correspondents for providing banking and financial services at locations other than a bank branch. Business correspondents offer a limited range of banking services at low cost, as setting up a brick and mortar branch may not be viable in May 2012. Underall areas. Banks are required to take full responsibility for the guidelines, all on-balance sheet standard assets are eligible for securitization, except for revolving credit facilities, mortgage backed securities, asset backed securitiesacts of omission and loans with bullet repayment of both principal and interest (other than specifically permitted). Loans must also meet a minimum holding period requirement, based on the tenor and repayment frequencycommission of the loan, in orderbusiness correspondents that they engage and to be eligibleconduct due diligence for securitization. A minimum retention requirement is prescribedminimizing agency risks. The entities permitted to ensure thatact as business correspondents included individuals such as retired bank employees, retired teachers, individual owners of small, independent grocery stores, medical and fair price shops and certain other individuals. The non-individual entities include non-government organizations or microfinance institutions set up under societies/trust acts, societies registered under mutually aided cooperative societies acts of various states, or the originating banks haveCooperative Societies Acts of various states, not-for-profit companies and post offices. Banks are also allowed to engage companies with large and widespread retail outlets and registered under the Companies Act and non-deposit taking non-banking financial companies as business correspondents. Further, with a continuing stake inview to scale up the performancebusiness correspondent channel, the Reserve Bank of India requires the securitized assets. The total exposureboard of banks to review the securitized loans cannot exceed 20.0%operations and payment of the total securitized instruments, and any exposure in excessremuneration to business correspondents at least once every six months. The Reserve Bank of this limit must be risk-weighted at 1,250%.India has also proposed to create a registry of business correspondents.
250
Regulations Relating to Deposits
The Reserve Bank of India has permittedpermits banks to independently determine interest rates offered on term deposits. However, banks cannot pay interest on current account deposits. Interest rates payable on savings deposits were regulated until October 2011. In October 2011, the Reserve Bank of India deregulated the savings account interest rate, allowingare not regulated. However, a uniform interest rate toon savings deposits must be paid on deposits up to Rs. 100,000 and permitting differential rates forcan be paid on deposits of over Rs. 100,000, depending on the amount in the account.
100,000. The Reserve Bank of India guidelines require that payment of interest beon savings deposits is calculated on saving bank account deposits on the basis of daily average balances.product basis.
Domestic time deposits and rupee-denominated non-resident ordinary accounts have a minimum maturity of seven days. Rupee denominated non-resident external rupee accounts have a minimum maturity of one year. Time deposits fromyear and foreign currency denominated for non-resident Indians denominated in foreign currency have a minimum maturity of one year and a maximum maturity of five years.
Banks are allowed to offer differential rates of interests on domestic term deposits and for bulk term deposits are of the same maturity subject to the following conditions:Rs. 20 million and above.
In April 2015, theThe Reserve Bank of India allowedallows banks to introduce the feature ofoffer early withdrawal facility in a term deposit as a distinguishing feature for offering differential rates of interest. All term deposits of individuals of Rs. 1.5 million and below should, necessarily, have premature withdrawal facility. For all other term deposits, customers should be given the option to choose between term deposits either with or without premature withdrawal facility. Banks will be required to disclose in advance the schedule of interest rates payable on deposits.
Interest rates on non-resident foreign currency term deposits of one to three years and three to five years are linked to the LIBOR/SWAP rates for the U.S. dollar of corresponding maturity. The rate is periodically prescribed by the Reserve Bank of India. With effect from March 1, 2014, interest rates on FCNR (B) deposits of tenor one to three years was fixed at LIBOR/SWAP plus 200 basis points and interest rate for deposits of tenor three years to five years was fixed at LIBOR/SWAP plus 300 basis points. Interest rates on non-resident rupee savings deposits are set at the rate applicable to domestic savings deposits. Since fiscal 2012, banksBanks are free to determine the interest rates on non-resident (external) rupee deposits and ordinary non-resident accounts. However, the interest rates cannot exceed the rate offered by the bank on comparable domestic rupee deposits.
In September 2013,view of the Reserve Bankimpending discontinuance of India removed the ceiling on interest rates for non-resident (external) rupee depositscertain tenors of three years and above till February 28, 2014. Effective March 1, 2014,US$-LIBOR as a benchmark rate, the interest rates offered on FCNR (B) deposits of tenor three to five years were re-instated to the ceiling of LIBOR/SWAP plus 300 basis points as against the exceptional rate of LIBOR/SWAP plus 400 basis points permitted from August 2013 to February 2014. Also, interest rates of non-resident (external) rupee deposits was capped to comparable domestic rupee deposits as compared to the earlier deregulation of interest rates permitted from August 2013 to February 2014. The ceiling on ordinary non-resident accounts however continued.
In September 2013, the Reserve Bank of India introduced a swap facility for incremental foreign currency deposits. This was set up with the intent to increase the flow of foreign currency funds into the country considering the sharp depreciation in the rupee. This facility was only for deposits in foreign currency non-resident (bank) deposit accounts, and was available only in U.S. dollars. The tenor of(B) deposits shall be linked to a widely accepted overnight alternative reference rate for the swap was fixed at three years and above. A bank could avail the swap facility only once a week, with the maximum amount of U.S. dollars eligible for swap equal to the foreign currency deposits mobilized in the preceding week. The swap facility was made available only for a fixed period from September 10, 2013 to November 30, 2013. In another step taken by the Reserve Bank of India, effective from July 26, 2013, incremental foreign currency non-resident deposits and non-resident rupee deposits having a maturity of three years and above were exempted from cash reserve ratio and statutory liquidity ratio requirements. This benefit was withdrawn for deposits received from March 8, 2014 onwards. The three-year deposits raised by banks under the swap facility matured in fiscal 2017.respective currency.
With a view to increasing the availability of financial services across regions and population segments, the Reserve Bank of India has advised banks to make available a basic savings bank deposit account without having the requirement of any minimum balance.
The Reserve Bank India’s Framework for acceptance of Green Deposits came into effect from June 1, 2023.The purpose of the framework is to encourage REs to offer green deposits to customers, protect the interests of the depositors, aid customers to achieve their sustainability agenda, address greenwashing concerns and help augment the flow of credit to green activities and projects.
251
Regulations Relating to Payments
On January 5, 2021, the Reserve Bank of India decided to introduce the Legal Entity Identifier system for single payment transactions of value Rs.500 million and above undertaken by non-individual entities using centralised payment systems like real time gross settlement (RTGS) and national electronic funds transfer (NEFT). These directions were effective from April 1, 2021.
In January 2020, the Reserve Bank of India advised banks to issue or re-issue, all cards (physical and virtual) and enable them for use only at contact based points of usage like ATMs and point of sale (“PoS”) devices within India. The banks shall provide cardholders a facility for enabling card-not-present (for domestic and international online transactions) transactions, card-present (for international transactions) transactions and contactless transactions. For existing cards, issuers may decide whether to disable the card-not-present (domestic and international) transactions, card-present (international) transactions and contactless transaction rights. Existing cards that have never been used for online (card not present) / international / contactless transactions shall be mandatorily disabled for this purpose.
On August 6, 2020, the Reserve Bank of India advised that authorised payment system operators (including banks and non-banks) and their participants to implement an online dispute resolution system for resolving customer disputes and grievances pertaining to digital payments, using a system-driven and rule-based mechanism with zero or minimal manual intervention by January 2021. The payment system operators shall provide access to such a system to its participating members via payment system participants.
In February 2021, the Reserve Bank of India issued master directions on digital payment security controls, which provides necessary guidelines for the regulated entities to set up a robust governance structure and implement common minimum standards of security controls for channels like internet, mobile banking, card payments, among others. This is to create an enhanced environment for customers to use digital payment products in more safe and secure manner. The guidelines have been effective since August 18, 2021.
The Reserve Bank of India in its circular dated September 7, 2021 has enhanced applicability of card tokenisation services to Card-on-File Tokenisation services as well. Further, card issuers have been permitted to offer card tokenisation services as Token Service Providers. Further, the Reserve Bank of India in its circular dated January 3, 2022 has issued a framework for carrying out digital payments in offline mode using cards, wallets, mobile devices, and other modes of digital payments.
Regulations Relating to Customer Service &and Customer Protection
Enhancing customer service and customer protection is a focus area for the Reserve Bank of India whichand has regularly emphasized on offering efficient, fair and speedy customer service. In this regard, a committee was set up in fiscal 2010 to consider improvements in customer service in banks. Following the recommendations made by the committee, the Reserve Bank of India has issued several guidelines. In July 2013, banks were mandated to have a uniform pricing policy for all customers across all branches, irrespective
of the branch in which the account was opened. Further, draft guidelines on wealth management and marketing services offered by banks were issued. According to the guidelines, wealth management services can be offered only through a subsidiary or a separately identifiable department or division in the bank in order to avoid conflict of interest. Further, banks need to take prior approval of the Reserve Bank of India for offering wealth management services. In May 2014, the Reserve Bank of India issued guidelines instructing banks to not charge foreclosure charges or pre-payment penalties on floating rate term loans sanctioned to individual borrowers. Further, banks are also not permitted to levy penal charges for non-maintenance of minimum balance in any in-operative accounts.
In November 2014, the Reserve Bank of India issued additional guidelines on levy of charges for non-maintenance of minimum balance in savings bank account. According to the guidelines, the penal charges should be a fixed percentage levied on the amount of difference between the actual balance maintained and the minimum balance as agreed upon at the time of opening an account. A suitable slab structure for recovery of charges may be finalized. Further, it should be ensured that balance in the savings account does not turn into negative balance solely on account of levy of charges for non-maintenance of minimum balance.
In December 2014, theThe Reserve Bank of India has issued a charter of customer rights, which provides the broad overarching principles for the protection of bank customers. The charter describes five basic rights of bank customers which are the right to fair treatment, the right to transparency, fair and honest dealing, the right to suitability, the right to privacy and the right to grievance redressalredress and compensation.
252
The Reserve Bank of India has issued procedural guidelines for redressal of grievances by an internal ombudsman. Internal Ombudsman Scheme covers appointment/tenure, roles and responsibilities, procedural guideline and oversight mechanism for the internal ombudsman. AccordingOmbudsman. Internal Ombudsman examine all customer grievances including complaints of deficiency in service on the part of the bank as also those listed under Clause 8 of the Banking Ombudsman Scheme, 2006 (as amended from time to the guidelines, a bank shall examine the grievances as per itstime) received by banks and which are partly or wholly rejected by bank's internal grievance redressal mechanism. In order to further strengthen the customer grievance redressal mechanism and in case the bank decides to reject a complaint and/or decides to provide only partial relief to the complainant, it should invariably forward such cases to the chief customer service officer/internal ombudsman for further examination. Cases where the bank disagrees with the decision of the internal ombudsman should be reported tobanks, the Reserve Bank of India has decided to put in place a comprehensive framework including enhanced disclosures by banks on customer complaints, recovery of cost of redressal from banks for the internal ombudsmanmaintainable complaints received against them in Offices of Banking Ombudsman in excess of the peer group average, and undertaking intensive review of the grievance redressal mechanism and supervisory action against banks that fail to improve their redressal mechanism in a time bound manner.
The Reserve Bank of India has integrated all the existing three Ombudsman schemes, which were (i) the Banking Ombudsman Scheme, 2006; (ii) the Ombudsman Scheme for Non-Banking Financial Companies, 2018; and (iii) the Ombudsman Scheme for Digital Transactions, 2019, into a single scheme known as the Integrated Ombudsman Scheme, 2021.
The Reserve Bank of India has issued directions to banks for determining customer liability in case of Unauthorized Electronic Banking Transaction. The facility of electronic transactions (other than ATM cash withdrawals) may not be offered to customers who do not provide mobile numbers. The Reserve Bank of India has advised banks to clearly define the rights and obligations of customers in case of unauthorized transactions in specified scenarios. Further, banks are required to formulate/revise their customer relations policy, with approval of their Boards, to cover aspects of customer protection, including the mechanism of creating customer awareness on the risks and responsibilities involved in electronic banking transactions and customer liability in cases of unauthorized electronic banking transaction. The Reserve Bank of India has extended the customer protection framework to prepaid payment instruments (PPIs) as well. In March 2020, the Reserve Bank of India issued guidelines to regulate the activities of payment aggregators and has also provided baseline technology-related recommendations to payment gateways.
The Reserve Bank of India does not allow entities regulated by it, including banks, to deal in virtual currencies or to provide services facilitating any person or entity in dealing with or settling virtual currencies. Such services include maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them and transfer/receipt of money in accounts relating to purchase/sale of virtual currencies.
Personal Data Protection and Privacy
ICICI Bank is committed to protecting the bankprivacy of individuals whose personal data it holds, and processing such personal data in a way that is consistent with applicable laws. It is important for employees and businesses to protect customer data and follow the applicable privacy laws in India and overseas locations to ensure safety and security of data. We believe that the data privacy framework should be in line with the evolving regulatory changes and digital transformation.
253
The Bank has a copyglobal presence in several overseas jurisdictions including Hong Kong, Singapore, United States, United Kingdom, Canada, China, Dubai International Financial Centre and Bahrain. We are committed to ensuring compliance with applicable laws across these jurisdictions. We have an integrated and centralized strategy for achieving data privacy compliance across all jurisdictions. A set of principles have been defined with respect to handling customer data. There is a mechanism in place for reporting any form of personal data incident which is accessible to all employees in the Bank. Any kind of personal data related incidents reported through the service request undergoes a detailed investigation and report of same is shared by Data Protection Officer (DPO) with senior members of the Bank from the Information Security Group, Operational Risk Management Group, Fraud Management Group, Human Resources, Compliance and the Legal Team on a monthly basis.
The Bank periodically updates its Personal Data Protection Standard to cover the personal data protection regulatory requirements for the Bank and its overseas offices to reflect the changes in data protection laws and regulations. The Personal Data Protection Standard of the Bank was reviewed by an international law firm and was further updated and strengthened in fiscal 2022.
Privacy regulations require the personal data of customers to be protected throughout its entire lifecycle. Accordingly, the Bank has undertaken several comprehensive measures such as categorizing all personal data and sensitive personal data as ‘Confidential Information’, keeping record of all its processing activities, entering into non-disclosure and confidentiality agreements with employees and third parties who are privy to personal data of the customers and providing customers the option to exercise various rights which they enjoy under applicable data protection regulations and incident handling procedures.
Regulations Governing Mobile Banking
The Reserve Bank of India permits Indian banks to offer mobile banking services to their customers. Transactions involving a debit to the respective Banking Ombudsman.customer’s account should have a two-level authentication to execute the transaction. The Reserve Bank of India has issued guidelines requiring banks to provide easy registration for mobile banking services, including generation of the personal identification number through multiple channels. While use of mobile banking services for cross-border transactions was previously restricted, the restriction was subsequently removed. Services on mobile applications can now be used for both rupee based transaction in the domestic market and for undertaking cross-border transactions.
Regulations Governing Prepaid Payment Instruments
The Reserve Bank of India has issued master directions on issuance and operation of prepaid payment instruments. Issuers are required to have Board approved policy for issuance of various types/categories of prepaid instruments, engaging agents, co-branding arrangement, re-validation of gift instruments and all related activities. Pre-paid instruments (or minimum-detail Prepaid Payment Instruments) in small amounts up to Rs. 10,000 can be issued by accepting minimum details and are required to be converted into full-KYC Prepaid Payment Instruments within 24 months from the date of issuance if facility of cash loading / reloading is provided. Prepaid Payment Instruments up to Rs. 200,000 can be issued after completing KYC of the Prepaid Payment Instrument holder. Gift instrument can be issued up to a maximum value of Rs. 10,000. Prepaid Payment Instruments (other than gift Prepaid Payment Instruments and Mass Transit System Prepaid Payment Instruments) shall necessarily have additional factor of authentication. The aspects of co-branded prepaid instruments, fraud prevention, customer protection, grievance handling and information system audit are also highlighted in the directions.
254
Deposit Insurance
Demand and time deposits of up to Rs. 100,000 accepted by Indian banks have tomust be insured with the Deposit Insurance and Credit Guarantee Corporation, a wholly-ownedwholly owned subsidiary of the Reserve Bank of India. The limit on insurance coverage for depositors in insured banks was raised from Rs. 100,000 to Rs. 500,000 per depositor from February 4, 2020. Banks are required to pay the insurance premium for the eligible amount to the Deposit Insurance and Credit Guarantee Corporation on a semi-annual basis. The cost of the insurance premium cannot be passed on to the customer. Under the new Companies Act, 2013, deposit insurance has been madeis mandatory for companies accepting deposits. In September 2015, the Reserve Bank of India released the Report of the Committee on Differential Premium System for Banks in India, proposing the introduction of risk-based premium in India.
The Depositor Education and Awareness Fund (DEAF) Scheme, 2014 — section2014—Section 26A of the Banking Regulation Act, 1949
The Reserve Bank of India has advised that banks shall calculate the cumulative balances in all eligible accounts which are unclaimed for more than 10 years along with interest accrued, as on the day prior to May 23, 2014, and such amounts due should be transferred to the Fund on June 30, 2014 (before the close of banking hours). Subsequently, the amount due in each calendar month shall be transferred on the last working day of the subsequent month.
Withdrawal of Specified Bank Notes
In November 2016, the government ofBorrowings by Banks in India decided to withdraw legal tender status for high denomination currency notes of Rs. 500 and Rs. 1,000. During the transition period, where banks were centers for exchanging old notes and also had to recalibrate their ATMs for the new Rs. 2,000 notes, the Reserve Bank of India issued several guidelines with regard to limits on exchange of the denotified currency notes and cash withdrawal limits from ATMs and bank accounts. Banks also proactively initiated steps like waiving merchant discount rates and transaction related charges during this period. In order to facilitate wider acceptance of digital transactions, temporary measures were introduced such as a reduction in the merchant discount rate for debit card transactions up to Rs. 2,000 and waiver of charges on transactions settled on payment channels like immediate payment service (IMPS), unstructured supplementary service data (USSD) based *99# and unified payment interface systems for transactions up to Rs. 1,000. These measures were effective from January 1, 2017 to March 31, 2017.
Regulations Relating to Knowing the Customer and Anti-Money Laundering
The Prevention of Money Laundering Act, 2002, which came into effect beginning July 2005, seeks to prevent and criminalize money laundering and terrorist financing. It also provides for the freezing and confiscation of assets concerned in money laundering/terrorism offences, and the formation of the Financial Intelligence Unit. This Act lays down the obligations on designated entities (including banks and financial institutions) for maintaining records of prescribed transactions and for reporting certain transactions to the Financial Intelligence Unit. It also lists out the predicate offences that come under the purview of the Act, the appointment of the Designated Director and the Principal Officer and their respective obligations under the Act. Prevention of Money-Laundering Rules have also been framed under such Act. This Act and such Rules have since been amended from time to time.
In June 2017, the Ministry of Finance (Department of Revenue) has notified amendments to the Prevention of Money Laundering Rules, 2005. These amendments now require banks to obtain the Aadhaar number (the unique identification number provided by the government of India) from resident individuals (including authorized signatories of non-individual accounts), along with their Permanent Account Number (the unique identification number required for filing income tax returns). New individual customers have been provided a time period of six months from the date of commencement of an account based relationship, whereas existing individual customers have been provided time until December 31, 2017 to submit their Aadhaar and Permanent Account numbers, failing which their accounts shall cease to be operational until the time the documents are submitted to the bank. However, guidelines from the Reserve Bank of India have yet to be released in this regard.
The Reserve Bank of India has prescribed guidelinespermitted banks to be observed by banks/financial institutions under its jurisdiction with regard to know your customer, anti-money launderingborrow and combating financing of terrorism procedureslend in line with the provisions of the Prevention ofCall, Notice and Term Money Laundering Act 2002 and Rules notified there under. This is in line with the recommendations made by the Financial Action Task Force on Anti-Money Laundering standards and on Combating Financing of Terrorism. The objective of these guidelines is to prevent banks from being used, intentionally or unintentionally, by criminal elements for money laundering or terrorist financing activities. The guidelines cover key aspects including customer acceptance policy, customer identification procedures, monitoring of transactions and risk management. The guidelines also cover enhanced due diligence measures, regulatory reportingMarkets as per the Prevention of Money Laundering Act, appointment of designated director and a senior official as principal officer, training of employees and independent audit of anti-money laundering/know your customer framework and provision for simplified know your customer procedures for opening small accounts.
Regulations on Asset Liability Management
The Reserve Bank of India’s regulations for asset liability management require banks to draw up asset liability gap statements separately for rupee and foreign currencies forinternal board approved limits within the domestic and overseas operations of the bank. These gap statements are prepared by scheduling all assets and liabilities according to the stated and anticipated re-pricing date, or maturity date. The statements are submitted to the Reserve Bank of India on a periodic basis. The Reserve Bank of India has advised banks to actively monitor the difference in the amount of assets and liabilities maturing or being repriced in a particular period and to place internal prudential limits on the gaps in each time period, as a risk control mechanism.
According to Reserve Bank of India guidelines regardingprescribed prudential limits for inter-bank liabilities a bank’s inter-bank liabilities cannot exceed 200.0% of its net worth as on the last day of the previous fiscal year. Individual banks have been permitted, with the approval of their boards of directors, to(“IBL”).
(a) | The IBL of a bank should not exceed 200% of its net worth as on March 31 of the previous year. However, individual banks may, with the approval of their Boards of Directors, fix a lower limit for their inter-bank liabilities, keeping in view their business model.
The Reserve Bank of India has allowed banks to borrow funds from their overseas branches and correspondent banks (including borrowings for financing export credit, external commercial borrowings and overdrafts from their head office/nostro account) up to a limit of 100.0% of unimpaired
The aforesaid limit applies to the aggregate amount availed of by all the offices and branches in India from all their branches or correspondents abroad and also includes overseas borrowings in gold for funding domestic gold loans. Capital funds raised by issue of innovative perpetual debt instruments and other overseas borrowings with the specific approval of the Reserve Bank of India will continue to be outside the limit of 100.0% of unimpaired Banks are permitted to raise funds through issuance of rupee denominated bonds overseas. The Reserve Bank of India has permitted banks to issue perpetual debt instruments that can qualify for inclusion as additional Tier 1 capital and debt capital instruments that can qualify for inclusion as Tier 2 capital, by way of rupee denominated bonds in the overseas market, and long-term bonds for financing infrastructure and affordable housing projects. Gold Monetization Scheme and Sovereign Gold Bonds As per the gold monetization scheme of the Reserve Bank of India,
The Reserve Bank of India has also issued guidelines on sovereign gold bonds with investments in
The Prevention of Money Laundering Act (“PMLA”), 2002, seeks to prevent and criminalize money laundering and terrorist financing in line with recommendations made by the Financial Action Task Force. This Act lays down the obligations on designated entities (including banks) for maintaining records and reporting certain transactions to the Financial Intelligence Unit. It also lists out the predicate offences, appointment of the Designated Director and Principal Officer and their respective obligations under the Act. Prevention of Money Laundering Rules (“PMLR”), 2005 have also been framed under this Act. Both the PMLA and PMLR are amended from time to time. Reserve Bank of India has also provided directions in line with the PMLA and PMLR. It cover key aspects including customer acceptance policy, customer due-diligence procedures, monitoring of transactions risk management, regulatory reporting, training of employees and independent audit of AML/KYC framework. These directions are updated from time to time. 256 Pursuant to recent amendments to the PMLA and PMLR, changes have also been made in the Reserve Bank of India Regulations Relating to Investments Banks are required to undertake investment activities as per the terms and The entire investment portfolio (including SLR securities and non-SLR securities) is to be Investments under HTM category shall not exceed 25% of the bank’s total investments except for certain investments as stipulated by Reserve Bank of India. Securities eligible for HTM category are SLR securities, Non-SLR securities (with certain conditions), Recapitalisation Bonds, Equity of subsidiaries and joint ventures, Long-term bonds issued by Infrastructure companies, Unquoted shares/bonds/units of Category I and II Alternative Investment Funds (“AIFs”) for initial period of three years. The securities acquired with the intention to trade by taking advantage of the short term price/interest rate movements shall be classified under HFT. The investments classified under HFT shall be sold within 90 days. The securities which do not fall under HTM or HFT categories shall be classified under AFS. Shifting of investments Banks shall have the freedom to shift investments to/from HTM with the approval of the Board of Directors once at the beginning of the accounting year. Banks shall have the freedom to shift investments from AFS to HFT with the approval of their Board of Directors/ ALCO (Asset Liability Committee) / Investment Committee. Shifting of investments from HFT to AFS shall be permitted only in exceptional circumstances where the bank is not in a position to sell the security within 90 days due to tight liquidity conditions, or extreme volatility, or market becoming unidirectional. In case of sales/transfers to/from HTM category exceeds 5% of the book value of investment held in HTM at the beginning of the year, banks shall disclose in the 257 Bank’s investment in unlisted non-SLR securities shall not exceed 10 percent of its total investment in non-SLR securities as on March 31 of the previous year.
The Banking Regulation Act specifies the business activities in which a bank may engage. Banks are prohibited from engaging in business activities other than the specified activities. Reserve Fund Any bank incorporated in India is required to create a reserve fund to which it must transfer not less than 25.0% of its annual profits before dividends. A bank is required to
Restriction on Share Capital
Ownership and
The
In January 2023, Reserve Bank of India has issued
232 Voting rights are capped at
The Reserve Bank of India is responsible for supervising the Indian banking system under various provisions of the Banking Regulation Act, 1949 and the Reserve Bank of India Act, 1934. The supervision framework is evolving over a period of time and the Reserve Bank of India has been progressively moving in line with Basel “Core Principles for Effective Banking Supervision”. The existing supervisory framework has been modified towards establishing a risk based supervision framework. This framework is intended to make the supervisory process for banks more efficient and effective, with the Reserve Bank of India applying differentiated supervision to each bank based on its We have been subject to supervision under this framework since fiscal 2013. The Reserve Bank of India also discusses the report with our management team, including the Chairman of the Bank, the Chairman of the Audit Committee, and the Managing Director and CEO. The risk assessment report, along with the report on actions taken by us, has Appointment and Remuneration of the
We are required to obtain prior approval of the Reserve Bank of India before we appoint our chairman, managing director and any other executive directors and fix their remuneration. The Reserve Bank of India is authorized to remove an appointee from the posts of chairman, managing director and other executive directors on the grounds of public interest, interest of depositors or to ensure our proper management. Further, the Reserve Bank of India may order meetings of our Board of Directors to discuss any matter in relation to us, appoint observers to such meetings and in general may make such changes to the management as it may deem necessary and may also order the convening of a general meeting of our shareholders to elect new directors. We cannot appoint as a director any person who is a director of another banking company. The Reserve Bank of India has issued guidelines on “fit and proper” criteria for directors of banks. Our directors must satisfy the requirements of these guidelines. The Reserve Bank of India has issued guidelines on the compensation of wholetime directors/chief executive officers/risk takers and control function staff of private sector and foreign banks operating in India. The guidelines include principles for effective governance of compensation, alignment of compensation with risk taking and effective supervisory oversight and engagement by stakeholders. The guidelines also specify the proportion of cash and non-cash components that may be included in the variable pay. Banks are also required to put in place appropriate modalities to incorporate a malus and clawback mechanism with respect to misconduct and risk, as well as mandatory imposition in the case of divergence in non-performing assets and provisioning beyond the Reserve Bank of India prescribed thresholds for public disclosure. 233 The Reserve Bank of India has issued guidelines on compensation of non-executive directors of private sector banks. According to the guidelines, the Board of Directors, in consultation with its remuneration committee, should formulate and adopt a comprehensive compensation policy for the non-executive directors (other than the part-time, non-executive chairman). In the policy, the Board may provide for the payment of compensation in the form of a profit-related commission, subject to the bank making profits. Such compensation should not exceed Rs. 1 million per annum for each director. Further, as per Reserve Bank of India guideline on Corporate Governance in Banks - Appointment of Directors and Constitution of Committees of the Board dated April 26, 2021, in addition to sitting fees and expenses related to attending meetings of the board and its committees as per extant statutory norms, the bank may provide for payment of compensation to non-executive directors in the form of a fixed remuneration commensurate with an individual director’s responsibilities and demands on time and which are considered sufficient to attract qualified competent individuals. However, such fixed remuneration for a non-executive director, other than the chair of the board, shall not exceed Rs. 2.0 million per annum. Further, private sector banks have to obtain prior approval of the Reserve Bank of India for granting remuneration to the part-time, non-executive chairman under Section 10B(1A)(i) and 35B of the Banking Regulation Act, 1949. The Reserve Bank of India has also issued guidelines on minimum qualifications and experience required while inviting application for the position of Chief Financial Officer and Chief Technology Officer in banks. Penalties The Reserve Bank of India may impose penalties on banks and their employees in case of infringement of regulations under the Banking Regulation Act. The penalty may be a fixed amount or may be related to the amount involved in any contravention of the regulations. The penalty may also include imprisonment. Assets to be Maintained in India Every bank is required to ensure that its assets in India (including import-export bills drawn in India and the Reserve Bank of India approved securities, even if the bills and the securities are held outside India) are not less than 75.0% of its demand and time liabilities in India. Restriction on Creation of Floating Charge Prior approval of the Reserve Bank of India is required for creating floating charge on our undertaking or property. Currently, all of our borrowings, including bonds, are unsecured. 234 Maintenance of Records Banks are required to maintain books, records and registers. The Banking Regulation Act specifically requires banks to maintain books and records in a particular manner and file the same with the Registrar of Companies on a periodic basis. The provisions for production of documents and availability of records for inspection by shareholders as stipulated under the Companies Act and the rules thereunder would apply to us as in the case of any company. The Know Your Customer Guidelines framed by the Reserve Bank of India also provide for certain records to be updated at regular intervals. As per the Prevention of Money Laundering Act, 2002, records of a transaction are to be preserved for five years from the date of the transaction between a customer and the bank. The Know-Your-Customer records are required to be preserved for a period of five years from the date of cessation of relationship with the customer. The Banking Companies (Period of Preservation of Records) Rules, 1985 requires such records to be preserved for eight years. The Banking Companies (Period of Preservation of Records) Rules, 1985 requires a bank’s records of books, accounts and other documents relating to stock and share registers to be maintained for a period of eight years. The Reserve Bank of India has advised system providers to ensure that data relating to payment systems operated by them are stored only in a system located in India. The data should include the full end-to-end transaction details/information collected/carried/processed as part of the message/payment instruction. For the foreign leg of the transaction, if any, the data can also be stored in the foreign country, if required. For directions notified by CERT-In relating to obligation on maintenance of logs of the information and communications technology systems, see “—Information Technology and Cyber Security.” Governance of Banks As part of steps taken to strengthen risk management in banks, the Reserve Bank of India has issued guidelines which aim to separate the credit risk management function from the credit approval process and also bring uniformity in the approach followed by banks. As per the guidelines, a board approved policy defining the role and responsibilities of the Chief Risk Officer has to be established, with clearly defined reporting lines either to the Managing Director/Chief Executive Officer or the risk management committee of the bank. The Chief Risk Officer should not have a dual role, report into any business vertical or be given any business targets. The Chief Risk Officer can be removed or transferred only with the approval of the Board. In April 2021, the Reserve Bank of India issued instructions with regard to the Chair and meetings of the board, composition of certain committees of the board, age, tenure and remuneration of directors, and appointment of wholetime directors of banks. The instructions are applicable to private sector banks including small finance banks and wholly owned subsidiaries of foreign banks. As per the guidelines, the Chair of the board has to be an independent director, and the quorum of the board meetings shall be one-third of the total strength of the board or three directors, whichever is higher. The audit committee and the nomination and remuneration committee shall be constituted with only non-executive directors and the risk management committee shall be constituted with majority of non-executive directors. The upper age limit for non-executive directors, including the Chair, is 75 years and the total tenure of a non-executive director on the board of a bank cannot exceed eight years. A re-appointment of the director after completing eight years can be considered after a minimum gap of three years. A wholetime director cannot continue in the post after 15 years, and any reappointment can be considered only after a gap of three years. 235 In 2020, the Reserve Bank of India advised that as part of a robust compliance system, banks are required to have an effective compliance culture, independent compliance function and a strong compliance risk management programme. As per the guidelines, banks shall have a board-approved compliance policy explaining its compliance philosophy, expectations on compliance culture, role of Chief Compliance Officer (“CCO”), processes for managing and reporting on compliance risk throughout the bank. Banks are required to develop and maintain a quality assurance and improvement program covering all aspects of the compliance function and such programs are subject to an independent external review periodically (at least once in every three years). The policy shall be reviewed at least once a year. The selection of the candidate for the post of the COO shall be done on the basis of a well-defined selection process and recommendations made by the senior executive level selection committee constituted by the Board for this purpose. The COO shall be appointed for a minimum fixed tenure of not less than three years. Appointment of auditors The appointment of the statutory auditors of banks is subject to the approval of the Reserve Bank of India. In April 2021, the Reserve Bank of India issued revised guidelines for the appointment of statutory auditors and statutory central auditors, of Commercial Banks (excluding Regional Rural Banks), Primary (Urban) Co-operative Banks and Non-Banking Finance Companies including Housing Finance Companies (hereinafter referred to as the entities). The appointment tenure reduced from four years to three years. An audit firm would not be eligible for reappointment in the same entity for six years (two tenures) after completion of full or part of one term of the audit tenure. The time gap between any non-audit works (services mentioned at Section 144 of Companies Act, 2013, Internal assignments, special assignments) by the statutory auditors and statutory central auditors for the Entities or any audit/non-audit works for its Reserve Bank of India regulated group entities should be at least one year, before or after its appointment as statutory auditors and statutory central auditors. However, if an audit firm engaged with audit/non-audit works for the group entities (which are not regulated by the Reserve Bank of India) is being considered by any of the Reserve Bank of India regulated Entities in the Group for appointment as statutory auditors and statutory central auditors, it would be the responsibility of the Board of the concerned Reserve Bank of India regulated entity to ensure that there is no conflict of interest and independence of auditors is ensured, and this should be suitably recorded in the minutes of the meetings of board. Further, for entities with an asset size of Rs. 150.0 billion and above, the statutory audit will have to be conducted under joint audit by at least two audit firms. The Reserve Bank of India can direct a special audit in the interest of the depositors or in the public interest. The Reserve Bank of India has also put in place a graded enforcement action framework to enable appropriate action in respect of statutory auditors where any lapses in conducting a bank’s statutory audit have been observed. Lapses that would be considered for invoking the enforcement framework include misstatement of a bank’s financial statements, wrong certifications, wrong information given in the Long Form Audit Report, and variances in audited financial statements found during the Reserve Bank of India’s inspection and non-adherence to instructions and guidelines issued by the Reserve Bank of India. 236 Restrictions on Payment of Dividends
The Banking Regulation Act requires banks to completely write off capitalized expenses and transfer 20.0% of the disclosed yearly profit to a reserve account before declaring a dividend. Banks have to comply with
Capital Adequacy Requirements
The Reserve Bank of India The Reserve Bank of India released the final guidelines on implementation of the counter-cyclical capital buffer for See also “Risk Factors— Risks that arise as a result of our presence in a highly regulated sector – We are subject to capital adequacy requirements stipulated by the Reserve Bank of India, including Basel III, as well as general market expectations regarding the level of capital adequacy large Indian private sector banks should maintain, and any inability to maintain adequate capital due to changes in regulations, a lack of access to capital markets, or otherwise may impact our ability to grow and support our businesses” and “ – Risks that arise as a result of our presence in a highly regulated sector – We are subject to liquidity requirements of the Reserve Bank of India, and any inability to maintain adequate liquidity due to changes in regulations, a lack of access to capital markets, or otherwise may With respect to computation of 237 Under Pillar 2 of the
Prompt Corrective Action by the Reserve Bank of India
Depending upon the extent of breach, the bank may be classified into three risk thresholds and will be accordingly restricted from business expansion and
Prohibited Business
The Banking Regulation Act specifies the business activities in which a bank may engage. Banks are prohibited from engaging in business activities other than the specified activities.
Reserve Fund
Any bank incorporated in India is required to create a reserve fund to which it must transfer not less than 25.0% of
Restriction on Share Capital
Banks In Ownership and Voting Restrictions The Government of India regulates foreign ownership in Indian banks. Foreign investors (including indirect foreign investment) may own up to 74.0% of the
232 Voting rights are capped at 26.0% for a single shareholder. However, any acquisition of
Regulatory Reporting and Examination Procedures
The Reserve Bank of India is responsible for supervising the Indian banking system under various provisions of the Banking Regulation Act, 1949 and the Reserve Bank of India Act, 1934.
This framework is intended to make the supervisory process for banks more efficient and effective, with the Reserve Bank of India applying differentiated supervision to each bank based on its risk profile. A detailed qualitative and quantitative assessment of the bank’s risk is conducted by the supervisor on an
We have been subject to supervision under this framework since fiscal 2013. The Reserve Bank of India also discusses the report with our management team, including the Chairman of the Bank, the Chairman of the Audit Committee, and the Managing Director and CEO. The risk assessment report, along with the report on actions taken by us, has to be placed before our Board of Directors. On approval by our
Appointment and Remuneration of the Chairman, Managing Director and Other Directors
We are required to obtain prior approval of the Reserve Bank of India before we appoint our chairman, managing director and any other executive directors and fix their remuneration. The Reserve Bank of India is authorized to remove an appointee from the posts of chairman, managing director and other executive directors on the grounds of public interest, interest of depositors or to ensure our proper management. Further, the Reserve Bank of India may order meetings of our Board of Directors to discuss any matter in relation to us, appoint observers to such meetings and in general may make such changes to the management as it may deem necessary and may also order the convening of a general meeting of our shareholders to elect new directors. We cannot appoint as a director any person who is a director of another banking company. The Reserve Bank of India has issued guidelines on “fit and proper” criteria for directors of banks. Our directors must satisfy the requirements of these guidelines.
233 The Reserve Bank of India has issued guidelines on compensation of non-executive directors of private sector banks. According to the guidelines, the Board of Directors, in consultation with its remuneration committee, should formulate and adopt a comprehensive compensation policy for the non-executive directors (other than the part-time, non-executive chairman). In the policy, the Board may provide for the payment of compensation in the form of a
Penalties
The Reserve Bank of India may impose penalties on banks and their employees in case of infringement of regulations under the Banking Regulation Act. The penalty may be a fixed amount or may be related to the amount involved in any contravention of the regulations. The penalty may also include imprisonment.
Assets to be Maintained in India
Every bank is required to ensure that its assets in India (including import-export bills drawn in India and the Reserve Bank of India approved securities, even if the bills and the securities are held outside India) are not less than 75.0% of its demand and time liabilities in India.
Restriction on Creation of Floating Charge
Prior approval of the Reserve Bank of India is required for creating floating charge on our undertaking or property. Currently, all of our borrowings, including bonds, are unsecured.
234 Maintenance of Records
The Reserve Bank of India has advised system providers to ensure that data relating to payment systems operated by them are stored only in a system located in India. The data should include the full end-to-end transaction details/information collected/carried/processed as part of the message/payment instruction. For the foreign leg of the transaction, if any, the data can also be stored in the foreign country, if required. For directions notified by CERT-In relating to obligation on maintenance of logs of the information and communications technology systems, see “—Information Technology and Cyber Security.” Governance of Banks As part of steps taken to strengthen risk management in banks, the Reserve Bank of India has issued guidelines which aim to separate the credit risk management function from the credit approval process and also bring uniformity in the approach followed by banks. As per the guidelines, a board approved policy defining the role and responsibilities of the Chief Risk Officer has to be established, with clearly defined reporting lines either to the Managing Director/Chief Executive Officer or the risk management committee of the bank. The Chief Risk Officer should not have a dual role, report into any business vertical or be given any business targets. The Chief Risk Officer can be removed or transferred only with the approval of the Board. In April 2021, the Reserve Bank of India issued instructions with regard to the Chair and meetings of the board, composition of certain committees of the board, age, tenure and remuneration of directors, and appointment of wholetime directors of banks. The instructions are applicable to private sector banks including small finance banks and wholly owned subsidiaries of foreign banks. As per the guidelines, the Chair of the board has to be an independent director, and the quorum of the board meetings shall be one-third of the total strength of the board or three directors, whichever is higher. The audit committee and the nomination and remuneration committee shall be constituted with only non-executive directors and the risk management committee shall be constituted with majority of non-executive directors. The upper age limit for non-executive directors, including the Chair, is 75 years and the total tenure of a non-executive director on the board of a bank cannot exceed eight years. A re-appointment of the director after completing eight years can be considered after a minimum gap of three years. A wholetime director cannot continue in the post after 15 years, and any reappointment can be considered only after a gap of three years. 235 In 2020, the Reserve Bank of India advised that as part of a robust compliance system, banks are required to have an effective compliance culture, independent compliance function and a strong compliance risk management programme. As per the guidelines, banks shall have a board-approved compliance policy explaining its compliance philosophy, expectations on compliance culture, role of Chief Compliance Officer (“CCO”), processes for managing and reporting on compliance risk throughout the bank. Banks are required to develop and maintain a quality assurance and improvement program covering all aspects of the compliance function and such programs are subject to an independent external review periodically (at least once in every three years). The policy shall be reviewed at least once a year. The selection of the candidate for the post of the COO shall be done on the basis of a well-defined selection process and recommendations made by the senior executive level selection committee constituted by the Board for this purpose. The COO shall be appointed for a minimum fixed tenure of not less than three years.
The appointment of the statutory auditors of banks is subject to the approval of the Reserve Bank of India. In April 2021, the Reserve Bank of India issued revised guidelines for the appointment of statutory auditors and statutory central auditors, of Commercial Banks (excluding Regional Rural Banks), Primary (Urban) Co-operative Banks and Non-Banking Finance Companies including Housing Finance Companies (hereinafter referred to as the entities). The appointment tenure reduced from four years to three years. An audit firm would not be eligible for reappointment in the same entity for six years (two tenures) after completion of full or part of one term of the audit tenure. The time gap between any non-audit works (services mentioned at Section 144 of Companies Act, 2013, Internal assignments, special assignments) by the statutory auditors and statutory central auditors for the Entities or any audit/non-audit works for its Reserve Bank of India regulated group entities should be at least one year, before or after its appointment as statutory auditors and statutory central auditors. However, if an audit firm engaged with audit/non-audit works for the group entities (which are not regulated by the Reserve Bank of India) is being considered by any of the Reserve Bank of India regulated Entities in the Group for appointment as statutory auditors and statutory central auditors, it would be the responsibility of the Board of the concerned Reserve Bank of India regulated entity to ensure that there is no conflict of interest and independence of auditors is ensured, and this should be suitably recorded in the minutes of the meetings of board. Further, for entities with an asset size of Rs. 150.0 billion and above, the statutory audit will have to be conducted under joint audit by at least two audit firms. The Reserve Bank of India can direct a special audit in the interest of the depositors or in the public interest. The Reserve Bank of India has also put in place a graded enforcement action framework to enable appropriate action in respect of statutory auditors where any lapses in conducting a bank’s statutory audit have been observed. Lapses that would be considered for invoking the enforcement framework include misstatement of a bank’s financial statements, wrong certifications, wrong information given in the Long Form Audit Report, and variances in audited financial statements found during the Reserve Bank of India’s inspection and non-adherence to instructions and guidelines issued by the Reserve Bank of India. 236 Restrictions on Payment of Dividends The Banking Regulation Act requires banks to completely write off capitalized expenses and transfer 20.0% of the disclosed yearly profit to a reserve account before declaring a dividend. Banks have to comply with prudential requirements to be eligible to declare dividends. Capital Adequacy Requirements We are required to comply with the Reserve Bank of India’s capital adequacy guidelines. The Reserve Bank of India’s Basel III guidelines prescribe a minimum common equity Tier 1 risk-weighted capital ratio of 5.5%, a minimum Tier 1 risk-based capital ratio of 7.0% and a minimum total risk-based capital ratio of 9.0%. The guidelines require banks to maintain a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets above the minimum requirements to avoid restrictions on capital distributions and discretionary bonus payments. We were declared a systemically important bank in India by the Reserve Bank of India in 2015, and have continued to be categorized as a systemically important bank in India in subsequent years. The additional common equity Tier 1 requirement for us is 0.20% of risk-weighted assets. The Reserve Bank of India requires maintenance of a minimum leverage ratio of 4.0% for domestic systemically important banks. The Reserve Bank of India released the final guidelines on implementation of the counter-cyclical capital buffer for Indian banks in 2015. These guidelines would impose higher capital requirements on banks during periods of high economic growth. The Reserve Bank of India would pre-announce the buffer at least four quarters prior to implementation. The Reserve Bank of India will also announce guidance regarding the treatment of the surplus capital when the counter-cyclical capital buffer returns to zero. At present, the Reserve Bank of India has not activated the counter-cyclical capital buffer. See also “Risk Factors— Risks that arise as a result of our presence in a highly regulated sector – We are subject to capital adequacy requirements stipulated by the Reserve Bank of India, including Basel III, as well as general market expectations regarding the level of capital adequacy large Indian private sector banks should maintain, and any inability to maintain adequate capital due to changes in regulations, a lack of access to capital markets, or otherwise may impact our ability to grow and support our businesses” and “ – Risks that arise as a result of our presence in a highly regulated sector – We are subject to liquidity requirements of the Reserve Bank of India, and any inability to maintain adequate liquidity due to changes in regulations, a lack of access to capital markets, or otherwise may impact our ability to grow and support our businesses.” With respect to computation of risk-weighted assets for capital adequacy purposes, we follow the standardized approach for the measurement of credit and market risks and the basic indicator approach for the measurement of operational risk. 237 Under Pillar 2 of the Basel framework, banks are required to develop and put in place, with the approval of their boards, an Internal Capital Adequacy Assessment Process commensurate with their size, level of complexity, risk profile and scope of operations. The Reserve Bank of India has also issued guidelines on stress testing to advise banks to put in place appropriate stress testing policies and frameworks, including “sensitivity tests” and “scenario tests”, for the various risk factors, the details and results of which are included in the Internal Capital Adequacy Assessment Process. As per Reserve Bank of India guidelines on stress testing, banks have to carry out stress tests for credit risk and market risk to assess their ability to withstand shocks. The guidelines relate to the overall objectives, governance, design and implementation of stress-testing program. Banks are required to carry out risk factor-based stress testing, scenario-based stress testing and stress testing by employing shocks on a bank’s portfolio at a standalone and group level. In addition, banks are also required to create a reverse stress testing framework. Banks are classified into three categories based on size of risk-weighted assets. Complex and severe stress testing would be carried out by banks with risk-weighted assets of more than Rs. 2,000.0 billion. Prompt Corrective Action by the Reserve Bank of India The Prompt Corrective Action framework is a framework under which banks with weak financial condition are put under watch by the Reserve Bank of India and subject to restrictions on operations and business. As per the guidelines, a bank may be placed under the framework at any point in time, if it is found to breach any of the parameters prescribed. In November 2021, the Reserve Bank of India reviewed and revised the existing Framework on Prompt Corrective Action (“PCA”). The key criteria for invocation of the PCA include (i) falling below a capital adequacy ratio of 10.25% and/or below a common equity Tier 1 ratio of 6.75%, (ii) exceeding net non-performing asset ratio of 6.0%, or (iii) a leverage ratio of below 4.0%. Depending upon the extent of breach, the bank may be classified into three risk thresholds and will be accordingly restricted from business expansion and other mandatory action for resolution. Depending on the risk threshold, the actions may include restriction on capital expenditure (other than for technological upgradation within Board approved limits). A bank breaching the risk threshold where the common equity Tier 1 falls below 3.625% could be considered for resolution through tools like amalgamation, reconstruction and winding-up. Discretionary Corrective Actions now include resolution of the bank by amalgamation or reconstruction (Ref. Section 45 of Banking Regulation Act 1949); a prohibition on expansion of credit/ investment portfolios, other than investment in government securities and other high quality liquid investments; restrictions on or reduction in variable operating costs; and restrictions on or reduction of outsourcing activities and new borrowings. Exit from being subject to prompt corrective action and withdrawal of restrictions may be considered in the following scenario: (i) if no breaches in risk thresholds in any of the parameters are observed as per four continuous quarterly financial statements, one of which should be an audited annual financial statement (subject to assessment by Reserve Bank of India), or (ii) based on supervisory comfort of the Reserve Bank of India, including an assessment on sustainability of profitability of the bank. Legal Reserve Requirements Cash Reserve Ratio 238 A bank is required to maintain a specified percentage of its net demand and time liabilities, excluding interbank deposits, by way of cash reserve with itself and by way of balance in current account with the Reserve Bank of India. In May 2022, the Reserve Bank of India increased the cash reserve ratio by 50 basis points from 4.00% to 4.50% of net demand and time liabilities, effective from the reporting fortnight beginning May 21, 2022. Statutory Liquidity Ratio In addition to the cash reserve ratio, a bank is required to maintain a specified percentage of its net demand and time liabilities by way of liquid assets like cash, gold or approved unencumbered securities. Investments in sovereign gold bonds are also allowed to be considered in the calculation of statutory liquidity ratio. Currently, the statutory liquidity ratio is at 18.0%, effective since April 2020. Liquidity Coverage Ratio In line with the Basel III framework, banks in India are required to maintain a minimum liquidity coverage ratio which is a ratio of the stock of high quality liquid assets to total net cash outflows over the next 30 calendar days under certain prescribed stressed conditions. The liquidity coverage ratio is designed to ensure that a bank maintains an adequate level of unencumbered high quality liquid assets to meet any acute liquidity requirements over a hypothetical stressed period lasting 30 days and the requirement was phased in over time. A minimum liquidity coverage ratio requirement of 100.0% is required. Further, as per guidelines issued on liquidity standards, the Reserve Bank of India allows banks, under certain stressed conditions, to avail themselves of a special liquidity facility against certain securities classified as level one high quality liquid assets. The facility, called the Facility to Avail Liquidity for Liquidity Coverage Ratio, is operated by the Reserve Bank of India. Banks are allowed to avail of funds under the marginal standing facility by dipping into the statutory liquidity ratio upto an additional 2% of a bank’s net demand and time liabilites. The Reserve Bank of India has permitted the banks to include government securities as Level 1 high quality liquid assets under the facility to avail liquidity for liquidity coverage ratio within the mandatory statutory liquidity ratio requirement of up to 16% of the Bank’s net demand and time liabilites and government securities, to the extent allowed under the marginal standing facility in addition to other eligible assets. Net Stable Funding Ratio (NSFR) The Reserve Bank of India has issued guidelines on net stable funding ratio. The ratio promotes resilience over a longer time horizon by requiring banks to fund their activities with more stable sources on an ongoing basis. The net stable funding ratio is defined as the amount of available stable funding relative to the amount of required stable funding. Banks are required to maintain a ratio of at least 100.0% on an ongoing basis. 239 Regulations Relating to Advancing Loans The provisions of the Banking Regulation Act govern the advancing of loans by banks in India. The Reserve Bank of India also issues directions covering the loan activities of banks. These directions and guidelines issued by the Reserve Bank of India have been consolidated in the Master Circular on “Loans and Advances—Statutory and Other Restrictions.” Banks are free to determine their own lending rates but each bank must disclose its minimum interest rate which takes into consideration all elements of lending rates that are common across borrowers. Interest rates on all new floating rate retail loans and loans to micro, small and medium enterprises extended by banks are required to be linked to an external benchmark. The external benchmark include the Reserve Bank of India policy repo rate, Government of India 91-day treasury bill yield, Government of India 182-day treasury bill yield or any other benchmark market interest rate produced by Financial Benchmarks India Private Limited. Banks are free to offer floating rate loans to other types of borrowers (i.e., corporate borrowers) either on external benchmark or marginal cost of funds based lending rate which is the internal benchmark for such purposes. Banks have to review and publish their marginal cost of funds based lending rate every month on a preannounced date for different maturities, ranging from overnight rate up to one year basis methodology, prescribed by Reserve Bank of India for computation of marginal cost of funds based lending rate. There shall be no lending below the benchmark rate for a particular maturity for all loans linked to that benchmark. Under Section 20(1) of the Banking Regulation Act, a bank cannot grant any loans and advances against the security of its own shares and a banking company is prohibited from entering into any commitment for granting any loans or advances to or on behalf of any of its directors, or any firm in which any of its directors is interested as partner, manager, employee or guarantor, or any company (not being a subsidiary of the banking company or a company registered under Section 25 of the Companies Act, 1956 or a government company) of which, or the subsidiary or the holding company of which any of the directors of the bank is a director, managing agent, manager, employee or guarantor or in which he holds substantial interest, or any individual in respect of whom any of its directors is a partner or guarantor. There are certain exemptions in this regard as the explanation to the section provides that “loans or advances” shall not include any transaction which the Reserve Bank of India may specify by general or special order as not being a loan or advance for the purpose of this section. There are guidelines on loans against equity shares in respect of amount, margin requirement and purpose. The Reserve Bank of India has issued guidelines requiring banks to put in place a policy for exposure to real estate with the approval of their boards. The Reserve Bank of India has also permitted banks to extend financial assistance to Indian companies for acquisition of equity in overseas joint ventures or wholly owned subsidiaries or in other overseas companies, new or existing, as strategic investment. Banks are not permitted to finance acquisitions by companies in India. 240 The Reserve Bank of India has issued instructions regarding sharing of information relating to credit, derivatives and unhedged foreign currency exposures among banks and to put in place an effective mechanism for information sharing. Under this framework, approval of fresh loans and renewal of loans to new and existing borrowers should be done only after obtaining/sharing necessary information. The Reserve Bank of India guidelines for delivery of bank credit require that for borrowers having an aggregate fund-based working capital limit of Rs. 1.5 billion and above from the banking system, a minimum loan component of 60.0% on the fund-based working capital limits is applicable. Drawing in excess of the minimum loan component threshold would be allowed in the form of cash credit/overdraft facility. The amount and tenor of the loan component may be fixed by banks in consultation with the borrowers, subject to the tenor of the loan component not being less than seven days. Based on the “Recommendations of the Working group on Digital Lending – Implementation” dated August 10, 2022, Reserve Bank of India issued “Guidelines on Digital Lending” on September 2, 2022. The requirements of the guidelines include calculation of Annual Percentage Rate (APR) and displaying the same in the prescribed format of Key Fact Statement (KFS), providing KFS to the customer, appointing Nodal Grievance Redressal Officer for dealing with complaints/issues related to digital lending, providing cooling off /look up periods during which the borrower can foreclose the loan without paying any penalty, providing digitally signed documents to the borrowers and other requirements. To provide clarity on certain aspects of the guidelines, Reserve Bank of India issued Frequently Asked Questions (FAQ) on Digital Lending Guidelines (DLG) on February 14, 2023. Directed Lending Priority Sector Lending The guidelines on lending to priority sector require commercial banks to lend a certain percentage of bank credit to specific sectors (the priority sectors) such as agriculture, small, micro and medium enterprises, education, housing sector, social infrastructure, renewable energy and loans to start-ups. The Reserve Bank of India’s total priority sector target is 40.0% of adjusted net bank credit (“ANBC”) or of the credit equivalent amount of off-balance sheet exposure (“CEOBE”), whichever is higher, with sub-targets of 7.5% to micro enterprises within the overall target of 18.0% in agriculture. The target for lending to small and marginal farmers has been increased from 9.0% in fiscal 2022, to 9.5% in fiscal 2023 and will be increased further to 10.0% in fiscal 2024. The target for lending to identified weaker sections of society has been increased from 11.0% in fiscal 2022, to 11.5% in fiscal 2023 and will be increased further to 12.0% in fiscal 2024. The Reserve Bank of India has notified a new criterion for classifying an enterprise as micro, small and medium from July 2020. Udyam Registration Certificate (“URC”) is necessary for lending to micro, small and medium enterprises to qualify for priority sector. In July 2021, retail and wholesale traders were permitted to register online and obtain URC, resulting in them continuing to qualify under priority sector lending. 241 Investments by banks in securitized assets, outright purchases of loans and assignments are eligible for classification under priority sector if the underlying assets themselves qualified for such treatment. The interest rates charged to ultimate borrowers by the originating entities in such transactions are capped for such transactions to be classified as priority sector. The Reserve Bank of India has allowed banks to sell and purchase priority sector lending certificates in the event of excess/shortfall in meeting priority sector targets, which may help in reducing the shortfall in priority sector lending. These instruments are issued by banks that have a surplus in priority sector lending or any of its individual sub-segments and are purchased by banks having a shortfall, through a trading portal. The Reserve Bank of India allows banks to issue long-term bonds for financing infrastructure and low-cost housing. The amount raised by way of these bonds is permitted to be excluded from adjusted net bank credit for the purpose of computing priority sector lending targets, except to the extent that the lending against these bonds is included in priority sector lending. Banks falling short of their priority sector lending targets are required to contribute allocated amounts to specific Government of India funds (i.e., Rural Infrastructure Development Fund (“RIDF”)), established with National Bank for Agriculture and Rural Development (“NABARD”) and other funds with NABARD/ National Housing Bank (“NHB”)/ Small Industries Development Bank of India (“SIDBI”)/ Micro Units Development & Refinance Agency (“MUDRA”) Limited. The interest rates on contribution to RIDF or any other funds, tenure of deposits, and other features are fixed by the Reserve Bank of India from time to time. The interest rates on these contributions are below market rates. Export Credit The Reserve Bank of India allows exporters to avail short-term working capital financing at internationally comparable interest rates. Export credit is available both in rupee as well as in foreign currency. This enables exporters to have access to an internationally competitive financing option. The Reserve Bank of India has allowed exporters with a satisfactory track record of at least three years to receive long-term export advance at concessional rates for execution of long-term supply contracts up to a maximum period of 10 years. Regulations governing overseas direct investment In August 2022, Reserve Bank of India along with the Central Government has issued a new Overseas Investment regime (i.e., Foreign Exchange Management (Overseas Investment) Rules, Regulations and Directions) to promote the ease of doing business, to cover wider economic activity and significantly reduce the need for seeking specific approvals from the Reserve Bank of India. The new regime has introduced the Late Submission Fee (LSF) for reporting delays and also the specific guidelines have been prescribed for Overseas Investment in IFSC by persons resident in India. Regulations on International Trade Settlement in Indian Rupees (“INR”) 242 In July 2022, Reserve Bank of India has notified an additional arrangement for invoicing, payment, and settlement of exports/imports in INR in order to promote growth of global trade with emphasis on exports from India and to support the interest of global trading community in INR. The broad framework for cross border trade transactions in INR is as follows:
Credit Exposure Limits As a prudential measure aimed at better risk management and avoidance of concentration of credit risks, the Reserve Bank of India has prescribed credit exposure limits for banks and long-term lending institutions in respect of their lending to individual borrowers and to all companies in a single group (or sponsor group). The Reserve Bank of India requires banks to fix internal limits of exposure to specific sectors. These limits are subject to periodic review by the banks. Under Reserve Bank of India guidelines, a borrower having an aggregate fund-based credit limit of Rs. 100.0 billion will be considered a specified borrower. The normally permitted lending limit for specified borrowers is defined as an amount that is 50.0% of the incremental funds raised over and above the aggregate fund-based credit limit. The general provision required on the incremental exposure above the normally permitted lending limit would be 3.0% and the additional risk weight for such exposure over and above the applicable risk weight would be 75.0%. Further, the Reserve Bank of India has issued guidelines on large borrowers which prescribe a limit of 20.0% and 25.0% of the eligible capital base in respect of exposures to single counterparty and groups of connected counterparties with effect from April 2019. The eligible capital base is defined as the Tier 1 capital of the bank as against the earlier norm of total capital funds. Exposure to a single non-banking finance company or a group of connected non-banking finance companies is restricted to 15.0% and 25.0%, respectively, of the eligible capital base. The definition of exposure for large borrowers includes off-balance sheet items converted into credit exposure equivalents through the use of credit conversion factors used for assessing credit risk under the standardized approach for risk based capital requirements. In June 2019, the Reserve Bank of India introduced an economic inter-dependence criterion in the definition of connected counterparties, which has been applicable since April 2020. Corporate borrowers having total exposure of Rs. 250 million (100 million from April 2024 onwards and 50 million from April 2025 onwards) and above in the banking system are required to obtain a legal entity identifier registration. A borrower who does not obtain the legal entity identifier is not eligible for renewal or enhancement of credit facilities. Capital Market Exposure Limits The Reserve Bank of India guidelines on capital market exposures stipulate that a bank’s exposure to capital markets in all forms (both fund-based and non-fund-based) by way of investments in shares, convertible bonds/debentures, units of equity oriented mutual funds, loans against shares, and secured and unsecured advances to stock brokers, should not exceed 40.0% of its net worth on both a stand-alone and consolidated basis as of March 31 of the previous year. 243 Limits on intra-group transaction and exposures The Reserve Bank of India guidelines on management of intra-group transactions and exposures for financial conglomerates prescribe quantitative limits for intra-group financial transactions and prudential measures for non-financial transactions. The Reserve Bank of India has prescribed a single group entity exposure limit of 5.0% of paid-up capital and reserves of the bank for non-financial companies and unregulated financial services companies and 10.0% in the case of regulated financial entities. The aggregate group exposure cannot exceed 20.0% of paid-up capital and reserves and surplus in case of all group entities (financial and non-financial) taken together and 10.0% in the case of all non-financial companies and unregulated financial services companies taken together. Banks’ exposures to other banks/financial institutions in the group in the form of equity and other capital instruments are exempted from above limits. If the exposure exceeds the permissible limits, the excess amount would be deducted from common equity Tier 1 capital of the bank. Master Direction on Transfer of Loan Exposure In order to provide banks with options to manage liquidity, rebalance their exposure or strategic sales and resolve their non-performing assets, the Reserve Bank of India issued Master Direction – Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 on September 24, 2021. Under these guidelines, the board of directors of a bank must establish a policy for transfer of loans. Originators need to satisfy the Minimum Holding Period requirement (3 months and 6 months) and Minimum Retention Ratio (5% and 10%) as mentioned in extant guideline. Securitisation involves transactions where credit risk in assets are redistributed by repackaging them into tradeable securities with different risk profiles which may give investors of various classes access to exposures which they otherwise might be unable to access directly. Reserve Bank of India issued the Master Direction (Securitisation of Standard Assets) Directions, 2021 on September 24, 2021. The securitisation and Transfer of Loan exposure transactions can be executed by Lenders who are Scheduled commercial banks, Primary (Urban) Co-operative Banks/State Co-operative Banks/ Central Co-operative Banks (only for transfer of loan exposures), All India Term Financial Institutions, Small Finance Banks, NBFCs, and HFCs. Credit Information Bureaus Pursuant to the Credit Information Companies (Regulation) Act, 2005, every credit institution, including a bank, has to become a member of a credit information bureau and furnish to it such credit information as may be required of the credit institution by the credit information bureau about individuals or groups who enjoy a credit relationship with it. Banks are also required to share information on investments in commercial paper and unhedged foreign currency exposures of borrowers to the credit information companies. Other credit institutions, credit information bureaus and such other persons as the Reserve Bank of India specifies may access such disclosed credit information. Seeking to strengthen the coverage and use of credit information, the Reserve Bank of India standardized the data formats for furnishing of credit information to credit information companies, common classification of credit scores and best practices to be followed by credit information companies. 244 Loan Loss Provisions and Non-Performing Assets The Reserve Bank of India’s Master Circular on “Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances” dated April 1, 2023 as amended, provides consolidated instructions and guidelines relating to income recognition, asset classification and provisioning standards. Asset Classification In particular, an advance is a non-performing asset where interest and/or installment of principal remains overdue for a period of more than 90 days in respect of a term loan; the account remains “out-of-order” (as defined below) in respect of an overdraft or cash credit; the bill remains overdue for a period of more than 90 days in case of bills purchased and discounted; installment of principal or interest remains overdue for two crop seasons for short duration crops or for one crop season for long duration crops; the amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitization transaction. In respect of derivative transactions, the overdue receivables related to positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment; or in respect of credit card transactions, if the minimum amount due, as mentioned in the statement, remains overdue for a period of more than 90 days from the payment due date mentioned in the statement. Interest in respect of non-performing assets is not recognized or credited to the income account unless collected. Non-performing assets are classified as described below. Sub-Standard Assets. Assets that are non-performing assets for a period not exceeding 12 months. Such an asset has well-defined credit weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the bank will sustain some loss, if deficiencies are not corrected. Doubtful Assets. Assets that have remained sub-standard for a period of 12 months. A loan classified as doubtful has all the weaknesses inherent in assets that are classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable. Loss Assets. Assets on which losses have been identified by the bank or internal or external auditors during the performance of their audit procedures or during the Reserve Bank of India inspection but the amount has not been written off fully. There are separate guidelines for classification of loans for projects under implementation which are based on the date of commencement of commercial production and date of completion of the project as originally envisaged at the time of financial closure. 245 The Reserve Bank of India, under its risk-based supervision exercise, carries out the risk assessment of banks on an annual basis. As a part of this assessment, the Reserve Bank of India separately reviews asset classification and provisioning of credit facilities given by banks to its borrowers. This assessment is initiated subsequent to the completion of the annual audit and the publication of audited financial statements for the given financial year. Any divergences in classification or provisioning arising out of the supervisory process are given effect in the financial statements in subsequent periods after conclusion of the exercise. Such divergences are required to be disclosed by banks in their financial statements if either the additional provisioning requirement assessed by the Reserve Bank of India exceeds 10.0% (5% from fiscal 2024 onwards) of the published profits before provisions and contingencies for the period, or the additional gross non-performing assets identified by the Reserve Bank of India exceeds 10.0% (5% from fiscal 2024 onwards) of the published incremental gross non-performing assets for the reference period, or both. The assessment of divergence in asset classification and provisioning conducted by the Reserve Bank of India for ICICI Bank in fiscal 2020, fiscal 2021 and fiscal 2022 did not require any additional disclosures. Restructured loans Standard restructured loans are subject to higher standard asset provisioning requirements and higher risk weights for capital adequacy purposes. The higher risk weights and provision shall continue until satisfactory performance under the revised payment schedule has been established for the specified period. If the restructured account is overdue as per the revised schedule for a period beyond the minimum period prescribed for classification of a loan as non-performing, it is required to be downgraded to non-performing status with reference to the pre-restructuring payment schedule. See also “Risk Factors—Risks Relating to Our Business—The future trajectory of the COVID-19 pandemic is uncertain and could adversely affect our business, the quality of our loan portfolio and our financial performance”. Provisioning and write-offs Provisions under Indian GAAP are based on guidelines specific to the classification of the assets. The following guidelines apply to the various asset classifications: Standard Assets: The allowances on the performing portfolios are based on guidelines issued by the Reserve Bank of India. The provisioning requirement is a uniform rate of 0.4% for all standard assets except certain advances which require provision in the range of 0.25% to 2%: Reserve Bank of India guidelines require banks to maintain provisions for standard assets at rates higher than the regulatory requirement in respect of advances to stressed sectors of the economy. For assets referred to the National Company Law Tribunal under the Insolvency and Bankruptcy Code, banks have to make provisions to the extent of 50.0% of the secured portion and 100.0% of the unsecured portion of the outstanding loans. Sub-standard Assets: A provision of 15.0% is required for all substandard assets as compared to the previous requirement of 10.0%. A provision of 25.0% is required for accounts that are unsecured. Unsecured infrastructure loan accounts classified as substandard require provisioning of 20.0%. 246 Doubtful Assets: A 100.0% provision/write-off is required against the unsecured portion of a doubtful asset and is charged against income. For the secured portion of assets classified as doubtful, a 25.0% provision is required for assets that have been classified as doubtful for a year, a 40.0% provision is required for assets that have been classified as doubtful for one to three years and a 100.0% provision is required for assets classified as doubtful for more than three years. The value assigned to the collateral securing a loan is the amount reflected on the borrower’s books or the realizable value determined by third-party appraisers. Loss Assets: The entire asset is required to be written off or provided for. Under the Banking Regulation Act, banking companies in India are required to comply with the directions of the Reserve Bank of India, including guidelines issued with respect to asset identification, asset classification and provisioning by banking companies. While preparing the financial statements under Indian GAAP, banking companies are required to comply with all regulatory requirements, including such directions issued by the Reserve Bank of India. The Reserve Bank of India issued a circular in 2016 instructing all scheduled commercial banks in India to comply with the Indian Accounting Standards (“Ind AS”) for financial statements. In 2019 the Reserve Bank of India deferred the implementation of the Ind AS until further notice as legislative amendments recommended were still under the consideration of the Government of India. In fiscal 2023, Reserve Bank of India, through its discussion paper on “Introduction of Expected Credit Loss framework for provisioning by banks” has proposed to adopt expected credit loss framework based on approach used in International Financial Reporting Standard 9, supplemented by regulatory backstops wherever necessary. The draft guidelines on the expected credit loss framework is awaited from Reserve Bank of India. Framework for Compromise Settlements and Technical Write-offs In June 2023, Reserve Bank of India issued guideline on Framework for Compromise Settlements and Technical Write-offs requiring Bank to put a board approved policy for setting necessary condition precedents such as minimum ageing, deterioration in collateral value and certain other parameters including staff accountability, delegation of power, cooling period etc. for taking fresh exposure. Further, the guideline requires that in case of partial technical write-offs, the prudential requirements in respect of residual exposure, including provisioning and asset classifications shall be with reference to the original exposure. Automation of income recognition, asset classification and provisioning process in banks In 2020 the Reserve Bank of India issued a circular for automation of income recognition, asset classification and provisioning processes in banks. As per this circular, all borrower accounts and investments of the bank should be covered in the automated IT based system for asset classification, upgradation and provisioning processes. The asset classification rules should be configured in the system in compliance with the regulatory requirements. The system based asset classification should be an ongoing exercise for upgrades and downgrades of borrower accounts. Guidelines Relating to Use of Recovery Agents by Banks The Reserve Bank of India has asked banks to put in place a due diligence process for the engagement of recovery agents, structured to cover, among others, individuals involved in the recovery process. Banks are expected to communicate details of recovery agents to borrowers and have in place a grievance redressal mechanism pertaining to the recovery process. The Reserve Bank of India has advised banks to initiate a training course for current and prospective recovery agents to support prudent recovery practices. In August 2022, the Reserve Bank of India advised that the Regulated Entities (“REs") shall strictly ensure that they or their agents do not resort to intimidation or harassment of any kind, either verbal or physical, against any person in their debt collection efforts, including acts intended to humiliate publicly or intrude upon the privacy of the debtors' family members, referees and friends, sending inappropriate messages either on mobile or through social media, making threatening and/ or anonymous calls, persistently calling the borrower, or other similar acts. 247 Legislative Framework for Enforcement of Security by Banks for Non-performing Assets/Recovery of debts due to Banks The SARFAESI Act provides that a secured creditor may, in respect of loans classified as non-performing in accordance with the Reserve Bank of India guidelines, give notice in writing to the borrower requiring it to discharge its liabilities within 60 days, failing which the secured creditor may, inter alia, take possession of the assets constituting the security for the loan, take over the management of the business of the borrower, appoint a person to manage the secured assets taken in possession and the like with the ultimate objective of recovering the money due to the bank. Additionally, under SARFAESI, a central registry has been established, known as the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (“CERSAI”), to register the security interst of banks on the borrower’s assets and only if the banks register their security interest with CERSAI that the remedy under SARFAESI shall be available to them. The SARFAESI Act also provides for setting up of asset reconstruction companies regulated by the Reserve Bank of India to acquire stressed assets from banks and financial institutions. In 2021, National Asset Reconstruction Company Limited (“NARCL”), a government entity, was incorporated and registered with the Reserve Bank of India as an asset reconstruction company under SARFAESI for aggregation and resolution of non-performing assets in the banking industry. See also “—Regulations Relating to Sale of Assets to Asset Reconstruction Companies”. The SARFAESI Act focuses on improving the rights of banks and financial institutions and other specified secured creditors as well as asset reconstruction companies by providing that such secured creditors can take over management control of a borrower company upon default and/or sell assets without the intervention of courts, in accordance with the provisions of the SARFAESI Act. The Recovery of Debts and Bankruptcy Act, 1993 provides for establishment of Debt Recovery Tribunals for expeditious adjudication and recovery of debts due to any bank or Public Financial Institution or to a consortium of banks and Public Financial Institutions. Under this Act, the procedures for recoveries of debt have been simplified and time frames have been fixed for speedy disposal of cases. Upon establishment of the Debt Recovery Tribunal, no court or other authority can exercise jurisdiction in relation to matters covered by this Act, except the higher courts in India in certain circumstances. Resolution of Stressed Assets Insolvency and Bankruptcy Code, 2016 The Insolvency and Bankruptcy Code, 2016, provides a time-bound revival and rehabilitation mechanism. The corporate insolvency resolution process can be initiated by the creditors on occurrence of a default above a specific threshold amount. It classifies the creditors into financial creditors (which have extended financial debts) and operational creditors (which have provided goods and services). Other key features include specific timelines for dealing with insolvency resolution applications. The insolvency resolution plan has to be approved by a majority of financial creditors, which requires approval by the adjudicating authority and, if rejected, the adjudicating authority may pass an order for liquidation. The National Company Law Tribunal has been set up as the adjudicating authority, the National Company Law Appellate Tribunal has been set up to hear appeals on the orders of the adjudicating authority with jurisdiction over companies and limited liability entities, and the Insolvency and Bankruptcy Board of India has been set up as the new insolvency regulator overseeing insolvency professionals, information utilities and promote transparency. 248 Regulations Relating to Sale of Assets to Asset Reconstruction Companies The Reserve Bank of India has issued guidelines to banks on the process to be followed for sales of financial assets to asset reconstruction companies in the Master Direction on Transfer of Loans. These guidelines provide that a bank may sell financial assets to an asset reconstruction company provided the asset is a non-performing asset. These assets are to be sold on a “without recourse” basis, only. The banks selling financial assets should seek to ensure that there is no known liability devolving on them and that they do not assume any operational, legal or any other type of risks relating to the financial assets sold. Further, banks may not sell financial assets at a contingent price with an agreement to bear a part of the shortfall on ultimate realization. Banks can also invest in security receipts or pass-through certificates issued by the asset reconstruction company or trusts set up by it to acquire the financial assets. The Reserve Bank of India has also issued guidelines governing the affairs of asset reconstruction companies. The guideline provides norms relating to period of realization of assets by asset reconstruction company, mandatory holding of security receipts, period for formulating plan of recovery, and other norms. Asset reconstruction companies are not permitted to acquire any non-performing financial assets from their sponsor banks on a bilateral basis. However, they may participate in auctions of non-performing assets by their sponsor banks. Framework for Early Identification of Stress and Information Sharing The Reserve Bank of India has issued a “Framework for Revitalizing Distressed Assets in the Economy.” The framework outlined an action plan for early identification of problem cases, creating a central repository of information on large credits, timely restructuring of accounts which were considered to be viable, and taking prompt steps by banks for recovery or sale of unviable accounts. Accounts have to be categorized into “special mention accounts” based on specified criteria. The Reserve Bank of India issued the Prudential Framework for Resolution of Stressed Assets in 2019. The framework additionally required banks to undertake a review of the borrower within 30 days of a default in the borrower account and enter into an inter-creditor agreement during the 30-day review period to decide rules for finalization and implementation of the resolution plan. See also “Supervision and Regulation—Legislative Framework for Recovery of Debts due to Banks” and “Supervision and Regulation—Legislative Framework for Recovery of Debts due to Banks— Resolution of Stressed Assets—The Banking Regulation (Amendment) Ordinance, 2017”. 249 Reserve Bank of India guidelines provide a framework for dealing with loan frauds. The guidelines relate to detection, reporting and monitoring of fraud accounts and prescribe continuous monitoring and red flagging of accounts based on early warning signals for accounts above Rs. 30 million. The guidelines also require reporting frauds on the Reserve Bank of India’s central repository of information on large credits for dissemination to other banks and enabling decision-making among banks in case of consortium or multiple banking arrangements. The framework also illustrates checks/investigations during the different stages of the loan life cycle and timelines have been defined to complete the due diligence for evaluation of an account. Restructuring or grant of additional facilities would not be available in case of fraud or red-flagged accounts. There are provisioning guidelines relating to fraud accounts that require banks to make a provision. Regulations Relating to the Opening of Branches Opening of branches and relocation of existing branches are governed by the provisions of Section 23 of the Banking Regulation Act. Banks are permitted to open banking outlets in Tier 1 to Tier 6 centers without the prior approval of the Reserve Bank of India, subject to certain requirements. Banks are mandated to allocate 25.0% of the total number of new banking outlets opened during a year to unbanked rural centers. An unbanked rural center is defined as an area classified as Tier 5 and Tier 6 centers that does not have core banking system enabled banking outlets. A banking outlet is a fixed point service delivery unit, manned by either a bank’s staff or its business correspondent, and where services of acceptance of deposits, encashment of checks/cash withdrawal or lending of money are provided for a minimum of four hours per day for at least five days a week. With an aim to increase the reach of digital banking services, the Reserve Bank of India issued guidelines on setting up of Digital Banking Units by commercial banks. These are fixed point business units having minimum digital infrastructure to offer digital banking products and services. These digital banking units will be treated as banking outlets. Regulations Governing Use of Business Correspondents To increase the outreach of banking and promote greater financial inclusion, the Reserve Bank of India allows banks to engage business correspondents for providing banking and financial services at locations other than a bank branch. Business correspondents offer a limited range of banking services at low cost, as setting up a brick and mortar branch may not be viable in all areas. Banks are required to take full responsibility for the acts of omission and commission of the business correspondents that they engage and to conduct due diligence for minimizing agency risks. The entities permitted to act as business correspondents included individuals such as retired bank employees, retired teachers, individual owners of small, independent grocery stores, medical and fair price shops and certain other individuals. The non-individual entities include non-government organizations or microfinance institutions set up under societies/trust acts, societies registered under mutually aided cooperative societies acts of various states, or the Cooperative Societies Acts of various states, not-for-profit companies and post offices. Banks are also allowed to engage companies with large and widespread retail outlets and registered under the Companies Act and non-deposit taking non-banking financial companies as business correspondents. Further, with a view to scale up the business correspondent channel, the Reserve Bank of India requires the board of banks to review the operations and payment of remuneration to business correspondents at least once every six months. The Reserve Bank of India has also proposed to create a registry of business correspondents. 250 Regulations Relating to Deposits The Reserve Bank of India permits banks to independently determine interest rates offered on term deposits. However, banks cannot pay interest on current account deposits. Interest rates payable on savings deposits are not regulated. However, a uniform interest rate on savings deposits must be paid on deposits up to Rs. 100,000 and differential rates can be paid on deposits of over Rs. 100,000. The payment of interest on savings deposits is calculated on daily product basis. Domestic time deposits and rupee-denominated non-resident ordinary accounts have a minimum maturity of seven days. Rupee denominated non-resident external rupee accounts have a minimum maturity of one year and foreign currency denominated for non-resident Indians have a minimum maturity of one year and a maximum maturity of five years. Banks are allowed to offer differential rates of interests on domestic term deposits and for bulk term deposits are of Rs. 20 million and above. The Reserve Bank of India allows banks to offer early withdrawal facility in a term deposit as a distinguishing feature for offering differential rates of interest. All term deposits of individuals of Rs. 1.5 million and below should, necessarily, have premature withdrawal facility. For all other term deposits, customers should be given the option to choose between term deposits either with or without premature withdrawal facility. Banks will be required to disclose in advance the schedule of interest rates payable on deposits. Banks are free to determine the interest rates on non-resident (external) rupee deposits and ordinary non-resident accounts. However, the interest rates cannot exceed the rate offered by the bank on comparable domestic rupee deposits. In view of the impending discontinuance of certain tenors of US$-LIBOR as a benchmark rate, the interest rates on foreign currency non-resident (B) deposits shall be linked to a widely accepted overnight alternative reference rate for the respective currency. With a view to increasing the availability of financial services across regions and population segments, the Reserve Bank of India has advised banks to make available a basic savings bank deposit account without having the requirement of any minimum balance. The Reserve Bank India’s Framework for acceptance of Green Deposits came into effect from June 1, 2023.The purpose of the framework is to encourage REs to offer green deposits to customers, protect the interests of the depositors, aid customers to achieve their sustainability agenda, address greenwashing concerns and help augment the flow of credit to green activities and projects. 251 Regulations Relating to Payments On January 5, 2021, the Reserve Bank of India decided to introduce the Legal Entity Identifier system for single payment transactions of value Rs.500 million and above undertaken by non-individual entities using centralised payment systems like real time gross settlement (RTGS) and national electronic funds transfer (NEFT). These directions were effective from April 1, 2021. In January 2020, the Reserve Bank of India advised banks to issue or re-issue, all cards (physical and virtual) and enable them for use only at contact based points of usage like ATMs and point of sale (“PoS”) devices within India. The banks shall provide cardholders a facility for enabling card-not-present (for domestic and international online transactions) transactions, card-present (for international transactions) transactions and contactless transactions. For existing cards, issuers may decide whether to disable the card-not-present (domestic and international) transactions, card-present (international) transactions and contactless transaction rights. Existing cards that have never been used for online (card not present) / international / contactless transactions shall be mandatorily disabled for this purpose. On August 6, 2020, the Reserve Bank of India advised that authorised payment system operators (including banks and non-banks) and their participants to implement an online dispute resolution system for resolving customer disputes and grievances pertaining to digital payments, using a system-driven and rule-based mechanism with zero or minimal manual intervention by January 2021. The payment system operators shall provide access to such a system to its participating members via payment system participants. In February 2021, the Reserve Bank of India issued master directions on digital payment security controls, which provides necessary guidelines for the regulated entities to set up a robust governance structure and implement common minimum standards of security controls for channels like internet, mobile banking, card payments, among others. This is to create an enhanced environment for customers to use digital payment products in more safe and secure manner. The guidelines have been effective since August 18, 2021. The Reserve Bank of India in its circular dated September 7, 2021 has enhanced applicability of card tokenisation services to Card-on-File Tokenisation services as well. Further, card issuers have been permitted to offer card tokenisation services as Token Service Providers. Further, the Reserve Bank of India in its circular dated January 3, 2022 has issued a framework for carrying out digital payments in offline mode using cards, wallets, mobile devices, and other modes of digital payments. Regulations Relating to Customer Service and Customer Protection Enhancing customer service and customer protection is a focus area for the Reserve Bank of India and has regularly emphasized on offering efficient, fair and speedy customer service. In this regard, the Reserve Bank of India has issued several guidelines. The Reserve Bank of India has issued a charter of customer rights, which provides the broad overarching principles for the protection of bank customers. The charter describes five basic rights of bank customers which are the right to fair treatment, the right to transparency, fair and honest dealing, the right to suitability, the right to privacy and the right to grievance redress and compensation. 252 The Reserve Bank of India has issued procedural guidelines for redressal of grievances by an internal ombudsman. Internal Ombudsman Scheme covers appointment/tenure, roles and responsibilities, procedural guideline and oversight mechanism for the internal Ombudsman. Internal Ombudsman examine all customer grievances including complaints of deficiency in service on the part of the bank as also those listed under Clause 8 of the Banking Ombudsman Scheme, 2006 (as amended from time to time) received by banks and which are partly or wholly rejected by bank's internal grievance redressal mechanism. In order to further strengthen the customer grievance redressal mechanism in banks, the Reserve Bank of India has decided to put in place a comprehensive framework including enhanced disclosures by banks on customer complaints, recovery of cost of redressal from banks for the maintainable complaints received against them in Offices of Banking Ombudsman in excess of the peer group average, and undertaking intensive review of the grievance redressal mechanism and supervisory action against banks that fail to improve their redressal mechanism in a time bound manner. The Reserve Bank of India has integrated all the existing three Ombudsman schemes, which were (i) the Banking Ombudsman Scheme, 2006; (ii) the Ombudsman Scheme for Non-Banking Financial Companies, 2018; and (iii) the Ombudsman Scheme for Digital Transactions, 2019, into a single scheme known as the Integrated Ombudsman Scheme, 2021. The Reserve Bank of India has issued directions to banks for determining customer liability in case of Unauthorized Electronic Banking Transaction. The facility of electronic transactions (other than ATM cash withdrawals) may not be offered to customers who do not provide mobile numbers. The Reserve Bank of India has advised banks to clearly define the rights and obligations of customers in case of unauthorized transactions in specified scenarios. Further, banks are required to formulate/revise their customer relations policy, with approval of their Boards, to cover aspects of customer protection, including the mechanism of creating customer awareness on the risks and responsibilities involved in electronic banking transactions and customer liability in cases of unauthorized electronic banking transaction. The Reserve Bank of India has extended the customer protection framework to prepaid payment instruments (PPIs) as well. In March 2020, the Reserve Bank of India issued guidelines to regulate the activities of payment aggregators and has also provided baseline technology-related recommendations to payment gateways. The Reserve Bank of India does not allow entities regulated by it, including banks, to deal in virtual currencies or to provide services facilitating any person or entity in dealing with or settling virtual currencies. Such services include maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them and transfer/receipt of money in accounts relating to purchase/sale of virtual currencies. Personal Data Protection and Privacy ICICI Bank is committed to protecting the privacy of individuals whose personal data it holds, and processing such personal data in a way that is consistent with applicable laws. It is important for employees and businesses to protect customer data and follow the applicable privacy laws in India and overseas locations to ensure safety and security of data. We believe that the data privacy framework should be in line with the evolving regulatory changes and digital transformation. 253 The Bank has a global presence in several overseas jurisdictions including Hong Kong, Singapore, United States, United Kingdom, Canada, China, Dubai International Financial Centre and Bahrain. We are committed to ensuring compliance with applicable laws across these jurisdictions. We have an integrated and centralized strategy for achieving data privacy compliance across all jurisdictions. A set of principles have been defined with respect to handling customer data. There is a mechanism in place for reporting any form of personal data incident which is accessible to all employees in the Bank. Any kind of personal data related incidents reported through the service request undergoes a detailed investigation and report of same is shared by Data Protection Officer (DPO) with senior members of the Bank from the Information Security Group, Operational Risk Management Group, Fraud Management Group, Human Resources, Compliance and the Legal Team on a monthly basis. The Bank periodically updates its Personal Data Protection Standard to cover the personal data protection regulatory requirements for the Bank and its overseas offices to reflect the changes in data protection laws and regulations. The Personal Data Protection Standard of the Bank was reviewed by an international law firm and was further updated and strengthened in fiscal 2022. Privacy regulations require the personal data of customers to be protected throughout its entire lifecycle. Accordingly, the Bank has undertaken several comprehensive measures such as categorizing all personal data and sensitive personal data as ‘Confidential Information’, keeping record of all its processing activities, entering into non-disclosure and confidentiality agreements with employees and third parties who are privy to personal data of the customers and providing customers the option to exercise various rights which they enjoy under applicable data protection regulations and incident handling procedures. Regulations Governing Mobile Banking The Reserve Bank of India permits Indian banks to offer mobile banking services to their customers. Transactions involving a debit to the customer’s account should have a two-level authentication to execute the transaction. The Reserve Bank of India has issued guidelines requiring banks to provide easy registration for mobile banking services, including generation of the personal identification number through multiple channels. While use of mobile banking services for cross-border transactions was previously restricted, the restriction was subsequently removed. Services on mobile applications can now be used for both rupee based transaction in the domestic market and for undertaking cross-border transactions. Regulations Governing Prepaid Payment Instruments The Reserve Bank of India has issued master directions on issuance and operation of prepaid payment instruments. Issuers are required to have Board approved policy for issuance of various types/categories of prepaid instruments, engaging agents, co-branding arrangement, re-validation of gift instruments and all related activities. Pre-paid instruments (or minimum-detail Prepaid Payment Instruments) in small amounts up to Rs. 10,000 can be issued by accepting minimum details and are required to be converted into full-KYC Prepaid Payment Instruments within 24 months from the date of issuance if facility of cash loading / reloading is provided. Prepaid Payment Instruments up to Rs. 200,000 can be issued after completing KYC of the Prepaid Payment Instrument holder. Gift instrument can be issued up to a maximum value of Rs. 10,000. Prepaid Payment Instruments (other than gift Prepaid Payment Instruments and Mass Transit System Prepaid Payment Instruments) shall necessarily have additional factor of authentication. The aspects of co-branded prepaid instruments, fraud prevention, customer protection, grievance handling and information system audit are also highlighted in the directions. 254 Deposit Insurance Demand and time deposits accepted by Indian banks must be insured with the Deposit Insurance and Credit Guarantee Corporation, a wholly owned subsidiary of the Reserve Bank of India. The limit on insurance coverage for depositors in insured banks was raised from Rs. 100,000 to Rs. 500,000 per depositor from February 4, 2020. Banks are required to pay the insurance premium for the eligible amount to the Deposit Insurance and Credit Guarantee Corporation on a semi-annual basis. The cost of the insurance premium cannot be passed on to the customer. Under the Companies Act, 2013, deposit insurance is mandatory for companies accepting deposits. The Depositor Education and Awareness Fund Scheme, 2014—Section 26A of the Banking Regulation Act, 1949 The Reserve Bank of India has advised that banks shall calculate the cumulative balances in all eligible accounts which are unclaimed for more than 10 years along with interest accrued, and the amount due in each calendar month shall be transferred on the last working day of the subsequent month. Borrowings by Banks in India The Reserve Bank of India has permitted banks to borrow and lend in Call, Notice and Term Money Markets as per the internal board approved limits within the prescribed prudential limits for inter-bank liabilities (“IBL”).
The Reserve Bank of India has allowed banks to borrow funds from their overseas branches and correspondent banks (including borrowings for financing export credit, external commercial borrowings and overdrafts from their head office/nostro account) up to a limit of 100.0% of unimpaired Tier 1 capital or US$10 million, whichever is higher. 255 The aforesaid limit applies to the aggregate amount availed of by all the offices and branches in India from all their branches or correspondents abroad and also includes overseas borrowings in gold for funding domestic gold loans. Capital funds raised by issue of innovative perpetual debt instruments and other overseas borrowings with the specific approval of the Reserve Bank of India will continue to be outside the limit of 100.0% of unimpaired Tier 1 capital. Banks are permitted to raise funds through issuance of rupee denominated bonds overseas. The Reserve Bank of India has permitted banks to issue perpetual debt instruments that can qualify for inclusion as additional Tier 1 capital and debt capital instruments that can qualify for inclusion as Tier 2 capital, by way of rupee denominated bonds in the overseas market, and long-term bonds for financing infrastructure and affordable housing projects. Gold Monetization Scheme and Sovereign Gold Bonds As per the gold monetization scheme of the Reserve Bank of India, banks are allowed to mobilize gold deposits and provide loans against these deposits. The minimum deposit under the gold deposit scheme at any one time is 10 grams of raw gold. The short-term bank deposits are allowed for a minimum of one to three years, and treated as on-balance sheet liability, and medium-term deposits of five to seven years and long-term of 12-15 years. The medium and long-term deposits will be the liability of the Indian central government. The redemption of medium and long-term deposits, at the option of the depositor, can be either in the Indian rupee equivalent of the value of the deposited gold or in the gold itself. The Reserve Bank of India has also issued guidelines on sovereign gold bonds with investments in such bonds being eligible for statutory liquidity ratio calculations. The investment in sovereign gold bond is restricted based on the investor type. The bonds could also be used as collateral for loans. Regulations Relating to Know Your Customer and Anti-Money Laundering The Prevention of Money Laundering Act (“PMLA”), 2002, seeks to prevent and criminalize money laundering and terrorist financing in line with recommendations made by the Financial Action Task Force. This Act lays down the obligations on designated entities (including banks) for maintaining records and reporting certain transactions to the Financial Intelligence Unit. It also lists out the predicate offences, appointment of the Designated Director and Principal Officer and their respective obligations under the Act. Prevention of Money Laundering Rules (“PMLR”), 2005 have also been framed under this Act. Both the PMLA and PMLR are amended from time to time. Reserve Bank of India has also provided directions in line with the PMLA and PMLR. It cover key aspects including customer acceptance policy, customer due-diligence procedures, monitoring of transactions risk management, regulatory reporting, training of employees and independent audit of AML/KYC framework. These directions are updated from time to time. 256 Pursuant to recent amendments to the PMLA and PMLR, changes have also been made in the Reserve Bank of India Master Direction on KYC, 2016. Major amendments include: identification of Beneficial Owner exemptions; threshold changes for new and legacy cases; amended definitions of Group, Politically Exposed Person, Non-Profit Organisation and Shell banks; increases in the scope of record management; removal of the positive confirmation requirement in case current address and address in Aadhar is different; adoption of artificial intelligence and machine learning for effective monitoring; introduction of Aadhaar OTP based e-KYC in non-face to face mode for periodic updation; defined procedures for implementation of section 12A of the Weapons of Mass Destruction and their Delivery Systems (Prohibited of Unlawful Activities) Act, 2005; and deletion of the words “adverse action against the customers should be avoided” from “Periodic updation of KYC” clause. Regulations Relating to Investments Banks are required to undertake investment activities as per the terms and conditions specified in the extant Reserve Bank of India guideline on Classification, Valuation and Operation of Investment Portfolio of Commercial Banks. Banks are required to adopt a Board approved comprehensive investment policy. The entire investment portfolio (including SLR securities and non-SLR securities) is to be classified under three categories: ‘Held to Maturity’ (“HTM”), ‘Available for Sale’ (“AFS”) and ‘Held for Trading’ (“HFT”). The category of the investment shall be decided by the bank at the time of acquisition. Investments under HTM category shall not exceed 25% of the bank’s total investments except for certain investments as stipulated by Reserve Bank of India. Securities eligible for HTM category are SLR securities, Non-SLR securities (with certain conditions), Recapitalisation Bonds, Equity of subsidiaries and joint ventures, Long-term bonds issued by Infrastructure companies, Unquoted shares/bonds/units of Category I and II Alternative Investment Funds (“AIFs”) for initial period of three years. The securities acquired with the intention to trade by taking advantage of the short term price/interest rate movements shall be classified under HFT. The investments classified under HFT shall be sold within 90 days. The securities which do not fall under HTM or HFT categories shall be classified under AFS. Shifting of investments Banks shall have the freedom to shift investments to/from HTM with the approval of the Board of Directors once at the beginning of the accounting year. Banks shall have the freedom to shift investments from AFS to HFT with the approval of their Board of Directors/ ALCO (Asset Liability Committee) / Investment Committee. Shifting of investments from HFT to AFS shall be permitted only in exceptional circumstances where the bank is not in a position to sell the security within 90 days due to tight liquidity conditions, or extreme volatility, or market becoming unidirectional. In case of sales/transfers to/from HTM category exceeds 5% of the book value of investment held in HTM at the beginning of the year, banks shall disclose in the ‘Notes to Accounts’ to the Financial Statements the market value of the investments held in the HTM category. Banks shall also disclose the excess of book value over market value for which provision is not made. 257 Bank’s investment in unlisted non-SLR securities shall not exceed 10 percent of its total investment in non-SLR securities as on March 31 of the previous year. Limit on Transactions through Individual Brokers A limit of 5% of total transactions through brokers (both purchase and sales) entered into by a bank during a financial year shall be treated as the aggregate upper contract limit for each of the approved brokers. If for any reason it becomes necessary to exceed the aggregate limit for any broker, banks shall record in writing the specific reasons for such breach and the Board shall subsequently be informed. Income recognition (i) Banks shall recognize income on accrual basis for the following:
(ii) Income from units of mutual funds shall be recognized on cash basis. The criterion used to classify an asset as Non-Performing Asset (“NPA”) shall be used to classify an investment as a Non-Performing Investment (“NPI”) (i.e., an NPI is one where interest/ instalment, including maturity proceeds is due and remains unpaid for more than 90 days). In the case of equity shares, in the event the investment in the shares of any company is valued at Re.1 per company on account of the non-availability of the latest balance sheet, those equity shares shall be classified as NPI. Subsidiaries and Other Financial and Non-Financial Sector Investments In terms of Section 19(2) of the Banking Regulation Act, banks should not hold shares in any company except as provided in subsection (1) of that Act, whether as pledgee, mortgagee or absolute owner, of an amount exceeding 30.0% of the paid-up share capital of that company or 30.0% of its own paid-up share capital and reserves and surplus, whichever is less. Further, in terms of Section 19(3) of the Banking Regulation Act, banks should not hold shares, whether as pledgee, mortgagee or absolute owner, in any company in the management of which any managing director or manager of the bank is in any manner concerned or interested. Banks need prior permission of the Reserve Bank of India to incorporate or acquire a subsidiary. Banks are required to maintain an “arm’s-length” relationship with subsidiaries. Under the Reserve Bank of India guidelines, a bank’s equity investments in a subsidiary company, or a financial services company (including a financial institution, a stock or other exchange or a depository) which is not a subsidiary, should not exceed 10.0% of the bank’s paid-up share capital and reserves and the total investments made in all subsidiaries and all non-subsidiary financial services companies should not exceed 20.0% of the bank’s paid-up share capital and reserves. 258 For non-financial services The aggregate equity investments made in all subsidiaries and other entities engaged in financial services and non-financial services, including overseas investments shall not exceed 20% of the bank’s paid-up share capital and reserves. Regulations on Asset Liability Management Liquidity can be measured through stock and flow approaches. Flow approach measurement involves comprehensive tracking of cash flow mismatches. For measuring and managing net funding requirements, the format prescribed by the Reserve Bank of India (i.e., the statement of structural liquidity under ALM System for measuring cash flow mismatches at different time bands) should be adopted. The cash flows are required to be placed in different time bands based on the residual maturity of the cash flows or the projected future behaviour of assets, liabilities and off-balance sheet items. The difference between cash inflows and outflows in each time period thus becomes a starting point for the measure of a bank’s future liquidity surplus or deficit, at a series of points of time. Under the Stock approach certain critical ratios in respect of liquidity risk management and their significance for banks are prescribed by Reserve Bank of India, including Core deposits to Total Assets and Temporary Assets/Total Assets. Banks monitor these ratios by putting in place an internally defined limit approved by the Board for these ratios. Banks also adhere to the various regulatory limits prescribed to reduce the extent of concentration on the liability side of the banks such as Inter-bank Liability (IBL) Limit, Call Money Borrowing and lending limits. Intraday Liquidity Management The Bank has an intra-day liquidity strategy that allows it to monitor and measure expected daily gross liquidity inflows and outflows and ensure that arrangements to acquire sufficient intraday funding to meet its intraday needs is in place and it has the ability to deal with unexpected disruptions to its liquidity flows. Stress Testing Stress testing is an integral part of the overall governance and liquidity risk management culture in banks. A stress test is commonly described as an evaluation of the financial position of a bank under a severe but plausible scenario to assist in decision making within the bank. Stress testing alerts a bank’s management to adverse unexpected outcomes as it provides forward looking assessment of risk and facilitates better planning to address the vulnerabilities identified. 259 Guidelines on Banks’ Asset Liability Management Framework – Interest Rate Risk In February 17, 2023, the Reserve Bank of India released guideline on ‘Governance, measurement and management of Interest Rate Risk in Banking Book’. Till the time date for implementation is communicated by Reserve Bank of India, the Bank is required to submit the disclosures in the prescribed format to the Department of Regulation, Reserve Bank of India on quarterly basis with effect from the quarter end March 2023. Features of the guideline include:
Information Technology and Cyber Security The Reserve Bank of India’s guidelines on Information Security, Electronic Banking, Technology Risk Management and Cyber Frauds (G.Gopalakrishna Committee) broadly cover nine subject areas relating to information technology, including information technology governance, information security, IT operations, IT services outsourcing, information systems audit, cyber frauds, business continuity planning, customer education and legal issues. The implementation of the guidelines is to be monitored by the top management on an ongoing basis. In April 2023, the Reserve Bank of India issued Master Direction on Outsourcing of Information Technology Services. Banks have been extensively leveraging Information Technology (“IT”) and IT enabled services (ITeS) to support their business models, products and services offered to their customers. Banks also outsource substantial portion of their IT activities to third parties, which expose them to various risks. Banks intending to outsource any of its IT activities shall put in place a comprehensive Board approved IT outsourcing policy. The policy shall incorporate, inter alia, the role and responsibilities of the Board, Committees of the Board, if any, and Senior Management, IT function, business function, as well as oversight & assurance functions in respect of outsourcing of IT services. Banks shall put in place a Risk Management framework for Outsourcing of IT Services that shall comprehensively deal with the processes and responsibilities for identification, measurement, mitigation/ management and reporting of risks associated with Outsourcing of IT Services arrangements. The Reserve Bank of India’s Cyber Security Framework in Banks requires banks to put in place a cyber-security policy containing an appropriate approach to combat cyber threats given the level of complexity of business and acceptable levels of risk. The cyber security policy should be separate and distinct from the broader IT policy and the aspects that need to be covered in the aforementioned strategy include an arrangement for continuous surveillance, IT architecture should be conducive to security, comprehensive network and database security, protection of customer information, cyber crisis management plan, strengthening cyber security, organizational arrangements and awareness about cyber security among senior/top management. 260 In April 2022, the Indian Computer Emergency Response Team (“CERT-In”), a nodal agency for responding to computer security incidents set up by the Government of India, issued directions on information security practices, procedure, prevention, response and reporting of cybersecurity incidents for Safe and Trusted Internet. As per the directions issued, amongst other obligations, corporates including banks are mandated to report all cyber incidents to CERT-In within 6 hours of noticing such incidents or being brought to their notice about such incidents. Companies are required to maintain logs of all their information and communications technology (“ICT”) systems for 180 days in India. A copy of ICT logs may be stored outside India also as long as the obligation to produce logs to CERT-In is adhered to by the entities in a reasonable time. Various critical sectors such as power & energy; banking, financial services & insurance; telecom; transport; government and strategic & public enterprises and subsequently their information technology infrastructure have been identified as critical information infrastructure through a gazette notification by the Government of India. In June 2022, the computer resources of ICICI Bank relating to the Core Banking Solution, Real Time Gross Settlement and National Electronic Fund Transfer comprising Structured Financial Messaging Server, were declared as critical information infrastructure, and the computer resources of the Bank’s associated dependencies to be protected systems under the Information Technology Act, 2000. All organisations having protected systems are required to comply with certain rules notified by the Government of India and any incapacitation or destruction of protected system would cause a debilitating impact on national security, governance, economy and social well-being of a nation. See also “Risk Factors—Risks Relating to Technology—We face security risks, including denial of service attacks, hacking, social engineering attacks targeting our colleagues and customers, malware intrusion or data corruption attempts, and identity theft that could result in the disclosure of confidential information, adversely affect our business or reputation, and create significant legal and financial exposure”. Foreign Currency Dealership The Reserve Bank of India has granted us a full-fledged authorized dealers’ license to deal in foreign exchange through our designated branches. Under this license, we have been granted permission to: engage in foreign exchange transactions in all currencies; open and maintain foreign currency accounts abroad; raise foreign currency and rupee-denominated deposits from non-resident Indians; grant foreign currency loans to onshore and offshore corporations; open documentary credits; grant import and export loans; handle collection of bills, and funds transfer services; issue guarantees; and enter into derivative transactions and risk management activities that are incidental to our normal functions authorized under our organizational documents and as permitted under the provisions of the Banking Regulation Act. 261 Further, banks are permitted to hedge foreign currency loan exposures of Indian corporations in the form of interest rate swaps, currency swaps and forward rate agreements, subject to certain conditions. Banks in the authorized dealer category may become trading or clearing members of the currency derivatives segment to be set up by stock exchanges recognized by the Securities and Exchange Board of India, subject to their fulfilling the requirements of (i) minimum net worth of Rs. 5.0 billion, (ii) minimum capital adequacy ratio of 10.0%, (iii) net non-performing assets not exceeding 3.0% and (iv) net profit for the previous three years. Our foreign exchange operations are subject to the guidelines specified by the Reserve Bank of India. As an authorized dealer, we are required to enroll as a member of the Foreign Exchange Dealers Association of India, which prescribes the rules relating to foreign exchange business in India. We are also among banks that submit data to regulatory authorities/bodies for the setting of financial benchmarks wherever we are nominated. Banks submitting data have to implement an internal board approved policy on governance of the benchmark submission process and periodically submit a confirmation on compliance with the guidelines. Further, the Financial Benchmarks India Private Limited (“FBIL”) has been set up which administers the overnight interbank rate and is based on the actual traded rate every morning. In March 2018, the Reserve Bank of India advised the Financial Benchmarks India Private Limited to take over the responsibility of computing and disseminating of the reference rate for US$/Rupee and the exchange rate of other major currencies, and the FBIL began the process from July 2018. Authorized dealers, like us, are required to determine our limits on open positions and maturity gaps in accordance with the Reserve Bank of India guidelines and these limits are approved by the Reserve Bank of India. Statutes Governing Foreign Exchange and Cross-Border Business Transactions Foreign exchange and cross-border transactions undertaken by banks are subject to the provisions of FEMA. Banks are required to monitor transactions of customers based on predefined rules using a risk-based approach which envisages identification of unusual transactions, undertaking due diligence on such transactions and, if confirmed as suspicious, reporting to the Financial Intelligence Unit of the respective jurisdiction. Our transaction monitoring system is periodically reviewed and is being supplemented with appropriate anti-money laundering software technology solutions. The Reserve Bank of India issues guidelines on External Commercial Borrowings (“ECB”) and Trade Credits from time to time. The framework comprises of two components: Foreign currency denominated ECB (“FCY ECB”) and rupee denominated ECB (“INR ECB”). Lending by overseas branches and subsidiaries of Indian banks is permitted only for FCY ECB with the exception of convertible bonds and exchangeable bonds in foreign currency. Financial intermediaries including Banks are not permitted to issue any type of guarantees related to ECB. The all in-cost ceiling for new FCY ECB and TC is fixed at 500 basis points and 300 basis points, respectively, over the benchmark rates and for ECB and TC linked to LIBOR whose benchmarks are changed to an alternative reference rate, the all-in cost ceiling has been revised to 550 basis points and 350 basis points, respectively, over the alternative reference rate. For INR ECB, the benchmark is set to the prevailing yield of the Government of India securities of corresponding maturity. The minimum average maturity period for ECB is three years. Tenors of trade credit are restricted to three years, and tenors longer than three years are to be treated as external commercial borrowing. 262 Utilization of ECB are restricted for capital market investment or real estate investment or purchase of land and working capital purposes amongst others with some exceptions. Borrowers are also permitted to raise external commercial borrowings for the purpose of refinancing an existing external commercial borrowing. Partial refinance of existing external commercial borrowings is also permitted subject to certain conditions. Indian banks are permitted to participate as arrangers/underwriters, market makers and traders in rupee-denominated bonds issued overseas subject to prudential norms. The Reserve Bank of India issued directions in April 2020 on facilities for hedging exchange risk by residents and non-residents. According to the directions, derivative products can be offered to any person resident in India or resident outside India having foreign exchange risk on anticipated or contracted basis in line with issued guideline. This has been applicable since September 2020. The Reserve Bank of India has permitted non-residents to undertake transactions in the rupee interest rate derivatives markets for the purpose of hedging interest rate risk or otherwise. For the purpose of other than hedging, non-residents, other than individuals are permitted to take overnight index swaps transactions directly with market makers in India or by way of back to back arrangements through a foreign branch/parent/group entity of the market maker. The Reserve Bank of India has issued the Electronic Trading Platforms Directions, 2018. As per the directions, an Electronic Trading Platform (“ETP”) is any electronic system, other than a recognized stock exchange, on which transactions in eligible instruments including securities, money market instruments, foreign exchange instruments, derivatives, or other instruments as may be specified by the Reserve Bank of India are contracted. In June 2019, the Reserve Bank of India introduced an electronic trading platform for buying/selling foreign exchange by retail customers of banks. This is aimed at enhancing transparency, competition and better pricing for retail customers. The platform can be accessed by any customer of a bank who has a need to purchase or sell US dollar against the rupee for delivery on cash basis, tom basis or spot basis subject to certain conditions. In July 2021, the Reserve Bank of India issued guidelines on “Roadmap for LIBOR transition.” Banks were encouraged to cease, and also encourage their customers to cease, entering into new financial contracts that reference LIBOR as a benchmark and instead use any widely accepted Alternative Reference Rate, as soon as practicable and in any case by December 31, 2021. The publication of US$ LIBOR and MIFOR ceased after June 30, 2023. In September 2021, the Reserve Bank of India issued revised guidelines for offering over-the-counter derivatives. It has prescribed broad principles to be adhered to by market makers with respect to governance frameworks, introduction of new products, user dealing conduct, pricing and valuation, risk management, internal control, and internal audit. In June 2022, the Reserve Bank of India issued Master Directions for exchange of variation margin to minimize the counterparty credit risk arising out of dealing in Non Centrally Cleared Derivatives (NCCDs). As per the directions, a Domestic covered Entity shall exchange Variation Margin with a counterparty to an NCCD transaction if the counterparty is a Domestic Covered Entity or a Foreign Covered Entity. The guideline became effective from May 1, 2023. 263 In March 2020, Reserve Bank of India had permitted AD Category-1 bank operating International Financial Services Centre (“IFSC”) Banking Units (“IBUs”), to offer non-deliverable derivative contracts (“NDDC”) involving the Rupee, or otherwise, to persons not resident in India. Banks can undertake such transactions through their branches in India, through their IBUs or through their foreign branches (in case of foreign banks operating in India, through any branch of the parent bank). Further, starting in June 2023, Reserve Bank of India has permitted AD Cat-I banks operating IBUs to offer NDDCs involving INR to resident non-retail users for the purpose of hedging, such transactions shall be cash settled in INR and the flexibility of cash settlement of NDDCs transactions between two AD Cat-I banks, and between an AD Cat-I bank and a person resident outside India in INR or any foreign currency. In December 2022, the Reserve Bank of India issued directions for hedging of commodity price risk and freight risk on the overseas market through which eligible entities having exposure to commodity price risk for any eligible commodity may hedge such exposure in overseas markets using any of the permitted products and may hedge exposure to price risk of gold only on exchanges in the IFSC recognised by the International Financial Services Centres Authority (“IFSCA”). Banks may permit eligible entities to hedge commodity price risk and freight risk overseas, including IFSC, using permitted products and may remit foreign exchange in respect of such transactions. Moratorium, Reconstruction and Amalgamation of Banks The Reserve Bank of India can apply to the Government of India to suspend the business of a banking company. The Government of India, after considering the application of the Reserve Bank of India, may order a moratorium staying commencement of action or proceedings against such company for a maximum period of six months. During such period of moratorium, the Reserve Bank of India may prepare a scheme for the reconstruction of the bank or merger of the bank with any other bank only if: (a) in the public interest; (b) in the interest of the depositors; (c) in order to secure the proper management of the bank; or (d) in the interests of the banking system of the country as a whole. In circumstances entailing reconstruction of the bank or merger of the bank with another bank, the Reserve Bank of India invites suggestions and objections on the draft scheme prior to placing the scheme before the Government of India for its approval. The Indian central government may approve the scheme with or without modifications. The law does not require consent of the shareholders or creditors of such banks. The Reserve Bank of India has consolidated all regulations relating to amalgamation of private sector banks in the Master Direction—Amalgamation of Private Sector Banks, Directions, 2016. Regulations on Amalgamation between Private Sector Banks and between Banks and Non-Banking Finance Companies The Reserve Bank of India has issued guidelines on amalgamation between private sector banks and between banks and non-banking finance companies. The guidelines particularly emphasize the examination of the rationale for mergers, the systemic benefits arising from it and the advantages accruing to the merged entity. With respect to a merger between two private sector banks, the guidelines require the draft scheme of merger to be approved by the shareholders of both banks with a two-thirds majority after approval by the boards of directors of the two banks concerned. The draft scheme should also consider the impact of the merger on the valuation, profitability and capital adequacy ratio of the amalgamating bank and verify that the reconstituted board conforms to the Reserve Bank of India norms. The approved scheme needs to be submitted to the Reserve Bank of India for valuation and approval in accordance with the Banking Regulation Act, along with other documentation such as the draft document of proposed merger, copies of all relevant notices and certificates, swap ratio, share prices, and other key information. With respect to a merger of a bank and a nonbanking company, where the non-banking company is proposed to be amalgamated with the bank, the banking company has to obtain the approval of the Reserve Bank of India after the scheme of amalgamation is approved by its Board and the Board of the non-banking finance company, but before it is submitted to the tribunal for approval. See also “—Other Statutes—Competition Act.” 264 Financial Stability and Development Council and Financial Sector Legislative Reforms Commission The Financial Stability and Development Council is an independent body established by the Government of India that oversees regulation and strengthens mechanisms for maintaining financial stability. The institution monitors macro-prudential supervision of the economy and the functioning of large financial conglomerates, addresses inter-regulatory coordination issues and focuses on financial literacy and financial inclusion activities. The Government of India has also set up a Financial Sector Legislative Reforms Commission to review the financial sector laws and to bring them in line with the requirements of the sector. In view of the growing significance of financial technology innovations and their interface with the financial sector, the sub-committee of the Financial Stability and Development Council has set up a working group to look into aspects and developments in fintech. Accordingly, the Reserve Bank of India set up a working group with representatives from various regulatory bodies, rating agencies and select banks. The group has recommended introducing an appropriate framework for a ‘regulatory sandbox’ within a well-defined space and duration. In fiscal 2021, the Reserve Bank of India introduced a thematic approach to regulatory sandbox in the fintech sector. The first cohort was launched in 2019 focusing on retail payments as its theme, the second cohort was launched in 2020 with the theme cross border payments,the third cohort focused on lending to micro, small and medium enterprises and the fourth cohort launched in 2021 on prevention and mitigation of financial frauds. Reserve Bank of India announced the fifth cohort in September 2022 under regulatory sandbox which was themed 'Neutral' wherein innovative products/ services/ technologies cutting across various functions in the Reserve Bank’s regulatory domain would be eligible to apply. Cohorts are in the various phases of the testing & implementation intended for the purpose of fostering innovation, with few success stories. Income Computation and Disclosure Standards The Central Board of Direct Taxes Income Computation and Disclosure Standards (“ICDS”) provides guidelines for computation of taxable income. These guidelines are not for the purpose of maintaining the books of accounts. These guidelines are applicable to all taxpayers, including us, that follow the accrual system of accounting for the purpose of computation of income. In case there is a conflict between the provisions of the Income Tax Act, 1961 (the “Indian Income Tax Act”) and the income computation and disclosure standards prescribed by the tax authority, the provisions of the Indian Income Tax Act shall prevail. The broad areas covered by the guidelines issued by the tax authority include valuation of inventories, construction contracts, revenue recognition, tangible fixed assets, effects of changes in foreign exchange rates, government grants, securities, borrowing costs, contingent liabilities and assets, and relating to accounting policies. Structural Reforms Amendments to the Banking Regulation Act The Government of India enacted the Banking Regulation (Amendment) Act 2017, which is deemed to have come into force on May 4, 2017. This amendment added two sections to the Banking Regulation Act that enable the Government to authorize the Reserve Bank of India to direct banking companies to resolve specific stressed assets by initiating an insolvency resolution process, where required. The Reserve Bank of India has also been empowered to issue other directions for resolution, and appoint or approve for appointment, authorities or committees to advise banking companies for stressed asset resolution. 265 The Government of India has also enacted the Banking Regulation (Amendment) Act 2020 which, among other things, brought co-operative banks under the supervision of the Reserve Bank of India. The amendment also allows the Reserve Bank of India to prepare a scheme for the reconstruction or amalgamation of a banking company without the necessity of first making an order of moratorium. Other Statutes Companies Act
Companies in India, including banks, in addition to the sector-specific statutes and the regulations and guidelines prescribed by the sectoral regulators,
Competition Act
The Competition Act, 2002 established the Competition Commission of India with the objective of promoting competition, preventing unfair trade practices and protecting the interest of consumers. The Competition Act, 2002 prohibits anti-competitive agreements and abuse of market dominance, and requires the approval of the Competition Commission for mergers and acquisitions involving companies above a certain size.
Secrecy Obligations
where disclosure is required to be made under any law; where there is an obligation to disclose to the public; where we need to disclose information in its interest; and where disclosure is made with the express or implied consent of the customer.
266 Banks are also required to disclose information if ordered to do so by a court. The Reserve Bank of India may, in the public interest, publish the information obtained from the bank. Under the provisions of the Banker’s Books Evidence Act, a copy of any entry in a bankers’ book, such as ledgers, day books, cash books and account books certified by an officer of the bank may be treated as prima facie evidence of the transaction in any legal proceeding.
Consolidated Financial Statements: Banks are required to prepare consolidated financial statements intended for public disclosure.
Consolidated Prudential Returns: Banks are required to submit to the Reserve Bank of India consolidated prudential returns reporting their compliance with various prudential norms on a consolidated basis, excluding insurance subsidiaries and group companies engaged in businesses not pertaining to financial services.
Regulations and Guidelines of the Securities and Exchange Board of India
The Securities and Exchange Board of India was established to protect the interests of
Table of
Income Tax Benefits
As a banking company, the Bank is entitled to certain tax benefits under the Indian
Regulations Governing Insurance Companies The Insurance (Amendment) Act, 2021, was passed by the Indian Parliament and notified in March 2021. The Act, amongst other things, raised the foreign investment limit in the insurance sector from 49.0% to a composite limit of 74.0%. An earlier amendment to the law eliminated the requirement that promoters of an insurance company reduce their stake to 26.0% after 10 years.
ICICI Prudential Life Insurance Company Limited and ICICI Lombard General Insurance Company Limited, our
The Insurance Regulatory and Development Authority of India periodically issues guidelines pertaining to life insurance business.
The foreign investment rules shall be as prescribed by the
Regulations Governing Mutual Funds
ICICI Prudential Asset Management Company Limited (the AMC), our asset management subsidiary, is
269
Regulations Governing International Operations
Our international operations are governed by regulations in the countries in which we have a presence. Further, the Reserve Bank of India has notified that foreign
Overseas Banking Subsidiaries
Our wholly owned subsidiary in the United Kingdom, ICICI Bank UK PLC, is authorized and regulated by the Prudential Regulation Authority and Financial Conduct Authority.
Our wholly owned subsidiary in Canada, ICICI Bank Canada (a Schedule II Bank in Canada), is regulated by the Office of the Superintendent of Financial
Offshore Branches
The Foreign Exchange Management (Borrowing
Our Singapore branch is currently engaged in corporate and institutional banking, private banking, retail banking and treasury-related activities. IFSC Banking Unit at 270 In December 2021, the Reserve Bank of India released a circular regarding infusion of capital in overseas branches and subsidiaries and retention/repatriation/transfer of profits in these centers by banks incorporated in India. As per the circular, prior approval of the Reserve Bank of India would not be required for capital infusion/ transfers (including retention/repatriation of profits) for banks which meet the regulatory capital requirements (including capital buffers). Banks shall however seek the approval of their boards for the same. Banks are required to report all such instances of infusion of capital and/retention/transfer/repatriation of profits in overseas branches and subsidiaries to the Reserve Bank of India. Regulations Governing Banking Units in International Financial Services Centres in India As per guidelines issued by the Reserve Bank of India, public and private sector banks dealing in foreign exchange are permitted to set up one banking unit in each international financial services center in India. Banks will have to take prior approval of the Reserve Bank of India for opening a banking unit, and this will be treated on par with a foreign branch of an Indian bank. In April 2020, the Government established the International Financial Services Centres Authority, a unified authority for the development and regulation of financial products, financial services and financial institutions in the International Financial Services Centre. In November 2020, the International Financial Services Centres Authority announced regulations for banking and investment activities in the IFSC. Banking units were permitted to undertake additional activities, subject to compliance with the terms and conditions or guidelines as specified by the Authority. With a view to further enhancing 'ease of doing banking business', In April 2022, the International Financial Services Centres Authority released a guidance framework on sustainable and sustainability linked lending by financial institutions in IFSC. As per the framework, international banking units shall develop a board approved policy on sustainable lending by March 31, 2023. From financial year beginning April 1, 2023, entities shall have at least 5% of their gross loans in the form of lending to green/social/sustainable/sustainability-linked sectors/facilities. The 5.0% target shall be computed on incremental loans and advances in a financial year. 271 Regulations Governing Offshore Banking The Government of India and the Reserve Bank of India have permitted banks to set up offshore banking units in Special Economic Zones, which are specially delineated duty-free enclaves deemed to be foreign territory for the purpose of trade operations, duties and tariffs. We have
Representative Offices
Foreign Account Tax Compliance Act
The
Common Reporting Standards
The Common Reporting Standard formally referred to as the Standard for Automatic Exchange of Financial Account Information, is an information standard for the automatic exchange of information, developed in the context of the Organization for Economic 272
Restrictions on Conversion of Rupees
There are restrictions on the conversion of rupees into dollars. 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 substantially eased the restrictions on current account transactions (with a few exceptions). 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 Government of India has notified rules and 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. The Reserve Bank of India has also permitted authorized dealers to freely allow remittances by individuals up to US$ 250,000
Restrictions on Sale of the Equity Shares underlying ADSs and Repatriation of Sale Proceeds
There are no end-use restrictions on
An
ADSs issued by Indian companies to non-residents have free convertibility outside India. Under current Indian
If a sale of securities has taken place in terms of the rules laid down by the government, Reserve Bank of India guidelines and other applicable regulations,
The
273 In terms of schedule IX of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 dated October 17, 2019, pertaining to investment in Depository receipts by a person resident outside India, the guidelines are as below: Issue or transfer of eligible instruments to a foreign depository for the purpose of issuance of depository receipts by eligible person(s)-
Depository Receipts issued under the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 shall be deemed to have been issued under the corresponding provisions of DR Scheme 2014 and have to comply with the provisions specified in this schedule. The Securities and Exchange Board of India, via circular dated October 10, 2019 has provided a framework for the issuance of depositary receipts. As per the circular, only a company incorporated in India and listed on a recognized stock exchange in India may issue permissible securities or their holders may transfer permissible securities, for the purpose of issuing depositary receipts subject to compliance with the eligibility criteria defined by the Securities and Exchange Board of India. Securities and Exchange Board of India has further issued operational guidelines dated October 1, 2020 for monitoring foreign holding in depository receipts. Pursuant to the operational guidelines, every listed company shall appoint one Indian depository as the designated depository for the purposes of monitoring such limits. Subsequently, Securities and Exchange Board of India issued a circular dated December 18, 2020, according to which non-resident indians shall neither subscribe to any further issue nor make any further acquisition of DRs except issue of DRs to non-resident indians pursuant to share based employee benefit schemes or pursuant to bonus issue or rights issue. The Listed Company has the obligation to identify the non-resident indian holders who are issued DRs in terms of employee benefit scheme and provide such information to the designated depository for monitoring limits. 274 Restriction
The Government of India strictly regulates ownership of Indian companies by foreigners. Foreign investment in securities issued by Indian companies, including the equity shares represented by ADSs, is governed by the Foreign Exchange Management Act, 1999,
The issue or transfer of any security of an Indian company by a person resident outside of India, foreign investment in
The foreign investment limit in Indian companies
275
Under the Portfolio Investment Scheme:
276 Foreign Portfolio Investment Scheme – Purchase of shares or convertible debentures or warrants
The Securities and Exchange Board of India
Transfer of
A person
A person resident outside India holding
The Reserve Bank of India guidelines relating to acquisition by purchase or otherwise of
Reporting of foreign investments The Reserve Bank of India has issued guidelines on reporting of foreign investments with the objective of integrating different reporting structures for foreign investments in India. As per the guidelines issued on June 7, 2018, a Single Master Form has been introduced that must be filed online. The Single Master Form, as amended from time to time, provides a facility for reporting total foreign investments in an Indian entity as well as investments by persons residing outside India in an investment vehicle. 277 Indian entities not complying with this pre-requisite will not be able to receive foreign investments (including indirect foreign investments) and will be deemed non-compliant under Foreign Exchange Management Act, 1999 and regulations made thereunder, as amended from time to time. From September 2018, all the reporting prescribed under “Foreign Investment in India”, except if specifically stated otherwise, is required to be done through the Single Master Form, as amended from time to time, available on the Foreign Investment Reporting and Management System platform of the Reserve Bank of India. The Reserve Bank of India through its circular dated January 4, 2023, advised that the forms submitted with respect to reporting of foreign investment in Single Master Form on Firms Portal will be auto-acknowledged and the Authorised Dealer Category-I banks shall verify the same within five working days based on the uploaded documents, as specified. Further, in case of forms filed with delayed reporting of less than or equal to three years, the Authorised Dealer Category-I banks will approve the same, subject to payment of late submission fee. For delayed reporting greater than three years, the Authorised Dealer Category-I bank will approve the forms subject to compounding of contravention. Under the erstwhile provisions, in case of delayed reporting, the case was supposed to be referred to Reserve Bank of India, whereas basis the recent amendment, powers have been given to Authorised Dealer to approve delayed reporting subject to payment of late submission fees/compounding, as the case may be. Currently, an Indian entity or an investment vehicle making a downstream investment in another Indian entity which is considered as indirect foreign investment for the investee Indian entity in terms of Foreign Exchange Management (Non-Debt Instrument) Rules, 2019, shall notify the Secretariat for Industrial Assistance, DIPP, about such investment (including modality of investment in new/existing ventures) within 30 days of such investment, even if shares have not been allotted. Such entity or investment vehicle shall also file Form DI with the Reserve Bank of India within 30 days, from the date of allotment of equity instruments. Issue of ADSs
Indian companies
An Indian company issuing ADSs must comply with certain reporting requirements specified by the Reserve Bank of India. An Indian company may issue ADSs if it is eligible to issue shares to persons resident outside India under the foreign direct investment scheme, and shall not exceed the limit on foreign holding of such eligible securities under the extant Foreign Exchange Management Act,
278 Furthermore, if an investor withdraws equity shares from the ADS program and its direct or indirect holding in
Depository Receipts Scheme, 2014
An eligible person may now, issue or transfer eligible securities to a foreign depository for the purpose of issuance of depository receipts in terms of Depository Receipts Scheme, 279
Under Indian law, a company pays dividends upon a recommendation by its Board of Directors and approval by a majority of the shareholders at the annual general meeting of shareholders held within six months from the end of each fiscal year. The shareholders have the right to decrease but not increase the dividend amount recommended by the Board of Directors. Dividends may be paid out of the company’s profits for the fiscal year for which the dividend is declared or out of undistributed profits of prior fiscal
The following table sets forth, for the periods indicated, the dividend per equity share and the total amount of dividends paid out on the equity shares during the fiscal year by ICICI Bank, each exclusive of dividend tax. This may be different from the dividend declared for the year.
For fiscal
Future dividends will depend upon our revenues, cash flow, financial condition, the regulations of the Reserve Bank of India and other factors. Owners of ADSs will be entitled to receive dividends payable in respect of the equity shares represented by such ADSs. The equity shares represented by ADSs rank pari passu with existing equity shares. At present, we have equity shares issued in India and equity shares represented by ADSs.
Indian Tax
The following discussion of material Indian tax consequences to investors in ADSs and equity shares who are not resident in India, regardless of whether such investors are of Indian origin or not (each, a “non-resident investor”), 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
Residence
For the purposes of the Income-tax Act, an individual is a resident of India during any fiscal year if such (a) is in India in that year for 182 days or more or (b) is in India for a period or periods aggregating 365 days or more during the four years preceding that fiscal year and periods aggregating 60 days or more in that fiscal year. The period of 60 days is replaced with 182 days (where an individual is having income in India other than foreign source less than Rs. 1.5 million)/replaced with 120 days (where an individual is having income in India other than foreign source more than Rs. 1.5 million) 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 The period of
A company is resident in India in any fiscal year if it is an Indian company or its place of effective management in that year is in India. A firm or other association of persons is resident in India except where the control and the management of its affairs are situated wholly outside India.
Taxation of Distributions
Taxation on Exchange of ADSs
The receipt of equity shares upon the surrender of ADSs by a non-resident investor would not give rise to a taxable event for Indian tax purposes.
281 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 in the hands of the transferor.
Subject to any relief under any relevant double taxation treaty, gain arising from the sale of an equity share will generally give rise to liability for Indian income tax in the hands of the transferor and tax will be required to be withheld at source. Gains will either be taxable as capital gains or as business income, depending upon the nature of holding. Where the equity share has been held for more than 12 months (measured from the date 12 months or less, the resulting short-term capital gains will be taxable at a tax rate of 15% (plus the applicable surcharge and education cess). This rate of tax is applicable provided the gains are treated as capital gains and provided the shares are sold on recognized Indian stock exchanges and are subject 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 rate of 40% (plus the applicable surcharge and education cess). The actual rate depends on a number of factors, including without limitation the nature of the non-resident investor.
The above rate may be reduced under the provisions of the double taxation treaty entered into by the
Tax on long-term and short-term capital gains, if payable, as discussed above, upon a sale of equity shares,
Where Permanent Account Number is submitted, it should be linked to Aadhaar (applicable in case of individuals if Aadhaar is obtained in India) and investor should have filed his income tax returns in India in past one year, otherwise tax will be deducted at the higher
282
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 the surrender of an ADS will be the price of the share prevailing on the BSE Limited or the National Stock Exchange of India Limited on the date a request for such redemption was made. The holding period of an equity share received upon the surrender of an ADS will commence on the date on which request for such redemption of the ADS was made.
A sale/purchase of equity shares entered into on a recognized stock exchange in India, whether settled by actual delivery or transfer, will be subject to
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 income tax in the hands of the non-resident investor.
Bonus
The holding period General Anti Avoidance Rule The provisions for General Anti Avoidance of Tax are effective from April 1, 2017. The powers to invoke provisions under General Anti Avoidance of Tax are bestowed upon the Indian Income Tax Authorities if they allege that the primary motive of a particular transaction or arrangement is Stamp Duty 283 Pursuant to an amendment to the Indian Stamp Act, 1899 effective July 1, 2020, stamp duty is payable on any issue/ transfer of equity shares in non-physical form. Our equity shares are compulsorily delivered in non-physical form.
Upon the issuance of the equity shares underlying ADSs, we, are required to pay a stamp duty of
Other Taxes
At present, there are no taxes on wealth, gifts or inheritance which apply to the ADSs or underlying equity shares.
Goods and Services Tax
Goods and Services Tax is a single comprehensive tax levied on the manufacture, sale and consumption of goods and services at a national level. It is applicable from July 1, 2017 on all transactions of goods and services on which various indirect taxes levied by the Centre and States is submersed except goods and services outside the purview of
United States Federal Income Tax
The following is a description of material U.S. federal income tax consequences to the U.S. Holders described below of owning and disposing of ADSs or equity shares, but it does not purport to be a comprehensive description of all tax considerations that may be relevant to
This discussion does not discuss all of the tax consequences that may be relevant to you in light of your particular circumstances, including alternative minimum tax consequences, tax consequences of the “Medicare contribution tax” on “net investment income” and tax consequences that may be applicable to
284
If an entity or arrangement that is classified as a partnership for U.S. federal income tax purposes owns ADSs or equity shares, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships owning ADSs or equity shares and partners in such partnerships should consult their tax advisers as to the particular U.S. federal income tax consequences of owning and disposing of ADSs or equity shares.
This discussion is based on the tax laws of the United States including the Internal Revenue Code of 1986, as amended,
In general,
Please consult your tax adviser with regard to the application of U.S. federal income tax laws to ADSs or equity shares in your particular circumstances, including the passive foreign investment company (“PFIC”) rules described below, as well as any tax consequences arising under the laws of any state, local or other taxing jurisdiction.
Taxation of Dividends
Distributions you receive on ADSs or equity shares, other than certain pro rata distributions of equity shares or rights to acquire equity shares to all holders of equity shares (including holders of ADSs), will generally constitute foreign-source dividend income for U.S. federal income tax purposes. U.S. dollars on the date of receipt. If the dividend is converted into U.S. dollars on the date of receipt, you should not be required to recognize foreign currency gain or loss in respect of the dividend income. You may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt. If you realize gain or loss on a sale or other disposition of rupees, it will constitute U.S. source ordinary income or loss. The amount of the dividend will not be eligible for the dividends-received deduction generally available to U.S. corporations under the Code. Subject to applicable limitations
285 Indian income taxes withheld from cash dividends on the Company shares or ADSs generally will be creditable against a U.S. Holder’s U.S. federal income tax liability, subject to applicable limitations that vary depending upon your circumstances. The rules governing foreign tax credits are complex. For example, Treasury regulations provide that, in the absence of an election to apply the benefits of an applicable income tax treaty, in order for non-U.S. income taxes to be creditable the relevant non-U.S. income tax rules must be consistent with certain U.S. federal income tax principles, and we have not determined whether the Indian income tax system meets these requirements. You should consult your own tax adviser regarding the availability of foreign tax credits in your particular circumstances. Instead of claiming a credit, you may, at your election, deduct such Indian taxes in computing your income, subject to generally applicable limitations under U.S. federal income tax law. Taxation of Capital Gains
You will recognize gain or loss for U.S. federal income tax purposes on the sale or exchange of ADSs or equity shares. The gain or loss will generally be U.S. source capital gain or loss,
Under certain circumstances as described under
Any Indian stamp duty paid on the purchase or sale of equity shares will not be creditable against your U.S. federal income tax liability. However, stamp duty may increase your tax basis in the equity shares if you are a buyer of the shares, or reduce the amount of gain (or increase the amount of loss) you recognize on the sale or other disposition of the shares. 286 Passive Foreign Investment Company Rules
In general, a foreign corporation is a PFIC for any taxable year in which (i) 75.0% or more of its gross income consists of passive income (such as dividends, interest, rents, royalties and
If we were a PFIC for any taxable year during which you owned ADSs or equity shares, you may be subject to adverse tax consequences. Generally, gain recognized upon a disposition (including, under certain circumstances, a pledge) of ADSs or equity shares by you would be allocated ratably over your holding period for such ADSs or equity shares. The amounts allocated to the taxable year of disposition and to years before we 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 that taxable year for individuals or corporations, as appropriate, and an interest charge would be imposed on the tax attributable to the allocated amounts. Further, to the extent that
If we were a PFIC for any year during which you owned ADSs or equity shares, we generally would continue to be treated as a PFIC with respect to such ADSs or equity shares for all succeeding years during which you owned the ADSs or equity shares, even if we ceased to meet the threshold requirements for PFIC status.
Alternatively, if we were a PFIC and if ADSs or equity shares were “regularly traded” on a “qualified exchange,” you could make a mark-to-market election that would result in tax treatment different from the general tax treatment for PFICs described above. ADSs or equity shares would be treated as “regularly traded” in any calendar year in which more than a de minimis quantity of ADSs or equity shares, as the case may be, were traded on a qualified exchange on at least 15 days during each calendar quarter. The New York Stock Exchange, on which our ADSs are listed, is a qualified exchange for this purpose. A foreign exchange is a “qualified exchange” if it is regulated by a governmental authority in the jurisdiction in which the exchange is located and with respect to which certain other requirements are met. If you make the mark-to-market election (assuming the election is available), you generally will recognize as ordinary income any excess of the fair market value of ADSs or equity shares at the end of each taxable year over their adjusted tax basis, and will recognize an ordinary loss in respect of any excess of the adjusted tax basis of 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 income previously included as a result of the mark-to-market election). If you make the election, your tax basis in ADSs or equity shares will be adjusted to reflect these income or loss amounts. Any gain recognized on the sale or other disposition of ADSs or equity shares in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as ordinary loss (but only to the extent of the net amount of income previously included as a result of the mark-to-market election)
287 In addition, if we were a PFIC or, with respect to you, were treated as a PFIC for the taxable year in which we paid a dividend or for the prior taxable year, the favorable tax rates with respect to dividends paid to certain non-corporate U.S. Holders, described above under “—United States Federal Income Tax —Taxation of Dividends”, would not apply.
If we are a PFIC for any taxable year during which you owned our ADSs or equity shares, you will generally be required to file IRS Form 8621 with your annual U.S. federal income tax returns, subject to certain exceptions.
You should consult your tax adviser regarding whether we are or were a PFIC and the potential application of the PFIC rules.
Information Reporting and Backup Withholding
Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting and to backup withholding, unless (i) you are an exempt recipient or (ii) in the case of backup withholding, you provide a correct taxpayer identification number and certify that no loss of exemption from backup withholding has occurred. The amount of any backup withholding from a payment to you will be allowed as a credit against your U.S. federal income tax liability and may entitle you to a refund, provided that the required information is timely furnished to the Internal Revenue Service. 288 Presentation
Pursuant to the issuance and listing of our securities in the United States under registration statements filed with the United States Securities Exchange Commission, we file annual reports on Form 20-F, which must include financial statements prepared under generally accepted accounting principles in the United States (U.S. GAAP) or financial statements prepared according to a comprehensive body of accounting principles with a reconciliation of net income and stockholders’ equity to U.S. GAAP. When we first listed our securities in the United States, Indian GAAP was not considered a comprehensive body of accounting principles under the United States securities laws and regulations.
The data for fiscal
Certain subsidiaries of the Bank, namely ICICI Securities Limited, ICICI Securities Primary Dealership Limited, ICICI Prudential Asset Management Company Limited and ICICI Home Finance Limited have adopted Ind AS, revised set of accounting standards issued by The Institute of Chartered Accountants of India (which largely converges the Indian accounting standards with International Financial Reporting Standards). However, for preparation of consolidated financial statements of the Bank, financial statements continued to be as per current Indian GAAP of these entities have been considered. All the numbers reported/considered in this document for these subsidiaries are based on current Indian GAAP. The consolidated financial statements for fiscal
Under U.S. GAAP, the consolidation of ICICI’s majority ownership interest in 289 In accordance with the scheme of arrangement between ICICI Lombard General Insurance Company Limited and Bharti AXA General Insurance Company Limited (Bharti AXA), as approved by Insurance Regulatory and Development Authority of India with effect from September 8, 2021, assets and liabilities of Bharti AXA’s general insurance
Although we have translated in this annual report certain rupee amounts into dollars for convenience, this does not mean that the rupee amounts referred to could have been, or could be, converted into dollars at any particular rate, the rates stated earlier in this annual report, or at all. Except in the section on “Market Price Information”, all translations from rupees to U.S. dollars are based on the exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board at year-end fiscal 290
Memorandum and Articles of Association
Objects and Purposes
Pursuant to Clause III.A.1 of ICICI Bank’s Memorandum of Association, ICICI Bank’s main objective is to,
291 Amendment to Rights of Holders of Equity Shares
Any change to the existing rights of the equity holders can be made only by amending the Articles of Association which would require a special resolution of the shareholders, passed by not less than three times the number of votes cast against the resolution.
General Meetings of Shareholders We are required to convene our annual general meeting within a period of five months from the date of closing of the financial year. The Board may convene an extraordinary general meeting when necessary or at the request of a shareholder or shareholders holding at least 10% of our paid up capital carrying voting rights. A general meeting of a company may be called by giving not less than clear 21 days notice in the manner prescribed under the applicable laws/regulations. Change in Control Provisions
Article
Recent Amendments to Memorandum and Articles of Association
(a) approved the special resolution for alterations to Memorandum of Association of the Bank aligning it with the Companies Act, 2013 and rules made thereunder and (b) approved the special resolution for adoption of revised Articles of Association of the Bank aligning it with the regulatory provisions including the Companies Act, 2013, amendments to the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015. The Reserve Bank of India through its letter dated August 23, 2019 received on August 28, 2019 by the Bank duly noted the amendments to Memorandum of Association and adoption of revised Articles of Association of the Bank with due reference to the applicable provisions under the Banking Regulation Act.
292 Documents on Display
The documents concerning us which are referred to herein may be inspected at the Securities and Exchange Commission (“SEC”). You may read and copy any document filed or furnished by us at the SEC’s public reference rooms in Washington D.C., New York and Chicago, Illinois or obtain them by mail upon payment of prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information. The SEC also maintains a website at www.sec.gov, which contains, in electronic form, each of the reports and other information that we have filed electronically with the SEC. Information about ICICI Bank is also available on the web at www.icicibank.com.
We 293
*Paper filing
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on our behalf.
Place: Mumbai Date: July 295
ICICI Bank Limited and subsidiaries
Consolidated Financial Statements For the year ended March 31, and March 31, with Auditors’ Report
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
ICICI Bank Limited:
We have audited the accompanying consolidated balance sheets of ICICI Bank Limited (the ‘Bank’) and subsidiaries (the Differences from U.S. Generally Accepted Accounting Principles Accounting principles generally accepted in India vary in certain significant respects from U.S. generally accepted accounting principles. Information relating to the nature and effect of such differences is presented in Note 21 of Schedule 18B to the consolidated financial statements. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements
As discussed in Note
F-2 losses included in the reconciliation of stockholders’ equity from Indian GAAP to U.S. GAAP as of March 31, 2023 was Rs. 38,841.3 million, which The March 31, 2023 Indian GAAP ACL for impaired commercial loans (non-performing loans or NPLs) includes ACL on commercial loans identified as NPL through a review of select accounts by evaluation of additional information (other than that relating to the The March 31, 2023 collective ACL includes the measure of The March 31, 2023 individual ACL includes the measure of expected credit losses on an individual basis for those commercial loans that do not share similar risk characteristics with other financial assets in the pools on account of credit deterioration, based on the ability of the borrower to repay the contractual amounts due to the Company, including considerations of both quantitative and qualitative criteria such as the account conduct, future prospects, repayment history and financial performance. The Company estimated the March 31, 2023 individual ACL using either the present value of the expected future cash flows, or in the case of a collateral dependent loan, using the net realizable value of the collateral, net of cost to sell, if any, determined individually for each such loan. We identified the assessment of total ACL as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment of total ACL due to significant measurement uncertainty. Identification of NPLs for the March 31, 2023 Indian GAAP ACL involved evaluation of additional information (other than that relating to F-3 EAD models. The March 31, 2023 individual ACL (referred to as ‘individual ACL’) required significant auditor judgment to identify the loans that do not share similar risk characteristics with other financial assets in the pools on account of credit deterioration based on the ability of the borrower to repay the contractual amounts due to the Company, including considerations of both quantitative and qualitative criteria such as the account conduct, future prospects, repayment history and financial performance, and to estimate the recovery on such loans based on either the present value of the expected future cash flows, or in the case of a collateral dependent loan, the net realizable value of the collateral, net of cost to sell, if any, determined individually for each such loan. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to Company’s measurement of the total ACL estimates, including controls over the:
For the March 31, 2023 Indian GAAP ACL, we tested the identification of NPLs using additional information (other than that relating to the payment record) for a selection of commercial loans by evaluating financial performance of the borrower and the other applicable qualitative criteria. We evaluated the Company’s development of the Collective ACL estimates by testing certain sources of data, factors, and assumptions that the Company used and considered the relevance and reliability of such data, factors, and assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in:
F-4
We performed credit reviews for a selection of commercial loans to test the identification of the loans that do not share similar risk characteristics on account of credit deterioration, based on the ability of the borrower to repay the contractual amounts due to the Company, including considerations of both quantitative and qualitative criteria such as the account conduct, future prospects, repayment history and financial performance. For a selection of individually assessed commercial loans, we tested the measurement of the March 31, 2023 individual ACL by comparing the value of collateral to external appraisals or tested the projections of future cash flows by comparing them to historic performance and assessing them against current economic conditions. Liabilities in respect to life insurance policies and amortization of deferred acquisition cost As given in the consolidated financial statements, liabilities for life insurance policies in force is included in the total liabilities for policies in force of Rs. 2,388,674 million. As discussed in Note (22)(h)(i) of Schedule 18B to the consolidated financial statements, the significant difference between Indian GAAP and US GAAP in case of the life insurance affiliate includes the net income reconciling item on account of difference in policyholders’ liabilities and unallocated policyholders’ surplus, net of amortization of deferred acquisition cost Rs. 8,502.5 million. The liabilities in respect of life insurance policies in force under Indian GAAP are estimated in accordance with accepted actuarial practice, requirements of Insurance Act, 1938, as amended from time to time, regulations notified by the Insurance Regulatory and Development Authority of India (IRDAI) and relevant Guidance Notes / Actuarial Practice Standards of the Institute of Actuaries of India. The actuarial liability for non-linked policies, both participating and non-participating, is calculated by the Company using the gross premium method, that involves assumptions for interest, mortality, morbidity, expenses and inflation, and in the case of participating policies, future bonuses together with allowance for taxation and allocation of future profits to shareholders. These assumptions are determined as prudent estimates updated at the date of valuation, including allowances for possible adverse deviations. Policyholders’ liabilities for non-linked policies under U.S. GAAP are valued using the Net Premium Method as prescribed under U.S. GAAP. These liabilities consist of two parts, namely, policy reserves (comprising benefit reserve and maintenance expense reserve) and deferred profit liability. These liabilities are established based on actuarial assumptions at the time the policies are issued, which are intended to estimate the experience for the period the policy benefits are payable. Significant adverse changes in experience on such contracts may require the establishment of premium deficiency reserves, F-5 which are based on current assumptions. In addition, acquisition costs for non-linked policies under U.S. GAAP which are deferred, are amortized in proportion to premium revenue recognition. The determination of the reserves and the amortization of the deferred acquisition costs considers assumptions that include discount rate, mortality, morbidity, policy lapse and investment returns and these are on a locked in basis. Further, the discount rates used for non-linked products represent best estimates with a provision for adverse deviation. The assumptions change at every financial year end only for the new business sold during the year. The Company applies considerable judgment in evaluating actual experience to determine whether a change in assumptions for new policies is warranted under US GAAP. Policyholders’ liabilities for linked policies under U.S. GAAP consist of two parts, namely, benefit reserves and unearned revenue reserve. In addition, acquisition costs for linked policies under U.S. GAAP which are deferred, are amortized in proportion to estimated gross profits (EGPs). The EGPs consist of margins available from mortality and contract administration, investment earnings spreads, surrender charges and other expected assessments and credits. The Company applies considerable judgment in evaluating emerging actual experience for assumptions used in the determination of reserves and the amortization of deferred acquisition costs, that include discount rate, mortality, morbidity, policy lapse, expenses and investment returns. These assumptions represent best estimates and may change at every financial year end. We identified the assessment of liabilities for life insurance policies in force under Indian GAAP and determination of policyholders’ liabilities and amortization of deferred acquisition cost under US GAAP to be a critical audit matter since it involves a high degree of audit effort, including subjective and complex auditor judgment in evaluating management’s estimate, and use of actuarial professionals with specialized skill and knowledge to assist in performing procedures and evaluating the estimate of such liabilities. Specifically, there is significant judgement in determination of assumptions for all policies in force under Indian GAAP. In case of non-linked policies under US GAAP, there is significant judgement in evaluating the assumptions used for determination of the reserves and the amortization of the deferred acquisition cost for new business sold during the year and whether a change in assumptions is warranted. In case of linked policies under US GAAP, there is significant judgement in evaluating the assumptions used for determination of the reserves and the amortization of the deferred acquisition cost for all policies in force. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to Company’s measurement of liabilities for life insurance policies in force under Indian GAAP and policyholders’ liabilities and amortization of deferred acquisition cost under US GAAP, including controls over the valuation process and underlying data which included assessment and approval of the methods and assumptions adopted over such measurements as
F-6
We have served as the Company’s auditor since 1999. /s/ KPMG Assurance and Consulting Services LLP Mumbai, Maharashtra, India F-7 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Opinion on Internal Control Over Financial Reporting We have audited ICICI Bank Limited and subsidiaries’ (the Company) internal control over financial reporting as of March 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
We conducted our audit in accordance with the standards of the Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the F-8 risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
/s/ KPMG Assurance and Consulting Services LLP
Mumbai, Maharashtra, India
F-9 ICICI Bank Limited and subsidiaries
Consolidated balance sheet
The Schedules referred to above form an integral part of the Consolidated Balance Sheet. F-10 ICICI Bank Limited and subsidiaries
Consolidated profit and loss account
The Schedules referred to above form an integral part of the Consolidated Profit and Loss Account. F-11 ICICI Bank Limited and subsidiaries
Consolidated cash flow statement
F-12 ICICI Bank Limited and subsidiaries
Consolidated cash flow statement(Continued)
(Rs. in thousands)
F-13 ICICI Bank Limited and subsidiaries
Schedules forming part of the
SCHEDULE 1 - CAPITAL
SCHEDULE 1A - Employees stock options outstanding
ICICI Bank Limited and subsidiaries
Schedules forming part of the
SCHEDULE 2 - RESERVES AND SURPLUS
F-15 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated balance sheet (Continued) (Rs. in thousands)
F-16 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated balance sheet (Continued) SCHEDULE 2A - MINORITY INTEREST
SCHEDULE 3 - DEPOSITS
SCHEDULE 4 - BORROWINGS
F-17 ICICI Bank Limited and subsidiaries
Schedules forming part of the
SCHEDULE
SCHEDULE
F-18 ICICI Bank Limited and subsidiaries
Schedules forming part of the
SCHEDULE
1. Includes lending under reverse repo.
F-19 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated balance sheet (Continued)
SCHEDULE 9 - ADVANCES (net of provisions)
F-20 ICICI Bank Limited and subsidiaries
Schedules forming part of the
SCHEDULE
F-21
ICICI Bank Limited and subsidiaries
Schedules forming part of the
SCHEDULE
SCHEDULE 12 - CONTINGENT LIABILITIES
F-22 ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated profit and loss account
SCHEDULE 13 - INTEREST EARNED
SCHEDULE 14 - OTHER INCOME
SCHEDULE 15 - INTEREST EXPENDED
F-23 ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated profit and loss account(Continued)
SCHEDULE 16 - OPERATING EXPENSES
F-24 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements(Continued)
SCHEDULE 17
Significant accounting policies
Overview
ICICI Bank Limited, together with its subsidiaries, joint ventures and associates (collectively, the Group), is a diversified financial services group providing a wide range of banking and financial services including commercial banking, retail banking, project and corporate finance, working capital finance, insurance, venture capital and private equity, investment banking, broking and treasury products and services.
ICICI Bank Limited (the Bank), incorporated in Vadodara, India is a publicly held banking company governed by the Banking Regulation Act, 1949.
Principles of consolidation
The consolidated financial statements include the financials of ICICI Bank, its subsidiaries, associates and joint ventures.
Entities, in which the Bank holds, directly or indirectly, through subsidiaries and other consolidating entities, more than 50.00% of the voting rights or where it exercises control, over the composition of board of directors/governing body, are fully consolidated on a line-by-line basis in accordance with the provisions of AS 21 on ‘Consolidated Financial Statements’. Investments in entities where the Bank has the ability to exercise significant influence are accounted for under the equity method of accounting and the pro-rata share of their profit/(loss) is included in the consolidated profit and loss account. Assets, liabilities, income and expenditure of jointly controlled entities are consolidated using the proportionate consolidation method. Under this method, the Bank’s share of each of the assets, liabilities, income and expenses of the jointly controlled entity is reported in separate line items in the consolidated financial statements. The Bank does not consolidate entities where the significant influence/control is intended to be temporary or entities which operate under severe long-term restrictions that impair their ability to transfer funds to parent/investing
Basis of preparation
The accounting and reporting policies of the Group used in the preparation of the consolidated financial statements conform to Generally Accepted Accounting Principles in India (Indian GAAP), the guidelines issued by the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI)
The preparation of consolidated financial statements requires F-25 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements (Continued) during the reporting period. Management believes that the estimates used in the preparation of the consolidated financial statements are prudent and reasonable.
The consolidated financial statements include the results of the following entities in addition to the Bank.
F-26
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements (Continued)
Comm Trade Services Limited has not been consolidated under AS 21, since the investment is temporary in nature. Falcon Tyres Limited, in which the Bank holds 26.39% equity shares has not been accounted as per equity method under AS 23, since the investment is temporary in nature.
F-27 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements (Continued) SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of the Group are reported in Indian rupees (Rs.), the national currency of India. Foreign currency income and expenditure items of domestic operations are translated
Monetary foreign currency assets and liabilities of domestic and integral foreign operations are translated at closing exchange rates notified by Foreign Exchange Dealers’ Association of India (FEDAI) relevant to the balance sheet date and the resulting gains/losses are
Both monetary and non-monetary foreign currency assets and liabilities of non-integral foreign operations are translated at relevant closing exchange rates notified by FEDAI at the balance sheet date and the resulting gains/losses from exchange differences are accumulated in the foreign currency translation reserve until the disposal of the net investment in the non-integral foreign operations.
Contingent liabilities on account of guarantees, endorsements and other obligations denominated in foreign
F-28 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements (Continued)
The following entities within the group have granted stock options to their employees:
ICICI Bank Limited ICICI Prudential Life Insurance Company Limited
ICICI Securities Limited
The Employees Stock Option Scheme (the Scheme) of the Bank provides for grant of options on the Bank’s equity shares to wholetime directors and employees of the Bank and its subsidiaries. The Till March 31, 2021, the Bank recognised cost of stock options granted under Employee Stock Option Scheme, using intrinsic value method. Under Intrinsic value method, options cost is measured as the excess, if any, of the fair market price of the underlying stock over the exercise price on the grant date. Pursuant to RBI clarification dated August 30, 2021, the cost of stock options granted after March 31, 2021 is recognised based on fair value method. The cost of stock options granted up to March 31, 2021 continues to be recognised on intrinsic value method. The Bank uses Black-Scholes model to fair value the options on the grant date and the inputs used in the valuation model include assumptions such as the expected life of the share option, volatility, risk free rate and dividend yield. The cost of stock options is recognised in the profit and loss account over the vesting period. ICICI Prudential Life Insurance Company Limited and ICICI F-29 ICICI Bank Limited and subsidiaries
respective companies. The intrinsic value method is followed by them to account for The banking subsidiaries namely, ICICI Bank UK PLC and ICICI Bank Canada, account for the cost of the options granted to employees by ICICI Bank using the fair value method
Income tax expense is the aggregate amount of current tax and deferred tax expense incurred by the Group. The current tax expense and deferred tax expense is determined in accordance with the provisions of the Income Tax Act, 1961 and as per Accounting Standard 22 - Accounting for Taxes on Income respectively. Deferred tax adjustments comprise changes in the deferred tax assets or liabilities during the
Deferred tax assets and liabilities are recognised by considering the impact of timing differences between taxable income and accounting income for the current year, and carry forward losses. Deferred tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted
Deferred tax assets are recognised and re-assessed at each reporting date, based upon the management’s judgement as to whether their realisation is considered as reasonably certain. However, in case of domestic companies, where there is unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognised only if there is virtual certainty of realisation of such assets.
In the consolidated financial statements, deferred tax assets and liabilities are computed at an individual entity level and aggregated for consolidated reporting.
In the case of life insurance business, benefits paid comprise F-30 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements (Continued) intimated. Repudiated claims and other claims disputed before the judicial authorities are provided for on prudent basis as considered appropriate by the management.
In the case of life insurance business, the actuarial liabilities for life policies in force and policies where premiums are discontinued but a liability exists as at the valuation date, are calculated in accordance with accepted actuarial practice, requirements of Insurance Act, 1938,
In the case of life insurance business, the actuarial liability on both participating and non-participating policies is calculated using the gross premium method, using assumptions for interest, mortality, morbidity, expense and inflation, and in the case of participating policies, future bonuses together with allowance for taxation and allocation of profits to shareholders. These assumptions are determined as prudent estimates at the date of valuation with allowances for adverse deviations.
The
The unit liability in respect of linked business has been taken as the value of the units standing to the credit of policyholders, using the Net Asset Value (NAV) prevailing at the valuation date.
An unexpired risk reserve and a reserve in respect of claims incurred but not reported are created, for one year renewable group term insurance.
The interest rates used for valuing the liabilities are in the range of
Mortality rates used are based on the published “Indian Assured Lives Mortality
Expenses are provided for at least at current levels, in respect of renewal expenses, with no allowance for future
Acquisition costs are those costs that vary with and are primarily related to the acquisition of insurance contracts and are expensed in the period in which they are incurred.
Gratuity
The Group pays gratuity, a defined benefit plan, to employees who retire or resign after a minimum prescribed period of continuous service and in case of employees at overseas locations as per the rules F-31 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements (Continued) in force in the respective countries. The Group makes contribution to recognised trusts which administer the funds on their own account or through insurance companies.
Actuarial valuation of the gratuity liability is determined by an independent actuary appointed by the Group. Actuarial valuation of gratuity liability is determined based on certain assumptions regarding rate of interest, salary growth, mortality and staff attrition as per the projected unit credit method. The actuarial gains or losses arising during the year are recognised in the profit and loss account.
Superannuation
The Bank has a superannuation fund, a defined contribution plan, which is administered by trustees and managed by insurance companies. The Bank contributes The Group contributes
The amounts so contributed/paid by the
Pension
The Bank provides for pension, a defined benefit plan covering eligible employees of erstwhile Bank of Madura, erstwhile Sangli Bank and erstwhile Bank of Rajasthan. The Bank makes contribution to a trust which administers the funds on its own account or through insurance companies. The plan provides for pension payment including dearness relief on a monthly basis to these employees on their retirement based on the respective employee’s years of service with the Bank and applicable salary.
Actuarial valuation of the pension liability is determined by an independent actuary appointed by the Bank. Actuarial valuation of pension liability is calculated based on certain assumptions regarding rate of interest, salary growth, mortality and staff attrition as per the projected unit credit method.
The actuarial gains or losses arising during the year are recognised in the profit and loss account.
Employees covered by the pension plan are not eligible for employer’s contribution under the provident fund plan.
Provident fund
The Group is statutorily required to maintain a provident fund, a defined benefit plan, as a part of retirement benefits to its employees. Each employee contributes a certain percentage of his or her basic salary and the Group contributes an equal amount for eligible employees. The Group makes contribution as required by The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 to Employees’ Pension Scheme administered by the Regional Provident Fund Commissioner and the balance contributions are transferred to funds administered by trustees. The funds are invested according to the rules prescribed by the Government of India. The Group recognises such contribution as an expense in the year in which it is incurred. F-32 ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued) Interest payable on provident fund should not be lower than the statutory rate of interest declared by the Central Government under the Employees Provident Funds and Miscellaneous Provisions Act, 1952. Actuarial valuation for the interest
The actuarial gains or losses arising during the year are recognised in the profit and loss account.
The
Compensated absences
The Group provides for compensated absences based on actuarial valuation conducted by an independent actuary.
The Group estimates the probability of any loss that might be incurred on outcome of contingencies on the basis of information available upto the date on which the consolidated financial statements are prepared. A provision is recognised when an enterprise has a present obligation as a result of a past event and it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliableestimate can be made. Provisions are determined based on management estimates of amounts required to settle the obligation at the balance sheet date, supplemented by experience of similar transactions. These
are reviewed at each balance sheet date and adjusted to reflect the current management estimates. In cases where the available information indicates that the loss on the contingency is reasonably possible but the amount of loss cannot be reasonably estimated, a disclosure to this effect is made in the consolidated financial statements. In case of remote possibility, neither provision nor disclosure is made in the consolidated financial statements. The Group does not account for or disclose contingent assets, if any.
The Bank estimates the probability of redemption of customer loyalty reward points using an actuarial method by employing an independent actuary and accordingly makes provision for these reward points. Actuarial valuation is determined based on certain assumptions regarding mortality rate, discount rate, cancellation rate and redemption rate.
Cash and cash equivalents include cash in hand, balances with RBI, balances with other banks and money at call and short notice.
F-33 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements (Continued) accounted for as per the RBI guidelines. Under each classification, the investments are further categorised as (a) government securities, (b) other approved securities, (c) shares, (d) bonds and debentures and (e) others.
F-34 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements (Continued)
F-35 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements (Continued)
In the case of life insurance business,
Unrealised gains/losses arising due to changes in the fair value of listed equity shares and mutual fund units are taken to
The total proportion of investments for which subsidiaries have applied accounting policies different from the Bank as mentioned above, is approximately
The Bank classifies its loans and investments, including at overseas branches and overdues arising from crystallised derivative contracts, into performing and NPAs in accordance with F-36 ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued) RBI guidelines. Loans and advances held at the overseas branches that are identified as impaired as per host country regulations but which are standard as per the extant RBI guidelines, are classified as NPAs to the extent of amount outstanding in the respective host country. Further, NPAs are classified into sub-standard, doubtful and loss assets based on the criteria stipulated by RBI. Interest on non-performing advances is transferred to an interest suspense account and not recognised in profit and loss account until received. The Bank considers an account as restructured, where for economic or legal reasons relating to the borrower’s financial difficulty, the Bank grants concessions to the borrower, that the Bank would not otherwise consider. The moratorium granted to the borrowers based on RBI guidelines is not accounted as restructuring of loan. The RBI guidelines on ‘Resolution Framework for COVID-19-related Stress’ provide a prudential framework for resolution plan of certain loans. The borrowers where resolution plan was implemented under these guidelines are classified as standard restructured. In the case of corporate loans and advances, provisions are made for sub-standard and doubtful assets
Provisions on homogeneous non-performing retail loans and advances, subject to minimum provisioning requirements of RBI, are In respect of non-retail loans
The Bank holds specific provisions against non-performing loans and advances, and against certain performing loans and advances in accordance with RBI directions. The Bank Non-performing and restructured loans are upgraded to standard as per the extant RBI guidelines or host country regulations, as applicable. In terms of RBI guideline, the NPAs are written-off in accordance with the Bank’s policy. Amounts recovered against bad debts written-off are recognised in the profit and loss account. The Bank maintains general provision on performing loans and advances in accordance with the RBI guidelines, including provisions on loans
F-37 ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements(Continued)
provision on exposures to step-down subsidiaries of Indian companies and provision on incremental exposure to borrowers identified as per RBI’s large exposure framework. For performing loans and advances in overseas branches, the general provision is made at higher of aggregate provision required as per host country regulations and RBI requirement. In addition to the provisions required to be held according to the asset classification status, provisions are held for individual country exposures including indirect country risk (other than for home country exposure). The countries are categorised into seven risk categories namely insignificant, low, moderately low, moderate, moderately high, high and very high, and provisioning is made on exposures exceeding 180 days on a graded scale ranging from 0.25% to 25%. For exposures with contractual maturity of less than 180 days, provision is required to be held at 25% of the rates applicable to exposures exceeding 180 days. The indirect exposure is reckoned at 50% of the exposure. If the country exposure (net) of the Bank in respect of each country does not exceed 1% of the total funded assets, no provision is required on such country exposure. The Bank makes additional provisions as per RBI guidelines for the cases where viable resolution plan has not been implemented within the timelines prescribed by the RBI from the date of default. These additional provisions are written-back on satisfying the conditions for reversal as per RBI guidelines. The Bank, on prudent basis, has made contingency provision on certain loan portfolios, including borrowers who had taken moratorium at any time during FY2021 under the extant RBI guidelines related to Covid-19 regulatory package. The Bank also makes additional contingency provision on certain standard assets. The contingency provision is included in ‘Schedule 5 - Other Liabilities and Provisions’. The Bank has a Board approved policy for making floating provision, which is in addition to the specific and general provisions made by the Bank. The floating provision is utilised, with the approval of Board and RBI, in case of contingencies which do not arise in the normal course of business and are exceptional and non-recurring in nature and for making specific provision for impaired loans as per the requirement of extant RBI guidelines or any regulatory guidance/instructions. The floating provision is netted-off from advances.
F-38 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements (Continued)
The total proportion of loans for which subsidiaries have applied accounting policies different from the Bank as mentioned above, is approximately
The Bank transfers commercial and consumer loans through securitisation transactions. The transferred loans are de-recognised and gains/losses are accounted,
In accordance with the RBI guidelines for securitisation of standard assets, with effect from February 1, 2006, The unrealised gains, associated with expected future margin income is recognised in profit and loss account on receipt of cash, after absorbing losses, if any. Net income arising from sale of loan assets through direct assignment with recourse obligation is amortised over the life of underlying assets sold and net income from sale of loan assets through direct assignment, without any recourse obligation, is recognised at the time of sale. Net loss arising on account of direct assignment of loan assets is recognised at the time of sale. As per the RBI guidelines issued on September 24, 2021, any loss or realised gain from sale of loan assets through direct assignment is accounted through profit and loss account on completion of transaction. The acquired loans is carried at acquisition cost. In case premium is paid on a loan acquired, premium is amortised over the loan tenure.
In accordance with RBI guidelines, in case of F-39 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements (Continued)
The Canadian subsidiary has entered into securitisation arrangements in respect of its originated and purchased mortgages. ICICI Bank Canada either retains substantially all the risk and rewards or retains control over these mortgages, hence these arrangements do not qualify for de-recognition accounting under their local accounting standards. It continues to recognise the mortgages securitised as “Loans and Advances” and the amounts received through securitisation are recognised as “Other borrowings”.
Assets purchased/sold during the
In case of the Bank,
In case of revalued/impaired assets, depreciation is provided over the remaining useful life of the assets with reference to revised asset values. In case of premises, which are carried at revalued amounts, the depreciation on the excess of revalued amount over historical cost is transferred from Revaluation Reserve to General Reserve annually.
Non-banking assets
Non-banking assets (NBAs) acquired in satisfaction of claims are
The
The swap contracts entered to hedge on-balance sheet assets and liabilities are structured such that they bear an opposite and offsetting impact with the underlying on-balance sheet items. The impact of such derivative instruments is F-40 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements (Continued) the accounting of hedge relationships established after June 26, 2019 is in accordance with the Guidance note on Accounting for Derivative Contracts issued by ICAI. The swaps under hedge relationships established prior to that date are accounted for on an accrual basis and are not marked to market unless their underlying transaction is In overseas subsidiaries, in case of fair value hedge, the hedging transactions and the hedged items (for the risks being hedged) are measured at fair value with changes recognised in the profit and loss account and in case of cash flow hedges, changes in the fair value of effective portion of the cash flow hedge are taken to ‘Revenue and other reserves’ and ineffective portion, if any, are recognised in the profit and loss account.
mark-to-market gains on other derivative contracts with the same counter-parties are reversed through the profit and loss account.
The immovable fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An asset is treated as impaired when its carrying amount exceeds its recoverable amount. The impairment is recognised by debiting the profit and loss account and is measured as the amount by which the carrying amount of the impaired assets exceeds their recoverable value. The Bank and its housing finance subsidiary follows revaluation model of accounting for its premises and the recoverable amount of the revalued assets is considered to be close to its revalued amount. Accordingly, separate assessment for impairment of premises is not required. For assets other than premises, the Group assesses at each balance sheet date whether there is any indication that an asset may be impaired. Impairment loss, if any, is provided in the profit and loss account to the extent the carrying amount of assets exceeds their estimated recoverable amount.
Lease payments including cost escalations for assets taken on operating lease are recognised as an expense in the profit and loss account over the lease term on
Basic earnings per share is calculated by dividing the net profit or loss after tax for the year attributable to equity shareholders by the weighted average number of equity shares outstanding
Diluted earnings per share reflect the potential dilution that could occur if contracts to issue equity shares were exercised or converted during the year. Diluted earnings per equity share is computed using the weighted average number of equity shares and dilutive potential equity shares issued by the group outstanding during the year, except where the results are anti-dilutive.
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements(Continued)
The Bank deals in bullion business on a consignment basis. The bullion is priced to the customers based on the price quoted by the supplier. The difference between price recovered from customers and cost of bullion is accounted for as commission at the time of sales to the customers. The Bank also deals in bullion on a borrowing and lending basis and the interest expense/income is accounted on accrual basis.
Share issue expenses are deducted from Share Premium Account in terms of Section 52 of the Companies Act, 2013. F-42 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements (Continued)
SCHEDULE 18: NOTES FORMING PART OF THE ACCOUNTS
A. The following additional disclosures have been made taking into account the requirements of Accounting Standards (ASs) and Reserve Bank of India (RBI)
Basic and diluted earnings per equity share are computed in accordance with AS
The following table sets forth, for the periods indicated, the computation of earnings per share.
1. The dilutive impact is due to options granted to employees by the Group. F-43 ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
The Group has transactions with its related parties comprising associates/other related entities and key management personnel and relatives of key management personnel.
Associates/other related entities
Key management personnel
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements(Continued)
The following table sets forth, for the periods indicated, the significant transactions between the Group and its related
F-45 ICICI Bank Limited and subsidiaries
F-46 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements (Continued)
The following table sets forth, for the periods indicated, the material transactions between the Group and its related parties. A specific related party transaction is disclosed as a material related party transaction wherever it exceeds 10% of all related party transactions in that category.
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements(Continued)
F-48 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements (Continued)
The following table sets forth, for the periods indicated, the
The following table sets forth, for the periods indicated, the maximum balances payable to/receivable from related parties.
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements(Continued)
In terms of the ESOS, as amended, the maximum number of options granted to any eligible employee in a financial year shall not exceed 0.05% of the issued equity shares of the Bank at the time of grant of the options and aggregate of all such options granted to the eligible employees shall not exceed
Options granted after March 2014 vest in a graded manner over a three-year period with 30%, 30%
Options granted prior to March 2014
grant. Options granted in April 2009
The exercise price of the Bank’s options, except mentioned below, is the last closing price on the stock exchange, which recorded highest trading volume preceding the date of grant of options. In February 2011, the Bank granted F-50 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements (Continued) closing price on the stock exchange during the six months ended October 28, 2010. Of these options granted, 50% vested on April 30, 2014 and the balance 50% vested on April 30, 2015. The weighted average fair value, based on
Risk free interest rates over the expected term of the option are based on the government securities yield in effect at the time of the grant. The expected term of an option is estimated based on the vesting term as well as expected exercise behavior of the employees who receive the option. Expected
The
The following table sets forth, the summary of stock options outstanding at March 31,
F-51 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements (Continued)
The following table sets forth, the summary of stock options outstanding at March 31,
The options were exercised regularly throughout the period and weighted average share price as per National Stock Exchange price volume data during the year ended March 31,
ICICI Life:
ICICI Prudential Life Insurance Company has formulated ESOS for their employees. There is no compensation cost for the year ended March 31,
The following table sets forth, for the periods indicated, a summary of the status of the stock option plan of ICICI Prudential Life Insurance Company.
F-52
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements (Continued)
The following table sets forth, summary of stock options outstanding of ICICI Prudential Life Insurance Company at March 31,
The following table sets forth, summary of stock options outstanding of ICICI Prudential Life Insurance Company at March 31,
ICICI
ICICI
The following table sets forth, for the periods indicated, a summary of the status of the stock option plan of ICICI F-53 ICICI Bank Limited and subsidiaries
The following table sets forth, summary of stock options outstanding of ICICI Securities Limited at March 31, 2023.
The following table sets forth, summary of stock options outstanding of ICICI
ICICI
Schedules forming part of the Consolidated Financial Statements
The following table sets forth, for the periods indicated, the movement in software acquired by the Group, as included in fixed assets.
(i) The following table sets forth, for the periods indicated, the details of
The terms of renewal are those normally prevalent in similar agreements and there are no undue restrictions in the agreements.
The following table sets forth, for the periods indicated, the details of assets taken on finance leases.
F-55 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements (Continued)
The following table sets forth, for the periods indicated, the details of finance leases.
Maturity profile of present value of lease rentals The following table sets forth, for the periods indicated, the details of maturity profile of present value of finance lease receipts.
F-56 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements (Continued)
The following table sets forth, for the periods indicated, the break-up of provisions and contingencies included in the profit and loss account.
The Group has assessed its obligations arising in the normal course of business, including pending litigations, proceedings pending with tax authorities and other contracts including derivative and
During fiscal 2023, the Directorate General of GST Intelligence initiated an inquiry into goods and service tax (GST) credit availed on certain expenses incurred by the ICICI Prudential Life Insurance Company Ltd. (the Company). Subsequently, in June 2023, the Company received show cause cum demand notice for Rs. 4,920.6 million from the Directorate General of GST Intelligence. The matter largely relates to an industry wide issue of input tax credit and the Company believes that it has availed eligible input GST credit in compliance with the provisions of the Central Goods and Service Tax Act, 2017 and other applicable laws. The Company is in the process of sending a response and will contest the matter. F-57 ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements(Continued)
Pension
The following tables set forth, for the periods indicated, movement of the present value of the defined benefit obligation, fair value of plan assets and other details for pension benefits.
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements(Continued)
1. Included in
Estimated rate of return on plan assets is based on
Experience adjustment
Gratuity
The following table sets forth, for the periods indicated, movement of the present value of the defined benefit obligation, fair value of plan assets and other details for gratuity benefits of the Group.
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements (Continued)
F-60 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements (Continued)
1. Represents reduction on account of discontinuation of ICICI Lombard Insurance Company Limited from Consolidation. 2. Included in line item ‘Payments to and provision for employees’ of Schedule 16- Operating expenses.
Estimated rate of return on plan assets is based on the
Experience adjustment
The estimates of future salary increases, considered in actuarial valuation, take into consideration inflation, seniority, promotion and other relevant factors.
Provident Fund (PF)
The following tables set forth, for the periods indicated, movement of the present value of the defined benefit obligation, fair value of plan assets and other details for provident fund of the Group.
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements (Continued)
F-62 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements (Continued)
1. a. During the year ended March 31, 2023, ICICI Home Finance Company Limited realised and transferred assets and liabilities of Employee Provident Fund Trust to Central Provident Fund. b. During the year ended March 31, 2022, ICICI Venture Funds Management Company Limited realised and transferred assets and liabilities of Employee Provident Fund Trust to Central Provident Fund. 2. Pursuant to revised Guidance Note 29 on “Valuation of Interest Rate Guarantees on Exempt Provident Funds under AS 15 (Revised)” issued by ‘Institute of Actuaries of India’ on February 16, 2022, plan assets held by PF Trust have been fair valued. The amount represents the fair value gain on plan assets. 3. Included in line item ‘Payments to and provision for employees’ of Schedule 16- Operating expenses.
Experience adjustment
Rs. in million
1. Pursuant to revised Guidance Note 29 on “Valuation of Interest Rate Guarantees on Exempt Provident Funds under AS 15 (Revised)” issued by ‘Institute of Actuaries of India’ on February 16, 2022, plan assets held by PF Trust have been fair valued. The amount represents the fair value gain on plan assets.
The Group has contributed Rs.
F-63 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements (Continued) Superannuation Fund The Group has contributed Rs. 321.8 million for the year ended March 31, 2023 (year ended March 31, 2022: Rs. 274.0 million) to Superannuation Fund for employees who had opted for the scheme. National Pension Scheme (NPS) The Group has contributed Rs. 361.1 million for the year ended March 31, 2023 (year ended March 31, 2022: Rs. 291.8 million) to NPS for employees who had opted for the scheme. Compensated absence The following table sets forth, for the periods indicated, cost for compensated absence.
The provision for income tax (including deferred tax) for the year ended March 31,
The Group has a comprehensive system of maintenance of information and documents required by transfer pricing legislation under sections 92-92F of the Income Tax Act, 1961. The management is of the opinion that all transactions with international related parties and specified transactions with domestic related parties are primarily at
At March 31,
The following table sets forth, for the periods indicated, the break-up of deferred tax assets and liabilities into major items.
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements(Continued)
F-65
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements(Continued)
Income, expenses, assets and liabilities are either specifically identified with individual segments or are allocated to segments on a systematic basis.
All liabilities of the Bank are transfer priced to a central treasury unit, which pools all funds and lends to the business units at appropriate rates based on the relevant maturity of assets being funded after adjusting for regulatory reserve requirements.
The transfer pricing mechanism of the Bank is periodically reviewed. The segment results are determined based on the transfer pricing mechanism prevailing for the respective reporting periods.
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements(Continued)
The following table sets forth, the business segment results for the year ended March 31,
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements(Continued)
The following table sets forth, the business segment results for the year ended March 31,
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements(Continued)
B. Geographical segments
The Group
The Group conducts transactions with its customers on a global basis in accordance with their business requirements, which may span across various geographies.
The following tables set forth, for the periods indicated, the geographical segment results.
Note: Segment assets do not include tax paid in advance/tax deducted at source (net) and deferred tax
The following table sets forth, for the periods indicated, capital expenditure and depreciation thereon for the geographical segments.
There was no penalty imposed by RBI and other overseas banking regulatory bodies during the year ended March 31,
12. Additional information to consolidated accounts
Additional information to consolidated accounts at March 31,
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements(Continued)
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements(Continued)
1. Total assets minus total liabilities. 2. 0.0 represents insignificant amount.
Additional information to consolidated accounts at March 31, 2022 (Pursuant to Schedule III of the Companies Act, 2013)
F-71 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements (Continued)
2. Insignificant.
ICICI Bank
Consolidated Financial Statements
13. Revaluation of fixed assets The Bank and its housing finance subsidiary
2022: Rs.
The
The Board of Directors at its meeting held on
In terms of the
The Bank, as part of Other than the transactions described above, no funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Bank F-73 ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements(Continued)
17. Other disclosures
Additional statutory information disclosed in the separate financial statements of the Bank and subsidiaries having no material bearing on the true and fair view
18. Comparative figures
Figures of the previous year have been re-grouped to conform to the current year presentation.
F-74 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements B. Additional Notes
1. Reserves
Statutory reserve:Represents reserve created as a percentage of the net profit before any other appropriation as required by the Banking Regulation Act, 1949. Every banking company in India is currently required to transfer not less than 25% of the net profit (before appropriations) to the
Special reserve:Represents reserve maintained under the Income Tax Act, 1961 to avail tax benefits.
Securities premium: Represents amount of premium received on issue of share capital, net of expenses incurred on issue of shares.
Investment reserve account: Represents provision for depreciation on available for sale and held for trading securities in excess of required amount which is credited to profit and loss account and appropriated to this reserve, net of tax and transfer to statutory reserve. Investment fluctuation reserve: Represents appropriation of net gains on sale of securities classified as available for sale and held for trading, or net profit after mandatory appropriations to other reserves, whichever is lower, until the amount of this reserve is at least 2% of held for trading and available for sale portfolio. Balance in investment fluctuation reserve in excess of 2% of held for trading and available for sale portfolio can be drawn down and transferred to balance in profit and loss account. Unrealized investment reserve:Represents unrealized gains/losses on investments of consolidated venture capital funds.
Capital reserve:Represents amount of gains on sale of securities classified as held to maturity and gains on sale of land and building, net of tax and transfer to statutory reserve.
Capital redemption reserve: Represents appropriations made from the surplus profit available for previous years on redemption of preference shares by the Bank, as required under the Companies Act, 2013. Foreign currency translation reserve:Represents cumulative exchange differences arising from translation of financial statements of non-integral foreign operations.
Revaluation reserve:Represents reserve on revaluation of premises carried out by the Group.
Revenue and other reserves:Represents reserves other than capital reserves and those separately classified.
Balance in profit and loss account:Represents the balance of profit after appropriations. F-75 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
2. Deposits
Deposits include
The following table sets forth the residual contractual maturities of time deposits at March 31,
At March 31,
3. Long-term debt
Long-term debt represents debt with an original contractual maturity of greater than one year. Maturity distribution is based on contractual maturity or the date at which the debt is callable at the option of the holder, whichever is earlier. A portion of the long-term debt bears a fixed rate of interest. Interest rates on floating-rate debt are generally linked to the London Inter-Bank Offer Rate,
The following table sets forth a listing of long-term debt at March 31,
F-76 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements Indian rupee debt
The following tables set forth, for the periods indicated, a listing of major categories of Indian rupee debt.
Foreign currency debt
The following tables set forth, for the periods indicated, a listing of major categories of foreign currency debt.
F-77 ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
See note on “Schedule
4. Cash and cash equivalents
The Bank’s minimum cash reserve requirements
Deposits with other banks include Rs.
5. Investments
The following table sets forth, for the periods indicated, the portfolio of investments classified as held to maturity.
F-78 ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
The following table sets forth, for the periods indicated, the portfolio of investments classified as available for sale.
Income from securities available for sale
The following table sets forth, for the periods indicated, a listing of income from securities classified as available for sale.
Income from securities held for trading
The following table sets forth, for the periods indicated, a listing of income from securities classified as held for trading.
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
Maturity profile of debt securities
The following table sets forth a listing of each category of held to maturity debt securities at March 31,
The following table sets forth a listing of each category of available for sale debt securities at March 31,
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements Credit rating profile of held-to-maturity debt securities The Group considers credit rating as credit quality indicators for the held-to-maturity debt securities. The credit rating of debt securities is issued by external credit rating agencies. The following table sets forth, held-to-maturity debt securities by external credit rating at March 31, 2023:
The following table sets forth, held-to-maturity debt securities by external credit rating at March 31, 2022:
There were no held-to-maturity debt securities that were past due (30 days overdue) at year ended March 31, 2023 and March 31, 2022. There were no-held-to-maturity debt securities that were overdue for more than 90 days and still accruing at the year ended March 31, 2023 and March 31, 2022.
6. Repurchase transactions
The Group
At March 31,
During fiscal F-81 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
7. Loans
The following table sets forth, for the periods indicated, a listing of loans by category.
Commercial loans
Commercial loans include term loans and working capital facilities extended to corporate and other business entities.
Each commercial loan undergoes a detailed credit review process in accordance with the Bank’s credit policy. After disbursement, commercial loans are individually monitored and reviewed for any possible deterioration
The overall economic
Consumer loans
The Bank’s consumer loan portfolio includes both secured loans and unsecured loans. Secured consumer loans constitute a significant majority of the Bank’s total consumer loan portfolio. Though the loans in the Bank’s secured loan portfolio are secured by first and exclusive liens on the assets financed, recoveries in case of default may be subject of delays up to several years, due to the protracted legal process in India.
Secured consumer loan portfolio
The Bank’s secured loan portfolio consists of mortgage loans, automobile loans, commercial vehicle loans, jewel loans, farm equipment loans, kisan (farmer) credit cards and other secured loans. F-82 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
The Bank’s mortgage loan portfolio includes
The Bank’s automobile loan and commercial vehicle loan portfolios are also secured by first liens on the assets financed by the loans. Major factors affecting the performance of the automobile loan portfolio include the nature of the borrowers’ employment, the borrowers’ income levels, the loan-to-value ratios of the loans in the portfolio and the nature of use of the financed vehicles. The Bank’s commercial vehicle loan portfolio risk is largely driven by borrowers’ characteristics, rate of economic activity and fuel price.
The Bank extends kisan (farmer) credit card facility to farmers for meeting their cost of cultivation and other ancillary expenses. These loans are secured by hypothecation of crops and mortgage of the agricultural land. Unfavorable monsoon, natural calamities and announcement of farm loan waiver by state governments are among the key risk drivers of kisan (farmer) credit card portfolio. The Bank provides jewel loans against gold ornaments and gold coins. Key risks include volatility in gold price and authenticity (purity and weight) of the jewels.
Borrowers’ abilities to repay farm equipment loans generally depend on the agriculture sector in India which, in turn,
Unsecured consumer loan portfolio
The Bank’s unsecured loan portfolio includes personal loans, credit cards and other unsecured loans. General economic conditions and other factors such as changes in unemployment rates, economic growth rates and borrowers’ income levels impact this portfolio.
The loan accounts subjected to restructuring by the Bank are upgraded to the standard category from standard restructured category if the borrower
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements At March 31, 2023, the Group had committed to lend (including non-fund based facilities) Rs. 970.0 million (March 31, 2022: Rs. 1,378.3 million) to borrowers who are parties to standard restructurings.
The following table sets forth, for the dates indicated, a listing of standard restructured loans.
In addition, the Bank holds general provision amounting to Rs. 12,824.9 million at March 31, 2023 (March 31, 2022: Rs. 23,562.1 million) on these restructured accounts.
Non-performing loans
The Bank classifies all credit exposures at a borrower level, including overdues arising from crystallized derivative contracts, into performing and non-performing loans as per the Reserve Bank of India guidelines. Under the Reserve Bank of India guidelines, an asset is generally classified as non-performing if any amount of interest or principal remains overdue for more than 90 days (360 days for direct agriculture loans), in respect of term loans. In respect of overdraft or cash credit, an asset is classified as non-performing if the account remains out of order for a period of 90 days. An account is treated as ‘out of order’ if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power for 90 days F-84 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
The following table sets forth, the nonaccrual status of the loans for the
The following table sets forth, the nonaccrual status of the loans for the year ended March 31, 2022.
F-85 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements Provision for loan losses Provisions are generally made by the Bank on non-performing loans as per internal provisioning norms, subject to minimum provisioning requirements of Reserve Bank of India. The Bank holds specific provisions against non-performing loans and a
The The Bank’s
guidelines.
The following table sets forth, for the periods indicated, the movement in the provision for loan losses on standard restructured loans.
The following table sets forth the movement in the provision for loan losses for the year ended March 31,
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
The following table sets forth the movement in the provision for loan losses for the year ended March 31,
F-87 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
F-88 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
While the Group assesses the incremental specific provisions after taking into consideration the existing specific provision held, the amounts recovered against debts written off in earlier years and provisions no longer considered necessary in the context of the current status of the borrower are recognized in the profit and loss account. The Bank’s Canadian subsidiary adopted IFRS 9 – Financial instruments from April 1, 2018 and measures impairment loss on all financial assets using expected credit loss model based on a three-stage approach. At March 31, 2023, the Bank’s Canadian subsidiary classified exposure of Rs. 63,524.7 million as Stage-2 (March 31, 2022: Rs. 13,965.8 million) (financial assets, that are not credit impaired, but which have experienced significant increase in credit risk since origination), with allowance for expected credit loss of Rs. 882.7 million (March 31, 2022: Rs. 844.7 million) in fiscal 2023. The Stage-2 assets increased primarily in the mortgage portfolio due to decline in bureau scores of borrowers.
Aging Analysis of Past Due Financing Receivable - Performing Loans
Any amount due under a credit facility is considered as ‘past due’ if it remains unpaid for more than 30 days from the due
The following table sets forth the aging analysis of past due performing loans at March 31,
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
The following table sets forth the aging analysis of past due performing loans at March 31,
Credit quality indicators of loans
The Group has a comprehensive framework for monitoring credit quality of its
The following table sets forth, a description of internal rating grades linked to the likelihood of
F-90 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements The following table sets forth, for the periods indicated, credit quality indicators of commercial loans at March 31, 2023.
The following table sets forth, for the periods indicated, credit quality indicators of
F-91 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements The following table sets forth, for the periods indicated, credit quality indicators of consumer loans at March 31, 2023.
F-92 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements The following table sets forth, for the periods indicated, credit quality indicators of consumer loans at March 31, 2022.
F-93 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements 8. Financial assets transferred during the year to securitization
The Bank has transferred certain assets to securitization
The following table sets forth, for the periods indicated, the details of the assets transferred.
9. Details of non-performing assets sold, excluding those sold to
The Bank has sold certain non-performing assets to
The following table sets forth, for the periods indicated, the details of non-performing assets sold to
10. Concentration of credit risk
Concentration of credit risk exists when changes in economic, industry or geographic factors affect groups of counter-parties whose aggregate credit exposure is material in relation to the Group’s total credit exposure. The Group’s portfolio of financial instruments is broadly diversified along industry, product and geographic lines primarily within India.
The Group is subject to supervision guidelines issued by the Reserve Bank of India. The Group’s 20 largest exposures (non-bank) based on gross exposure (credit, derivative and investments), totaled Rs. F-94 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
The largest group of companies under the same management control accounted for
11. Loan commitments
The Group has outstanding undrawn commitments to provide loans and financing to customers. These loan commitments aggregated to Rs.
12. Capital commitments
The Group is obligated under a number of capital contracts. Capital contracts are job orders of a capital nature, which have been committed. The amounts of contracts remaining to be executed on capital account aggregated to Rs.
13. Derivatives
ICICI Bank is a
Dealing in derivatives is carried out by identified groups in the treasury of the Bank based on the purpose of the transaction. Derivative transactions are entered into by the treasury front office. The Bank’s Treasury
The market making and the proprietary trading activities in derivatives are governed by the
The Bank measures and monitors risk of its derivatives portfolio using
Over the counter derivative transactions are covered under International Swaps and Derivatives Association master agreements with the respective counter parties. The exposure on account of derivative transactions is computed as per RBI guidelines. F-95 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements The Board of Directors has authorised the Asset Liability Management Committee to review and approve matters, as applicable, pertaining to the London Inter-Bank Offer Rate transition to alternate risk free rates. A London Inter-Bank Offer Rate Working Group has been constituted which reviews the progress on the international front, and the work carried out alongside Indian Banking Association. An update on the activities on the London Inter-Bank Offer Rate transition and the proceedings of the Working Group is presented quarterly to the Asset Liability Management Committee. The necessary changes were implemented in the treasury system of the Bank to handle the transition of existing trades to the alternate risk free rates. The transition was carried out for the London Inter-Bank Offer Rate (GBP, JPY, EUR, CHF) that ceased on December 31, 2021. USD London Inter-Bank Offer Rates and INR Mumbai Inter-bank Forward Outright Rates was expected to cease at the end of June 2023. There is sufficient liquidity in market for USD London Inter-Bank Offer Rate linked trades. The Bank does not expect material valuation risk arising out of non-alignment of fallback provisions of commercially linked positions such as trading deals and on the existing hedge deals of the Bank. The use of derivatives for hedging purposes
Credit exposure on interest rate and currency derivative transactions (both trading and hedging), is computed using the current exposure method according to the Reserve Bank of India guidelines, which is
arrived at by adding up the positive mark-to-market values and the potential future exposure of these contracts. According to the Reserve Bank of India guidelines, the potential future exposure is determined by multiplying the notional principal amount of each of these contracts (irrespective of whether the mark-to-market value of these contracts is zero, positive or negative value) by the relevant add-on factor, ranging from 0.5% to 15%, according to the type of contract and residual maturity of the instrument. The credit exposure for
ICICI Bank Limited and subsidiaries Schedules forming part of the
The following table sets forth the details of the notional amounts, fair value, realized/unrealized gain and loss on derivatives and credit exposure of trading derivatives for the year ended March 31,
Rupees in million
The following table sets forth the details of the notional amounts, Rupees in million
The following table sets forth the details of the notional amounts, marked-to-market position and credit exposure of hedging derivatives for the year ended March 31,
Rupees in million
The following table sets forth the details of the notional amounts,
Rupees in million
F-97 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements The gains/(losses) on hedged items arising from changes in fair value for
The gains/(losses) on cash flow hedges recorded in cash flow hedge reserve for fiscal 2023 and fiscal 2022 amounted to Rs. 981.2 million and Rs. (397.7) million respectively. At year-end fiscal 2023, loss of Rs. 6.3 million (at year-end fiscal 2022: loss of Rs. 4.1 million) recorded in cash flow hedge reserve is expected to be reclassified into earnings during the next 12 months. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations or the addition of other hedges subsequent to year-end fiscal 2023. During fiscal 2023 and fiscal 2022, there were no gains/(losses) reclassified from cash flow hedge reserve into earnings on account of discontinuance of cash flow hedges. At year-end fiscal 2023, the maximum length of time over which the Group was hedging its exposure to the variability in future cash flows was 129 months (year-end fiscal 2022: 107 months). At year-end fiscal 2023, accumulated cash flow hedge reserve was Rs. 544.4 million (year-end fiscal 2022: Rs. (452.0) million). During fiscal 2023, net amount reclassified from accumulated cash flow hedge reserve to earnings was Rs. 15.1 million (fiscal 2022: Rs. 0.2 million). Additionally, the Group has also hedged the foreign currency exposure of its net investment in foreign operations through currency forward contracts of a notional amount of Rs.
At March 31,
14. Tax contingencies
Various tax-related legal proceedings are pending against the Group at various levels of appeal either with the tax authorities or in the courts. Where, after considering all available information, a liability requires accrual in the opinion of management, the Group accrues such liability.
Where such proceedings are sufficiently advanced to enable management to assess that a liability exists and are subject to reasonable estimation, management records its best estimate of such liability.
At March 31,
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
The Group's
Disallowance of expenses to earn tax free income: Rs.
Provision for operating expense: Rs. 5,258.2 million (March 31, 2022: Rs.5,214.5 Million) relates to disallowance of provision for operating expense by the tax authorities treating it as contingent in nature. The group relies on favorable opinion from counsel and past decisions by the appellate authorities in other similar cases. Interest on perpetual bonds: Rs. 5,145.6 million (March 31, 2022: Rs. 5,962.7 million) relates to the disallowance of interest paid on perpetual bonds. The tax authorities do not deem these as borrowings and therefore the interest paid on these bonds has not been allowed as a deduction. The Group relies on favourable opinion from counsel and the past decision by the appellate authorities in the Group’s own case. Depreciation on leased assets: Rs.
Disallowance of write off in respect of credit cards: Rs. 3,570.9 million (March 31, 2022: Rs. 3,574.9 million) relates to the disallowance of written-off amount for credit cards for claiming bad debt write-offs. It was disallowed on the ground that the credit card business is not a banking business or pertaining to money lending and hence did not fulfill conditions for claim of bad debt write off. The Group has relied on the favourable opinion from counsel and past decision by the appellate authorities in Group’s own case. Interest on non-performing assets: Rs. 3,410.4 million (March 31, 2022: Rs. 3,415.4 million) relates to interest on non-performing assets de-recognized as per the Reserve Bank of India guidelines after 90 days. Interest income is assessed to tax on the ground that tax law has 180 days limit as against 90 days followed by the Bank. The Group has relied on favorable opinion from counsel and past decisions by the appellate authorities in Group’s own and other similar cases. F-99 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements Taxability under section 41(4A) of amounts withdrawn from Special Reserve created up to Assessment Year 1997-98: Rs.
Disallowance of input tax credit on interchange fees: Rs. 2,048.0 million (March 31, 2022: Rs. 2,048.0 million) relates to Service tax on interchange fees: Rs. 1,488.7 million (March 31, 2022: Rs. 1,488.7 million) relates to service tax and interest Service tax on amount retained from contribution: Rs. 1,091.6 million (March 31, 2022: Rs. 1,091.6 million) pertaining to ICICI Strategic Investment Fund relates to retention of contribution received by the fund, being treated as income received towards the services rendered by fund to its contributors. The Group has relied on a favorable opinion from counsel. The Group’s contingent liabilities on sales tax/value added tax amounted to Rs. 1,214.6 million (March 31, 2022: Rs. 1,344.0 million) by various state government authorities. The matters mainly pertain to procedural issues like submission of statutory forms and adhoc additions in turnover. The Group has relied on favorable
Based on judicial precedents in the Group’s and other cases and upon consultation with the tax counsels, the management believes that it is more likely than not that the Group’s tax positions will be sustained. Accordingly, no provision has been made in the accounts.
The above mentioned contingent F-100 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
15. Litigation
A number of
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
16. Segmental Information
The following table sets forth, the business segment results for the year ended March 31,
Rupees in million
F-102 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
The following table sets forth, the business segment results for the year ended March 31,
Rupees in million
F-103 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
The following table sets forth, the business segment results for the year ended March 31,
Rupees in million
The Bank has pursued a conscious strategy of increasing the share of
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
17. Revenue from contracts with customers The Group recognizes the revenue from contracts with customers primarily in the line item ‘commission, exchange and brokerage’ of ‘Schedule 14 - Other income’. The primary components of commission, exchange and brokerage are transaction banking fee, lending linked fee, fund management fee, commercial banking fee, securities brokerage income and third party products distribution fee. The transaction banking fee primarily includes card related fee such as interchange fee, joining fee and annual fee, income on ATM transactions, deposit accounts related transaction charges and charges for normal transaction banking services and fee on cash management services, commission on bank guarantees, letters of credit and bills discounting. The lending linked fee primarily includes loan processing fee and fee on foreclosure/prepayment of loans. The fund management fee includes the income earned by the Bank’s asset management subsidiary on mutual fund schemes and by the private equity fund management subsidiary on private equity funds. The brokerage income earned by the Bank’s securities broking subsidiary on securities transactions by its customers is included in the securities brokerage income. The third party products distribution fee primarily includes income earned on distribution of products such as mutual funds, insurance products and bonds. The revenue is recognized at the time when the performance obligation under the terms of contractual arrangement is completed. The Group generally recognizes the revenue either immediately upon completion of services or over time as the Group performs the services. In cases where the consideration is received in advance from customers by the Group, a liability is recorded and the same is subsequently recognized as revenue over the contract period or on completion of the performance obligation under the contract. The Group does not have any significant contract assets and contract liabilities at March 31, 2023 and March 31, 2022. The segment-wise breakup of the above components of the Group’s revenue for the year ended March 31, 2023 is given below. Rupees in million
F-105 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements The segment-wise breakup of the above components of the Group’s revenue for the year ended March 31, 2022 is given below. Rupees in million
The segment-wise breakup of the above components of the Group’s revenue for the year ended March 31, 2021 is given below. Rupees in million
F-106 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements 18. Employee Stock Option Scheme
The following table sets forth a summary of the Bank’s stock options outstanding at March 31,
The following table sets forth a summary of the Bank’s stock options outstanding at March 31,
Total fair value of options vested was Rs. 4,630.2 million for the
Total aggregate intrinsic value of options exercised was Rs. 19,325.5 million for the
The total compensation cost related to non-vested awards not yet recognized at March 31,
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
The following table sets forth a summary of stock options exercisable at March 31,
The following table sets forth a summary of stock options exercisable at March 31,
The following table sets forth a summary of the Bank’s unvested stock options outstanding at March 31,
The following table sets forth a summary of the Bank’s unvested stock options outstanding at March 31,
F-108 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
The following table sets forth for the periods indicated, the key assumptions used to estimate the fair value of options.
Risk free interest rates over the expected term of the option are based on the government securities yield in effect at the time of the grant.
The expected term of an option is
Expected volatility during the estimated expected term of the option is based on historical volatility determined based on observed market prices of the Bank's publicly traded equity shares.
Expected dividends during the estimated expected term of the option are based on recent dividend activity.
The following tables set forth, for the periods indicated, the income statement and balance sheet, by following the guidance of Regulation S-X.
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
The following tables set forth, for the periods indicated, the statement of stockholders’ equity.
F-110 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements Rupees in million
Rupees in million
The following table sets forth, for the periods indicated, the movement in profit and loss account. Rupees in million
F-111 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
The cash flow statement is in compliance with the requirements of IAS 7 – Cash Flow Statements.
The following table sets forth, for the periods indicated, the supplementary information to the cash flow statements. Rupees in million
The Group’s financial instruments include non-derivative financial assets and liabilities as well as derivative instruments. Fair value estimates are generally subjective in nature and are made at a specific point in time based on the characteristics of the financial instruments and relevant market information. Quoted market prices are used, wherever available. In other cases, fair values are based on estimates using present value or other valuation techniques. These techniques involve uncertainties and are significantly affected by the assumptions used and judgments made regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows and other factors. Changes in assumptions could significantly affect these estimates and the resulting fair values. Derived fair value estimates cannot necessarily be substantiated by comparison to independent markets and in many cases, may not be realized in an immediate sale of the instruments.
Fair value estimates are based on existing financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered as financial instruments. Disclosure of fair values is not required for certain items such as investments accounted for under the equity method of accounting, obligations for pension and other post-retirement benefits, income tax assets and liabilities, property and equipment, pre-paid expenses, insurance liabilities, core deposit intangibles and the value of customer relationships associated with certain types of consumer loans, particularly the credit card portfolio and other intangible assets. Accordingly, the aggregate fair value amount presented does not purport to represent and should not be considered representative of the underlying market or franchise value of the Group. In addition, because of differences in methodologies and assumptions used to estimate fair values, the Group’s fair values should not be compared to those of other financial institutions.
The methods and assumptions used by the Group in estimating the fair values of financial instruments are described below.
Cash and balances with banks and money at call and short notice
The carrying amounts reported in the balance sheet approximate fair values because a substantial amount of the portfolio has maturities of less than three months.
Investments
The fair values of investments are generally determined based on quoted price or based on discounted cashflows. For certain debt and equity investments that do not trade on established exchanges and for which markets do not exist, estimates of fair value are based upon management’s review of the investee’s financial results, condition and prospects.
F-112 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements Advances
The fair values of commercial and consumer loans are estimated by discounting the contractual cash flows using interest rates currently offered on various loan products. The carrying value of certain other loans approximate fair value due to the short-term nature of these loans. The advances are classified as Level 3 instruments in view of absence of any significant market observable data for valuation of these instruments.
Deposits
The carrying amount of deposits with no stated maturity is considered to be equal to their fair value. Fair value of fixed rate time deposits is estimated by discounting contractual cash flows using interest rates currently offered on the deposit products. Fair value estimates for deposits do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of alternative forms of funding (core deposit intangibles). The deposits are classified as Level 3 instruments in view of absence of any significant market observable data for valuation of these instruments.
Borrowings
The fair value of the Group’s debt is estimated by discounting future contractual cash flows using appropriate interest rates and credit spreads. The carrying value of certain other borrowings approximates fair value due to the short-term nature of these borrowings. The borrowings are classified as Level 2 instruments in view of the inputs used like interest rates, yield curves and credit spreads, which are available from public sources like Reuters, Bloomberg, Financial Benchmark India Private Limited and Fixed Income Money Markets & Derivatives Association of India.
The following table sets forth, for the periods indicated, the listing of the fair value by category of financial assets and financial liabilities.
Rupees in million
F-113 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
21. Differences between Indian GAAP and U.S. GAAP
The consolidated financial statements of the Group are prepared in accordance with Indian GAAP, which differs in certain significant aspects from U.S. GAAP.
The following tables summarize the significant adjustments to consolidated net income and stockholders’ equity which would result from the application of U.S. GAAP.
1. Net income reconciliation Rupees in million
F-114 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
2. Stockholders’ equity reconciliation Rupees in million
The differences in the
F-115 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
Under Indian GAAP, certain loans restructured by the Loans restructured under specific guidelines issued by the Reserve Bank of India for Resolution Framework for Covid-19-related Stress and for certain eligible micro, small and medium enterprises and loans restructured with deferment of date of commencement of commercial operations are not classified as
Under U.S. GAAP, the
Under Indian GAAP, the loan accounts subjected to restructuring are upgraded to the standard category if the borrower demonstrates, over a minimum period of one year, the ability to repay the loan in accordance with the contractual terms and the borrower gets reinstated to a normal level of general provisions for standard loans/risk weights for capital adequacy computations. The period of one year is from the commencement of the first payment of principal or interest whichever
The Bank transfers certain loans to borrower specific funds/trusts managed by asset reconstruction companies in exchange for security receipts issued by the funds/trusts, as part of the strategy for resolution of non-performing assets. The funds/trusts have been set up by the asset reconstruction companies under enacted debt recovery legislation in India and they aim to improve the recoveries of banks on non-performing assets by aggregating lender interests and speeding up the enforcement of security interests by lenders. While under Indian GAAP, such transfers are recognized as a sale, under U.S. GAAP these transfers are not recognized as a sale due to the following reasons:
F-116 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements • Certain transfers do not qualify for sale accounting under FASB ASC Topic 860, “Transfers and servicing”, as the Bank retains the risks and rewards in such transfers.
• Certain transfers were impacted by FASB ASC Subtopic 810-10, Credit losses on commercial loans which do not share similar risk characteristics These differences primarily relate to provisions on non-performing commercial loans under Indian GAAP and credit loss provisions on commercial loans which do not share similar risk characteristics under U.S. GAAP. This difference arises due to a difference in methodology applied to calculate the credit losses under U.S. GAAP and Indian GAAP. Under Indian GAAP, non-performing loans are classified into three categories: sub-standard assets, doubtful assets and loss assets. A loan is classified as sub-standard if interest payments or installments have remained overdue for more than 90 days. A provision of 15.0% is required for all sub-standard loans. An additional provision of 10.0% is required for accounts that are unsecured from the time of origination. A loan is classified as a doubtful loan if it has remained sub-standard for more than twelve months or if the value of security charged to the Bank has eroded and fallen below 50% of the outstanding loan. A 100% provision/write-off is required with respect to the unsecured portion of the doubtful loans. A 100% provision is required for the secured portion of loans classified as doubtful for more than three years and is recorded in a graded manner as the three-year period occurs. A loan is classified as a loss asset if the losses on it are identified or the loan is considered uncollectible. For loans classified as a loss, the entire loan is required to be provided for. In accordance with regulatory package announced by the Reserve Bank of India, consequent to outbreak of Covid-19 pandemic, the Bank extended the option of payment of moratorium on loans to its borrowers. The moratorium period, wherever granted, was excluded from the determination of number of days past-due for the purpose of asset classification as per the Reserve Bank of India guidelines. Under U.S. GAAP, commercial loans representing significant individual credit exposures (both funded and non-funded), are individually evaluated to ascertain if they share similar risk characteristics, based on the ability of the borrower to repay the contractual amounts due to the Bank, including considerations of both quantitative and qualitative criteria such as the account conduct, future prospects, repayment history and financial performance. The credit losses for commercial loans, ascertained to not share the similar risk characteristics, are estimated on an individual basis and are based on either the present value of expected future cash flows or in case of a collateral dependent loan, the net realizable value of the collateral net of cost to sell, if any. Under Indian GAAP, the Bank holds specific provisions on certain performing commercial loans and advances based on the Reserve Bank of India guidelines/direction. Under Indian GAAP, accounts where the Bank had invoked/implemented strategic debt restructuring under the Reserve Bank of India guidelines were classified as non-performing. Under U.S. GAAP, the Bank opted for fair value option for accounting these loans at fair value through income statement under ASC Subtopic 825-10 “Financial Instruments”. See also– 22. Notes under U.S. GAAP – Fair value accounting of financial interests. Under Indian GAAP, any contractual amount due from the counter-party under derivative contracts, if not collected within 90 days, is required to be reversed through income statement under the Reserve Bank of India guidelines. Under U.S. GAAP, these receivables are analyzed to identify the required credit losses in the same manner as individual credit exposures. F-117 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements Credit losses on loans sharing similar risk characteristics Commercial loans Credit losses on commercial loans sharing similar risk characteristics primarily relate to performing commercial loans. Under Indian GAAP, the allowances on the performing portfolios are based on guidelines issued by the Reserve Bank of India. The provisioning requirement is a uniform rate of 0.4% for all standard assets except –
As per the guidelines issued by the Reserve Bank of India, additional general provision between 0.0%-0.8% is made on outstanding amounts to entities having unhedged foreign currency exposure. The provision range is based on percentage of likely loss due to unhedged foreign currency exposure to their earnings before interest, depreciation and lease rentals, if any. As per the guidelines issued by the Reserve Bank of India, the Bank also makes additional general provision on loans to specific borrowers in specific stressed sectors and on incremental exposure to borrowers identified as per the Reserve Bank of India’s large exposure framework. Under U.S. GAAP, credit losses on the commercial loans sharing similar risk characteristics are accounted on a collective basis. The segmentation for the commercial loans is based on risk characteristics such as customer type, risk rating and delinquency status. The collective assessment begins with a quantitative calculation that considers the likelihood of the borrower defaulting. The quantitative calculation covers expected credit losses over an instrument’s expected life and is estimated by applying probability of default and loss given default. Based on historical default rates, the probabilities of default are derived using a macro-economic scenario over a reasonable and supportable forecast period. The term structure for subsequent periods is built using single year reversion to the long run historical information. The forecasts take into consideration the Group’s economic outlook based on internal as well as external inputs and involve a governance process that incorporates feedback from senior management. Consumer loans Credit losses on consumer loans sharing similar risk characteristics primarily relate to homogenous small balance loans including both performing and non-performing consumer loans under Indian GAAP. Under Indian GAAP, the provision on non-performing consumer loans is made at a pre-determined rate, subject to minimum provision as required under the Reserve Bank of India guidelines. The provision on the performing portfolios are based on guidelines issued by the Reserve Bank of India. The provisioning requirement is a uniform rate of 0.4% for all standard assets except
F-118 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements Under U.S. GAAP, credit losses on the consumer loans sharing similar risk characteristics are accounted for on collective basis. The segmentation for the consumer loans is based on risk characteristics such as product type, delinquency status, credit scores, and vintage. For agriculture loans, a further segmentation of risk characteristics is also carried out based on direct and indirect agriculture lending categories. The collective assessment begins with a quantitative calculation that considers the likelihood of the borrower defaulting. The quantitative calculation covers expected credit losses over an instrument’s expected life and is estimated by applying probability of default and loss given default. Based on historical default rates, the probabilities of default are derived using a macro-economic scenario over a reasonable and supportable forecast period. The term structure for subsequent periods is built using single year reversion to the long run historical information. The forecasts take into consideration the Group’s economic outlook based on internal as well as external inputs and involve a governance process that incorporates feedback from senior management. Under Indian GAAP, the Bank, on prudent basis, has made contingency provision due to the economic and geopolitical uncertainties. Under US GAAP, the Group makes adjustments to appropriately address these economic circumstances over and above the model output by increasing the probability of default estimates based on management judgement. Credit losses on undrawn commitments, non-fund exposures and other debt securities Under U.S. GAAP, the Bank records a liability for credit losses on non-cancellable undrawn commitments by the Group and non-fund exposures to its borrowers based on the life time expected losses. The credit losses are estimated in accordance with the ASC Topic 326, “Financial Instruments – Credit losses”. Under Indian GAAP, the Bank makes estimated provision on guarantees, above a certain threshold, to its borrowers classified as non-performing based on an assessment of expected devolvement. Under Indian GAAP, the Reserve Bank of India guidelines do not specify the conditions under which the assets may be written-off. The Bank has internal policies for charge off of non-performing loans against loan loss allowances. Commercial loans, are generally charged off against allowances when, based on a borrower-specific evaluation of the possibility of further recovery, the Bank concludes that the balance cannot be collected. The Bank evaluates whether a balance can be collected based on the realizable value of collateral, the results of the Bank’s past recovery efforts, the possibility of recovery through legal recourse and the possibility of recovery through settlement. Small-balance homogenous loans are generally charged off against allowances after predefined periods of delinquency, as follows: Mortgage loans: 3 years of continuous delinquency Other consumer loans: 6 months of continuous delinquency The same criteria are used for charge off of impaired loans under U.S. GAAP. F-119 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
The following table sets forth, for the periods indicated, the difference in aggregate Rupees in million
The differences arising due to business combinations are primarily on account of:
During fiscal 2011, ICICI Bank Limited acquired Bank of Rajasthan Limited through exchange of common stock. The acquisition of ICICI Lombard General Insurance Company Limited, a general insurance company, was established as a joint venture, which allowed substantive participating rights to a minority shareholder. Under U.S. GAAP, the Bank had been accounting for its investment in ICICI Lombard General Insurance Company Limited as an equity affiliate. During fiscal 2018, the joint venture agreement was terminated, resulting in the Bank acquiring control in ICICI Lombard General Insurance Company Limited without transferring any additional consideration. Under U.S. GAAP, this transaction was accounted using acquisition method for business combination under “ASC Subtopic 805-10, Business Combination – Overall”. Under U.S. GAAP, goodwill was determined by deducting the fair value of net assets acquired from the fair value of equity interest held by the Bank and fair value of minority interest. Accordingly, goodwill of Rs. 142,896.9 million and intangibles of Rs. 15,553.0 million were recorded under U.S. GAAP. The goodwill was allocated to the General insurance segment of the Group. Under Indian GAAP, no specific accounting was required for termination of the above joint venture agreement. During fiscal 2022, the Bank’s holding in ICICI Lombard General Insurance Company Limited has reduced below 50.0% and it ceased to be a subsidiary under ASC Topic 810-Consolidation. Accordingly, the goodwill and unamortized intangibles were de-recognized during fiscal 2022. F-120 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
Further, for certain other acquisitions made by the Group, no goodwill and intangibles have been accounted for under Indian GAAP primarily due to accounting for the amalgamation by the pooling of
Under U.S. GAAP in accordance with FASB ASC Topic 350, the Group does not amortize goodwill and intangibles with infinite life but instead tests the same for impairment at least annually. The annual impairment test under ASC Topic 350 does not indicate an impairment loss for fiscal
Under U.S. GAAP intangible assets with finite useful life are amortized over their estimated useful lives in proportion to the economic benefits consumed in each period.
The following table sets forth,
Rupees in million
The differences on account of consolidation are primarily on account of:
Under Indian GAAP, consolidation is required only if there is ownership of more than one-half of the voting power of an enterprise or control of the composition of the Board of Directors in the case of a company or of the composition of the governing body in case of any other enterprise. Under Indian GAAP, In accordance with the Scheme of Arrangement between ICICI Lombard General Insurance Company Limited (ICICI General) and Bharti AXA General Insurance Company Limited, as approved by Insurance Regulatory and Development Authority of India (with effect from September 8, 2021), assets and liabilities of Bharti AXA’s general insurance business vested with ICICI General on the Appointed Date of April 1, 2020. ICICI General issued two fully paid up equity shares to the shareholders of Bharti AXA for every 115 fully paid up equity shares. Subsequent to issuance of equity shares to Bharti AXA shareholders, the Bank’s shareholding in ICICI General reduced to below 50.0%. Accordingly, the Bank has accounted its investment in ICICI General as an associate under Accounting Standard – 23 – “Accounting for Investments in Associates” in consolidated financial statements with effect from April 1, 2021 under Indian GAAP. Under U.S. GAAP, ICICI General was consolidated on line-by-line basis till September 7, 2021, and was accounted as an affiliate with effect from September 8, 2021, the date of loss of control. Under Indian GAAP, the retained interest in ICICI General was accounted at carrying value. Under U.S. GAAP, the retained interest in the ICICI General was fair valued on the date of loss of control based on the closing quoted price of the common stock of ICICI General in the stock exchange. This resulted in a gain of Rs. 254,998.1 million on deconsolidation. On the date of deconsolidation, in accordance with the requirements of FASB ASC Topics 323 and 805, the Bank carried out a preliminary purchase price allocation of carrying value of investment in ICICI General. During fiscal 2022, given the complexity involved in the identification and measurement of the intangibles, the determination of final values of intangibles was underway and was planned to be completed within the permitted measurement period as per the aforementioned requirements. The determination of final values of intangibles was concluded during fiscal 2023 (within the prescribed timelines), accordingly, the Bank’s share in identified intangibles was valued at Rs. 14,982.6 million and Goodwill amounted at Rs. 288,806.9 million. During fiscal 2023, considering the significant and continuous decline in market price of equity shares of ICICI General, the Bank has recognized an impairment loss of Rs. 122,012.3 million. F-121 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
The following table sets forth, for the periods indicated, the differences in net income arising from accounting for consolidation under Indian GAAP and U.S. GAAP.
Rupees in million
Profit/(loss) on consolidation of Variable Interest Entities
F-122 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
Under Indian GAAP, securitized assets are derecognized from the Bank’s books.
Due to these differences in the Bank’s accounting of securitization transactions, the timing of recognition of income and provision for loan losses differ under U.S. GAAP and Indian GAAP.
Under Indian GAAP unrealized losses of held for trading and available for sale securities are taken to profit and loss account. Under Indian GAAP, net unrealized gains on investments by category are ignored. Under U.S. GAAP, unrealized gains or losses on trading debt assets are recognized in the profit and loss account and unrealized gains or losses on debt securities classified as ‘available for sale’, which include all securities classified as ‘held to maturity’ under Indian GAAP, are recognized in
Under Indian GAAP, the impact of currency revaluation on debt securities denominated in foreign currency is taken to profit and loss account. Under U.S. GAAP, the impact of currency revaluation on
Under Indian GAAP, premium over the face value of fixed rate and floating rate securities under held to maturity category is amortized over the remaining period to maturity on an effective constant yield basis and straight line basis respectively. Any premium over the face value of fixed rate and floating rate investments in government securities classified under available for sale category is amortized over the remaining period to maturity on constant yield basis and straight line basis respectively. Under U.S. GAAP, the income as per interest method is arrived at by amortization/accrual of premium/discount on the face value of debt securities over the remaining period to maturity on an effective interest rate basis.
Under Indian GAAP, gain or loss on sale of equity stake in a subsidiary company is recognized in the income statement. Under U.S. GAAP, change in the parent’s ownership in the subsidiary company is accounted as an equity transaction, if the parent retains controlling financial interest in the subsidiary and accordingly gain or loss is not recognized in the income statement. In fiscal 2021, the Bank sold part of its equity shareholdings in its subsidiaries, namely ICICI Lombard General Insurance Company and ICICI Securities Limited, while retaining the control in these subsidiaries. While, gains on sale of equity shares were recorded through profit and loss account under Indian GAAP, these gains were accounted in equity under U.S. GAAP. F-123 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements In fiscal 2016, the Reserve Bank of India issued guidelines on strategic debt restructuring under which conversion of debt into equity and acquisition of ownership interests in the borrower by banks is allowed. The Reserve Bank of India has exempted banks from consolidation of these entities. Under U.S. GAAP, these entities were considered as equity affiliates. The Bank opted for fair value option of these equity affiliates under ASC Topic 825 “Financial Instruments”. Accordingly, fair value changes in the loans, guarantees and equity shares were accounted through income statement. While fair value impact on loans was recorded in the line item “Valuation of debt and equity securities”, the provisions made on these loans under Indian GAAP were reversed in the line item “Allowance for loan losses”.See also–
The following table sets forth, for the periods indicated, the differences in net income arising from accounting for valuation of debt and equity securities under Indian GAAP and U.S. GAAP.
Rupees in million
See note on "Consolidated Financial Statements - Schedules to the consolidated financial statements - Schedule 8 - Investments" for Indian GAAP balance sheet presentation.
Loan origination fees and costs
Under U.S. GAAP, loan origination fees (net of certain costs) are amortized over the period of the loans as an adjustment to the yield on the loan. However, under Indian GAAP, loan origination fees are accounted for upfront. Also under Indian GAAP, loan origination costs, including commissions paid to direct marketing agents, are expensed in the year in which they are incurred. F-124 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
Retirement benefit cost
Under Indian GAAP, all actuarial gains/losses are recognized on the balance sheet of the enterprise in the year in which they arise through suitable credit/debit in the profit and loss account of the year. Under U.S. GAAP, actuarial gains/losses are accounted in Other Comprehensive Income. Subsequently cumulative actuarial gain/loss lying in the Other Comprehensive Income which is over and above 10% corridor is amortized through profit and loss account. Further, discount rate for computing benefit obligation is linked to yield on high quality fixed income securities in U.S. GAAP as compared to yield on government securities under Indian GAAP.
Reinsurance commission and deferred acquisition costs Under Indian GAAP, reinsurance commission on business ceded by general insurance subsidiary is recognized as income in the year of the ceding of the risk. Under U.S. GAAP, proceeds from reinsurance transactions that represent recovery of acquisition costs are reduced from acquisition costs in such a manner that net acquisition costs are capitalized and charged to expense in proportion to net revenue recognized over the related policy period. Under Indian GAAP, acquisition costs for new and renewal of insurance contracts in general insurance subsidiary are charged as expense to the revenue account in the year in which these are incurred, whereas under U.S. GAAP, the same are capitalized and charged to expense in proportion to premium revenue recognized as per ASC Topic 944 “Financial Services-Insurance”. The following table sets forth, for the periods indicated, the differences in net income arising from accounting for amortization of fees and costs under Indian GAAP and U.S. GAAP.
Rupees in million
The amortization of loan origination fees and costs resulted in higher income under U.S. GAAP as compared to Indian GAAP, While under Indian GAAP, actuarial gain or loss are recognized in profit and loss account, under U.S. GAAP, the actuarial gain/loss are recognized through other comprehensive income and thereafter amortized through profit and loss account. The actuarial loss for fiscal 2023 recognized through other comprehensive income were higher as compared to amortization of actuarial losses for previous years from other comprehensive income under U.S. GAAP, resulting in retirement benefit costs being lower under U.S. GAAP in fiscal 2023 as compared to Indian GAAP. During fiscal 2022, there was higher amortization of See note on "Consolidated Financial Statements - Schedules to the consolidated financial statements - Schedule 9 – Advances" for balance sheet presentation of amortization of loan processing fees F-125 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
Under Indian GAAP, the Group hedges interest rate and exchange rate risks on some on-balance sheet assets and liabilities
Under U.S. GAAP, the Group accounts for its derivative transactions in accordance with the provisions of FASB ASC Topic 815
Under U.S. GAAP, the Group has designated certain derivatives as fair value
FASB ASC Topic 718, “Compensation – stock compensation” requires all share-based payments to employees, including grants of employee stock options to be recognized in the income statement based on their fair values. Under Indian GAAP, till fiscal 2021, the Group
F-126 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
Under U.S. GAAP, the Group accounts for gain on sale of loans securitized at the time of sale in accordance with FASB ASC Topic 860, “Transfers and Servicing”. As per ASC Topic 860, any gain or loss on the sale of the financial asset is accounted for in the income statement at the time of the sale. Under Indian GAAP, Further, the securitization transactions of mortgage loans by the Bank’s Canadian subsidiary do not qualify as sale transactions as they do not meet the de-recognition criteria under Indian GAAP. Under U.S. GAAP, these securitization transactions have been accounted for as transfers as these satisfy the derecognition criteria under ASC Topic 860 “Transfers and Servicing”.
branches and affiliates, subject to limited exceptions, under U.S. GAAP while under Indian GAAP, no deferred taxes are recognized on
The Bank has
Under Indian GAAP, deferred tax assets on unabsorbed depreciation or carried forward losses of domestic companies are recognized only if there is virtual certainty of realization of such assets, whereas under U.S. GAAP
The Bank and its housing finance subsidiary create a Special Reserve through appropriation of profits
Under Indian GAAP, no deferred tax asset is recognized on property and equipment, which F-127 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements Deferred tax assets and liabilities are recognized for the income tax impact of the non-tax adjustments that result from the application of U.S. GAAP.
The following table sets forth, for the periods indicated, the components of
Rupees in million
At March 31,
Under Indian GAAP, the Bank and its housing finance subsidiary have revalued fixed assets and created a revaluation reserve amounting to Rs.
F-128 ICICI Bank Limited and Schedules forming part of the Consolidated Financial Statements
Under Indian GAAP, the Bank has made provisions on certain fixed assets acquired in debt asset swap arrangements as per the direction of Reserve Bank of India. Under U.S. GAAP, these fixed assets were carried at book value or fair value, whichever is lower. There was a higher profit of Rs. 1,216.2 million under U.S. GAAP as compared to Indian GAAP for the year ended March 31, 2023 (lower profit of Rs. 1,476.8 million for the year ended March 31, 2022 and lower profit of Rs. 1,923.1 million for the year ended March 31, 2021).
Additional information required under U.S. GAAP
Overview
The Bank and its subsidiaries are involved with several types of off-balance-sheet arrangements, including special purpose entities.
Uses of Special Purpose Entities
The Group deals with some
Variable Interest Entities
Schedules forming part of the
The following table sets forth the Group’s involvement with consolidated and unconsolidated Rupees in million
The asset balances for consolidated
The following table sets forth, for the periods indicated, the carrying amounts and classification of the consolidated assets and liabilities, in respect of
Rupees in million
The Bank invests in pass through certificates of securitization trusts with underlying retail loans originated by other entities. The carrying value of such investments was Rs.
In fiscal 2016, the Reserve Bank of India issued guidelines on strategic debt restructuring under which conversion of debt into equity and acquisition of ownership interests in the borrower entity by banks
F-130 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements The following table, for the periods indicated, provides details of fair value accounting of Rupees in million
The Group’s shareholding in these entities at March 31,
The following table sets forth, for the periods indicated, the portfolio of investments classified as held for trading.
Rupees in million
F-131 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
The following table sets forth, for the periods indicated, the portfolio of investments classified as available for sale.
Rupees in million
Rupees in million
The fair value of the Group’s investment in equity securities based on readily determinable fair value at March 31, 2023 was Rs. 53,533.0 million (at March 31, 2022: Rs. 48,445.8 million) and fair value of observable orderly transactions at March 31, 2023 was Rs. 8,047.9 million (at March 31, 2022: Rs. 6,699.2 million). The Group recorded a gain of Rs. 1,897.7 million on securities fair valued based on observable price in orderly transactions during fiscal 2023 (fiscal 2022: gain of Rs. 1,635.9 million).
F-132 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
Level 1
Valuation is based upon unadjusted quoted prices of identical instruments traded in active markets. The instruments that have been valued based upon such quoted prices include traded equity shares, mutual funds, government securities, corporate bonds, certificate of deposits, commercial papers, futures and forex spots. The Bank’s Canadian subsidiary has investments in bankers’ acceptances which are valued based on the quoted prices.
Level 2
Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, prices quoted by market participants and prices derived from valuation models which use significant inputs that are observable in active markets. Inputs used include interest rates, yield curves, volatilities, credit spreads, which are available from public sources like Reuters, Bloomberg, Foreign Exchange Dealers Association of India, Financial Benchmark India Private Limited and Fixed Income Money Markets & Derivatives Association of India.
The products include government securities, debentures and bonds, certificate of deposits, commercial papers,
Level 3
Valuation is based on valuation techniques or models which use significant market unobservable inputs or assumptions. Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable or when determination of the fair value requires significant management judgment or estimation. The valuation of
India-linked non-Rupee denominated bonds price is valued by discounting cash flows using rates incorporating fair market spreads published by Bloomberg/Reuters corresponding to the international foreign currency ratings of the issuer (capped at international sovereign rating).
The valuation of Indian pass through certificates is dependent on the estimated cash flows that the underlying trust would pay out. The underlying trust/originator makes a number of assumptions with regard to various variables to arrive at the estimated flows. The cash flow schedule received from the trust is discounted at the base yield curve rates and credit spreads published by Financial Benchmark India Private Limited and Fixed Income Money Markets & Derivatives Association of India at month ends. Accordingly, these instruments are classified as Level 3 instruments. A reduction in the estimated cash flows of these instruments will adversely impact the value of these certificates. A change in the timing of these estimated cash flows will also impact the value of these certificates. Rupee swaptions and Rupee treasury bill interest rate swaps were valued using valuation model and discounted cash flow methodology respectively based on adjustments carried out on market observable proxy as one of the inputs is unobservable. F-133 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
The valuation of certain loans, which have been fair valued as per ASC Subtopic 825-10, is dependent on the estimated cash flows that the underlying borrowers would pay out. The Bank makes a number of assumptions with regard to various variables to arrive at the estimated cash flows. The cash flow schedule is discounted at the current interest rate, which the Bank is likely to offer for loan facilities to borrowers in the similar rating grades, which are not market observable. Accordingly, these loans are classified as Level 3 assets. The value of such loans will be impacted by changes in amount and timing of the estimated cash flows from the borrowers.
The following table sets forth, the information about the Group’s assets and liabilities measured at fair value on a recurring basis at March 31,
The following table sets forth, the information about the Group’s assets and liabilities measured at fair value on a recurring basis at March 31,
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements Rupees in million
The Group holds investments in certain venture capital funds and security receipts. The fair value of these investments has been estimated using the net asset value per unit as declared by such investee entities. The security receipts are issued by asset reconstruction companies with underlying mainly as non-performing loans with objectives of gains through improvement in recoveries on these assets. The venture capital fund units are issued by venture capital funds with underlying investment in equity shares and other instruments with the objective of generating long term returns. Some of the venture capital funds have focused investments in real estate and infrastructure sectors. The cash flow from these investments is expected to happen through distribution upon liquidation of the underlying assets by the asset reconstruction
F-135 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements Transfers
Equity shares of Rs. 604.4 million were transferred from cost to Level 3 as the valuation of these securities was based on management estimation/unobservable market inputs at March 31,
Other securities of Rs. 7.3 million were transferred from cost to Level 3 as the valuation of these securities was based on management estimation/unobservable market inputs at March 31, 2023 as compared to cost based valuation at March 31, 2022.
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements The following table sets forth, certain additional information about changes in the fair value of Level 3 assets for the year ended March 31,
Rupees in million
F-137 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements The following table sets forth, certain additional information about changes in the fair value of Level 3 assets for the year ended March 31, 2022.
Rupees in million
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements The following table sets forth, certain additional information about changes in the fair value of Level 3 derivatives for the year ended March 31,
Rupees in million
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements The following table sets forth, certain additional information about changes in the fair value of Level 3 derivatives for the year ended March 31, Rupees in million
Schedules forming part of the Consolidated Financial Statements
Quantitative information about unobservable inputs used in Level 3 fair value measurements The Group Level 3 instruments consist of investment, loans and derivatives. An asset is classified as Level 3 of the fair value hierarchy when one or more unobservable inputs are used that are considered significant to its valuation. The following table sets forth, significant unobservable inputs used in fair value measurement of Level 3 financial instruments at March 31, 2023.
F-141 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements The following table sets forth, significant unobservable inputs used in fair value measurement of Level 3 financial instruments at March 31, 2022.
F-142 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
The Group adopted ASU Topic 2016-13, “Financial Instruments—Credit Losses” effective April 1, 2020. The Group has determined that certain available for sale debt securities with unrealized losses
The following table sets forth, the fair value of the debt investments in
Rupees in million
The following table sets forth, the fair value of the debt investments in
Rupees in million
The Group also holds certain debt investments with
F-143 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements The following table sets forth, roll-forward of the allowance for credit losses for available for sale debt securities for March 31, 2023:
The following table sets forth, roll-forward of the allowance for credit losses for available for sale debt securities for March 31, 2022:
At March 31,
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
The Group follows the guidance provided in the FASB ASC topic 326: “Financial instruments – Credit Losses” for accounting and measurement of loan loss allowance. This guidance established a single allowance framework for all financial assets measured at amortized cost including unfunded credit facilities and loan commitments. This framework requires that management’s estimate reflects credit losses over the instrument’s remaining expected life and considers expected future changes in macroeconomic conditions. The Group’s allowance for credit losses primarily comprises allowance for loan losses, unfunded credit exposure and non-cancellable loan commitments. The Group does not classify its investment in debt securities as held-to-maturity. The Group does not recognize an allowance on accrued interest as the Group’s policy is to write-off uncollected accrued interest immediately after 90 days past due (based on crop cycle for certain agriculture based loans) by reversing interest income. Any changes in the allowance for credit losses is recognized in the income statement as allowance for credit losses. The estimation of the allowance for credit losses is complex and requires significant management judgment about the effect of certain matters that are inherently uncertain. The allowance for credit losses in future periods may be significantly different, considering the macro-economic conditions, forecasts and other factors then prevailing. The allowance for loan losses and allowance for lending-related commitments represents expected credit losses over the remaining expected life of retained loans and lending-related commitments that are in the nature of non-cancellable by the Group. The expected life of each instrument is determined by considering its contractual term and expected prepayments. The expected life of credit card loans is determined based on the behavioral study by the Group. For the behavioral study, cash flows from the credit card accounts are considered on a first-in-first-out basis on credit card loan outstanding. When calculating the allowance for credit losses, the Group assesses whether exposures share similar risk characteristics. If similar risk characteristics exist, the Group estimates expected credit losses collectively, considering the risk associated with a particular segment and the probability that the exposures within the segment will default. The segmentation for the consumer loans and small business lending exposures is based on risk characteristics such as product type, delinquency status, credit scores, months on book, etc. For Agriculture loans, a further segmentation of risk characteristics is also carried out based on direct and indirect agriculture lending. The segmentation for commercial loans is based on risk characteristics such as customer type, risk rating assigned using internal rating models and delinquency status. The commercial loans are also considered as not sharing similar risk characteristics if principal or interest has remained overdue for more than 90 days or the borrower has undergone restructuring/likely to be restructured. The consumer loan, loan commitment and significant portion of commercial loans and unfunded credit exposure share similar risk characteristic with other credit exposures in the segment, and as a result are collectively assessed for credit loss. If an exposure for commercial loans does not share risk characteristics with other exposures, expected credit losses are estimated on an individual basis. The credit loss on individual basis is either estimated on basis of the present value of expected future cash flows or in case of a collateral dependent loan, the net realizable value of the collateral net of cost to sell, if any. The loans primarily have collateral in the form of business assets or real estate. F-145 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements The credit loss on collective basis is estimated using a current expected credit losses methodology which is based on relevant information about historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the loan balances. The collective assessment begins with a quantitative calculation that considers the likelihood of the borrower defaulting. The quantitative calculation covers expected credit losses over an instrument’s expected life and is the result of multiplying the individual loan level exposure at default with the estimated probability of default and loss given default. The probabilities of default are derived using a macro-economic scenario over a reasonable and supportable forecast period. The term structure for subsequent periods is built using single year reversion to the long run historical information. The forecasts take into consideration the Group’s overarching economic outlook based on internal as well as external inputs and involve a governed process that incorporates feedback from senior management. The quantitative calculation is adjusted to take into consideration model imprecision not yet reflected in the calculation. The geopolitical uncertainties and macroeconomic environment including the outlook on growth across the world and India may have an impact on the results of the Bank and the Group. The Group makes adjustments to appropriately address these economic circumstances over and above the model output by increasing the probability of default estimates based on management judgement. Estimating the timing and amounts of future cash flows is highly judgmental as these cash flow projections rely upon estimates such as loss severities, asset valuations, default rates, the amounts and timing of interest or principal payments (including any expected prepayments) or other factors that are reflective of current and expected market conditions. These estimates are, in turn, dependent on factors such as uncertainty around geo-political situation, current overall economic conditions, portfolio or borrower-specific factors, the expected outcome of insolvency proceedings as well as, in certain circumstances, other economic factors. All of these estimates and assumptions require significant management judgment and certain assumptions are highly subjective.
The following table sets forth the recorded investment in restructured loans at March 31,
Rupees in million
The following table sets forth the recorded investment in restructured loans at March 31,
Rupees in million
F-146 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements A loan is considered impaired when the Group believes it is probable that all amounts due according to the original contractual terms of the loan will not be collected. A loan is generally classified as impaired if any amount of interest or principal remains overdue for more than 90 days (360 days for direct agriculture loans). For large balance commercial loan, evaluation also includes assessment of individual loans based on borrower specific facts and circumstances, including financial performance, future prospects and repayment history of the borrower.
The following table sets forth the recorded investment in
Rupees in million
The following table sets forth the recorded investment in
Rupees in million
The following table sets forth the closing balance of allowance for loan losses for restructured loans and recorded financing receivables at March 31,
Rupees in million
F-147 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements The following table sets forth the closing balance of allowance for loan losses for restructured loans and recorded financing receivables at March 31,
Rupees in million
The following table sets forth the closing balance of allowance for loan losses for other loans and recorded financing receivables at March 31,
Rupees in million
The following table sets forth the closing balance of allowance for loan losses for other loans and recorded financing receivables at March 31,
Rupees in million
F-148 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
The following table sets forth,
Rupees in million The following table sets forth, allowance of credit losses for the unfunded credit commitments for the period ended March 31, 2022:
Rupees in million
The following table sets forth, allowance of credit losses for the unfunded credit commitments for the period ended March 31, 2021: Rupees in million
F-149 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
The following table sets forth loans restructured during the year ended March 31,
Rupees in million
The following table sets forth loans restructured during the year ended March 31, 2022.
Rupees in million
The following table sets forth restructured loans at March 31,
Rupees in million
Additionally, at March 31,
Under U.S. GAAP, the Group accounts for its ownership interest in ICICI Prudential Life Insurance Company Limited (ICICI Life) and ICICI Lombard General Insurance Company Limited (ICICI General) by the equity method of F-150 ICICI Bank Limited and subsidiaries Schedules forming part of the ICICI Life
The following tables set forth, for the periods indicated, the summarized U.S. GAAP balance sheets and statements of operations of Rupees in million
Rupees in million
The income increased to Rs. 11,412.9 million in fiscal 2023 from a loss of Rs. 1,758.2 million in fiscal 2022, primarily due to lower policyholders’ liabilities and unallocated policyholders’ surplus, net of amortization of deferred acquisition cost and lower marked-to-market loss on trading portfolio and equity securities. The aggregate market value of the investment in shares of ICICI Life at March 31, 2023 based on quoted market prices was Rs. 321,374.7 million (At March 31, 2022: Rs. 369,466.6 million). ICICI General The following tables set forth, for the periods indicated, the summarized U.S. GAAP balance sheets and statements of operations of ICICI General. Rupees in million
F-151 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
Rupees in million
The income/(loss) increased from Rs. 10,175.9 million in fiscal 2022 to Rs. 15,123.8 million in fiscal 2023 primarily due to increase in fair value of on equity investments. The aggregate market value of the investment in shares of ICICI General at March 31, 2023 based on quoted market prices was Rs. 252,235.0 million (At March 31, 2022: Rs. 313,271.3 million).
Life insurance affiliate The significant differences between Indian GAAP and U.S. GAAP in case of the life insurance affiliate are primarily on account of: i) Difference in policyholders’ liability and unallocated policyholders’ surplus, net of amortization of deferred acquisition cost Policyholders’ liability Reserves under Indian GAAP are held as per the requirements of Insurance Act, 1938, regulations notified by the Insurance Regulatory and Development Authority of India and Actuarial Practice Standards of the Institute of Actuaries of India. Accordingly, the reserves are computed using the Gross Premium Method (reserves are computed as the present value of future benefits including future bonuses and the present value of expenses including overheads and are net of the present value of future total premiums, paid by policyholders). The discount rates used are on prudent basis which change at every fiscal year end. Reserves under U.S. GAAP are valued using the Modified Net Premium Method as per the valuation norms prescribed under U.S. GAAP. The liability under U.S. GAAP consists of two parts, namely, policy reserves (comprising benefit reserve and maintenance expense reserve) and deferred profit liability. F-152 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements The benefit reserve is computed as the present value of guaranteed benefits less the present value of the net premium for benefits. The maintenance expense reserve is computed as the present value of maintenance expenses less the present value of net premiums for maintenance expenses. Deferred profit liability is held in accordance with ASC Topic 944-40-25-28 for products where the premium paying term is shorter than the policy term so as to allow the emergence of the profits over the entire policy term. The discount rates used for non-linked products represent best estimate with a provision for adverse deviation and are on locked-in basis, where the assumptions change at every fiscal year end only for the new business sold with in the fiscal year. Such assumptions include mortality, morbidity, policy expenses, policy lapse, policy surrenders and interest rates. Under unit-linked products, the excess of initial charges over ultimate charges is held as unearned revenue reserve to allow for the emergence of the profit over the term of the policy. The discount rates used are on best estimate basis and change at every financial year end. Unallocated policyholders’ surplus Participating policyholders are entitled to 90% of the surplus generated in the fund, which is given in the form of bonus. Under Indian GAAP, based on the recommendation of Appointed Actuary, 1/9th of the bonus declared is transferred to the shareholders and remaining surplus after the transfer is held back as Funds for future appropriation. Under U.S. GAAP, 10% of the surplus is transferred to shareholders and 90% is held back as unallocated policyholders’ surplus for participating policyholders. Amortization of deferred acquisition cost Under U.S GAAP, acquisition costs are those costs that vary with and are primarily related to the acquisition of new and renewal of existing insurance contracts. If an acquisition cost has substantial future utility, and is clearly associated with (and recoverable from) future revenue, it may be considered for deferral. These costs are referred to as deferrable acquisition costs. The deferrable acquisition cost asset amortizes over time with a pattern of amortization that is proportional to revenues. Deferrable acquisition costs amortization for the accounting period is recognized as an expense in the income statement. In case of deferrable acquisition cost amortization for non-linked products, the unamortized balance of deferrable acquisition cost is reflected as an asset on the balance sheet. The assumptions used to calculate deferrable acquisition costs are the same as those used for policy reserves. The deferred acquisition costs are amortized in proportion to premium revenue recognition for non linked insurance products and is based on the estimated gross profits for unit linked and universal life products as per ASC Topic “Financial Services – Insurance”. The estimated gross profits are made up of margins available from mortality and contract administration, investment earnings spreads, surrender charges and other expected assessments and credits. Under Indian GAAP, acquisition cost is charged to the revenue account in the year in which it is incurred whereas under U.S. GAAP, the acquisition costs that are related directly to the successful acquisition of new or renewal insurance contracts and is deferred over the policy term.
Accounting for employee stock options Under Indian GAAP, stock compensation costs are accounted for using the intrinsic value method as compared to U.S. GAAP where the stock compensation costs have been accounted for based on fair value method. F-153 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements Retirement benefit cost Under Indian GAAP, all actuarial gains/losses are recognized on the balance sheet of the enterprise in the year in which they arise through suitable credit/debit in the profit and loss account of the year. Under U.S. GAAP, actuarial gains/losses are accounted in Other Comprehensive Income. Subsequently cumulative actuarial gain/loss lying in the Other Comprehensive Income which is over and above 10% corridor is amortized through profit and loss account. Further, discount rate for computing benefit obligation is linked to yield on high quality fixed income securities in U.S. GAAP as compared to yield on Government securities under Indian GAAP.
Under Indian GAAP, accounting for investments is in accordance with the guidelines issued by the Insurance Regulatory and Development Authority of India, which do not allow the unrealized gain to be routed through the revenue account except in the case of linked business. A linked life insurance policy is a policy in which the cash value of the policy varies according to the net asset value of units (i.e., shares) in investment assets chosen by the policyholder. Under U.S. GAAP, unrealized gain/(loss) on investments classified as “held for trading” is taken to the profit and loss account. Under U.S. GAAP, unrealized gain/losses on equity securities are recognized in profit and loss account. iv) Income taxes The differences in the accounting for income taxes are primarily on account of the income tax impact of non-tax U.S. GAAP adjustments. v) Lease Under Indian GAAP, expenses towards operating lease is charged to profit and loss account on a straight line basis. Under U.S. GAAP, a right to use asset and a lease liability is required to be recognized at the commencement of the lease for all lease on adoption of FASB ASC 842- “Leases” and a single lease cost is recognized, which is calculated such that the cost of the operating lease is allocated over the lease term on a generally straight-line basis. The following table sets forth, for the periods indicated, the significant differences between Indian GAAP and U.S. GAAP in case of the life insurance affiliate.
Rupees in million
F-154 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements The profit under Indian GAAP increased from Rs. 7,592.0 million in fiscal 2022 to Rs. 8,134.9 million in fiscal 2023, net income under U.S. GAAP increased from a loss of Rs. 1,758.2 million in fiscal 2022 to an income of Rs. 11,412.9 million in fiscal 2023. In fiscal 2023, the total comprehensive income was Rs. 1,443.4 million as compared to total comprehensive loss of Rs. 16,973.5 million in fiscal 2022. The unrealized loss on the trading portfolio and equity securities decreased from Rs. 12,544.7 million in fiscal 2022 to Rs. 4,532.8 million in fiscal 2023. This reduction was primarily due to lower marked-to-market losses in debt securities and marked-to-market gains in equity securities. In fiscal 2023, the marked-to-market loss recognized in net income on the debt securities was Rs. 4,683.4 million (compared to Rs. 6,466.3 million in fiscal 2022), out of which a loss of Rs. 4,562.2 million (compared to Rs. 6,302.4 million in fiscal 2022) was recognized in participating funds. Furthermore, the marked-to-market gain recognized on equity securities in fiscal 2023 was Rs. 150.6 million (compared to a marked-to-market loss of Rs. 6,078.4 million in fiscal 2022), with a gain of Rs. 1,458.6 million (compared to a marked-to-market loss of Rs. 4,815.6 million in fiscal 2022) recognized on the equity securities of shareholders’ fund. Under U.S. GAAP, the policyholders' liabilities and unallocated policyholders' surplus, net of amortization of deferred acquisition cost, were lower by Rs. 8,502.5 million in fiscal 2023 compared to Indian GAAP. In fiscal 2022, the difference was lower by Rs. 1,479.4 million. In fiscal 2023, the liabilities recognized through the income statement towards unallocated policyholders' surplus under U.S. GAAP were lower by Rs. 7,339.6 million compared to Indian GAAP, primarily due to the marked-to-market loss on the debt portfolio of participating funds. In fiscal 2022, the liabilities recognized through the income statement towards unallocated policyholders' surplus under U.S. GAAP were lower by Rs. 3,590.7 million compared to Indian GAAP, primarily due to the marked-to-market loss on the debt portfolio of participating funds. The liabilities associated with Guaranteed Savings Insurance Plan product include the impact of marked-to-market gain/loss on underlying investments. Under U.S. GAAP, the changes in liabilities related to Guaranteed Savings Insurance Plan are recognized through net income, while the marked-to-market changes in underlying debt investments, classified as available-for-sale investments, is recognized through other comprehensive income. During fiscal 2023, the life insurance affiliate recognized a marked-to-market loss of Rs. 4,995.2 million (compared to a marked-to-market loss of Rs. 5,028.1 million in fiscal 2022) on available-for-sale debt securities through other comprehensive income, while the related change in liability was recognized through net income. Other comprehensive income arising from policyholders’ assets classified as available for sale decreased on account of unrealized loss of Rs. 11,667.8 million in fiscal 2023 (fiscal 2023: unrealized loss of Rs. 17,777.5 million). The following table sets forth, for the periods indicated, the components of income taxes in net income reconciliation of ICICI Life. F-155 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements Rupees in million General insurance affiliate The significant differences between Indian GAAP and U.S. GAAP in case of the general insurance affiliate are primarily on account of:
Under Indian GAAP, reinsurance commission on business ceded is recognized as income in the year of the ceding of the risk. Under U.S. GAAP, proceeds from reinsurance transactions that represent recovery of acquisition costs are reduced from unamortized acquisition costs in such a manner that net acquisition costs are capitalized and charged to expense in proportion to net revenue recognized over the related policy period.
Under Indian GAAP, acquisition cost is charged as an expense to the revenue account in the year in which it is incurred whereas under U.S. GAAP, the same is deferred and charged as an expense in proportion to premium revenue recognized as per ASC Topic 944 “Financial Services-Insurance”. Accordingly, certain acquisition costs specified in Accounting Standards Update 2010-26 have been deferred that are related directly to the successful acquisition of new or renewal insurance contracts.
Under Indian GAAP, premium deficiency is recognized if the sum of the expected claims costs, related expenses and maintenance costs exceed related unearned premiums. Under Indian GAAP, for assessment of premium deficiency, line of business are segmented under “Fire”, “Marine”, “Miscellaneous” segments. Under U.S. GAAP premium deficiency is assessed for each line of business and recognized in the profit & loss account if the sum of expected claim costs and claims adjustment expenses, expected dividends to policyholders, un-amortized acquisition costs and maintenance costs exceed related unearned premiums. A premium deficiency is recognized by first charging acquisition costs to expense, to the extent required to eliminate the deficiency. If the premium deficiency is greater than un-amortized acquisition costs, a liability for the excess deficiency is required to be accrued.
Accounting for employee stock options Under Indian GAAP, stock compensation costs are accounted for by the intrinsic value method as compared to U.S. GAAP where the compensation costs have been accounted for at the fair value method in accordance with the requirement of FASB ASC Topic 718 “Compensation-Stock Compensation”. Retirement benefit cost Under Indian GAAP, all actuarial gains/losses are recognized on the balance sheet of the enterprise in the year in which they arise through suitable credit/debit in the profit and loss account of the year. Under U.S. GAAP, actuarial gains/losses are accounted in Other Comprehensive Income. Subsequently cumulative actuarial gain/loss lying in the Other Comprehensive Income which is over and above 10% corridor is amortized through profit and loss account. Further, discount rate for computing benefit obligation is linked to yield on high quality fixed income securities in U.S. GAAP as compared to yield on government securities under Indian GAAP. F-156 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
Under Indian GAAP, all unrealized gains/ (losses) on equity investments are recognized through reserves. Under U.S. GAAP, unrealized gains/ (losses) on equity investments are recognized through income statement.
The differences in the accounting for income taxes are primarily on account of the income tax impact of non-tax U.S. GAAP adjustments.
Under Indian GAAP, expenses towards operating lease is charged to profit and loss account on a straight line basis. Under U.S. GAAP, a right to use asset and a lease liability is required to be recognized at the commencement of the lease for all lease on adoption of FASB ASC 842- “Leases” and a single lease cost is recognized, which is calculated such that the cost of the operating lease is allocated over the lease term on a generally straight-line basis.
During fiscal 2022, in accordance with the Scheme of Arrangement between ICICI Lombard General Insurance Company Limited and Bharti AXA General Insurance Company Limited, as approved by Insurance Regulatory and Development Authority of India with effect from September 8, 2021, assets and liabilities of Bharti AXA General Insurance Company Limited’s general insurance business vested with ICICI Lombard General Insurance Company Limited on the Appointed Date of April 1, 2020. ICICI Lombard General Insurance Company Limited issued two fully paid up equity shares to the shareholders of Bharti AXA General Insurance Company Limited for every 115 fully paid up equity shares. Under Indian GAAP the merger was accounted using the “Pooling of Interest Method” as prescribed in Accounting Standard 14 “Accounting for Amalgamations” where all the assets, liabilities and reserves of the Bharti AXA’s general insurance business were recorded in their existing form and at their carrying value and the excess of consideration paid over net assets taken-over was adjusted with the reserve and surplus account. Under US GAAP, the merger was accounted in accordance with ASC 805 – Business Combinations where all the assets and liabilities were measured at fair value on September 8, 2021 of merger. Goodwill was measured as excess of consideration paid over the net assets taken over. Accordingly under US GAAP, ICICI Lombard General Insurance Company Limited recognized intangible assets of Rs. 1,230.0 million and goodwill of Rs. 46,454.5 million. The goodwill is tested for impairment on annual basis and intangible assets are amortized over the useful life. The following table sets forth, for the periods indicated, the details of the significant differences between Indian GAAP and U.S. GAAP for the general insurance affiliate. F-157 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements Rupees in million
The profit under Indian GAAP increased from Rs. 12,710.1 million in fiscal 2022 to Rs. 17,290.5 million in fiscal 2023, profit under U.S. GAAP increased from Rs. 10,175.9 million in fiscal 2022 to Rs. 15,123.8 million in fiscal 2023. Total comprehensive income under U.S. GAAP increased from Rs. 8,394.7 million in fiscal 2022 to Rs. 10,413.0 million in fiscal 2023. The unrealized loss on available for sale debt securities increased from Rs. 2,763.0 million in fiscal 2022 to Rs. 6,010.8 million in fiscal 2023. Reinsurance commission on premium ceded is recognized as income in the year of the ceding of the risk under Indian GAAP and recognized over the policy period under U.S. GAAP. Reinsurance commission income was lower by Rs. 1,171.9 million under U.S. GAAP as compared to Indian GAAP in fiscal 2023 (higher by Rs. 1,511.7 million in fiscal 2022). This decrease was primarily due to increase in reinsurance commission of health attachment business in fiscal 2023 resulting in higher deferral under U.S. GAAP, which was accounted as upfront under Indian GAAP in fiscal 2023. Deferred acquisition cost resulted in income of Rs. 531.3 million in fiscal 2023 (fiscal 2022: cost of Rs. 125.0 million) under U.S. GAAP as compared to Indian GAAP primarily due to higher deferred acquisition cost incurred during fiscal 2023 as compared to fiscal 2022. Unrealized loss on equity investments decreased from Rs. 2,791.4 million in fiscal 2022 to Rs. 413.6 million in fiscal 2023 primarily due to equity market movement in March 2023. While, these gains/losses are accounted through fair value change account in balance sheet under Indian GAAP, under U.S. GAAP these gains/losses are accounted through net income. The following table sets forth, for the periods indicated, the components of income taxes in net income reconciliation of the general insurance affiliate. Rupees in million
F-158
Schedules forming part of the Consolidated Financial Statements i)Goodwill and intangible assets
The following table sets forth, for the periods indicated, a listing of goodwill and intangible assets, by category under U.S. GAAP.
Rupees in million
The following table sets forth, for the periods indicated, the changes in goodwill under U.S. GAAP.
Rupees in million
The following table sets forth, for the periods indicated, the changes in intangible assets under U.S. GAAP.
Rupees in million
The Group has assigned goodwill to reporting units. The Group tests its goodwill for impairment on an annual basis at a reporting unit level. The fair value of the reporting units was F-159 ICICI Bank Limited and subsidiaries Schedules forming part of the
Gratuity
In accordance with Indian regulations, the Group provides for gratuity, a defined benefit retirement plan covering all employees. The plan provides a lump sum payment to vested employees at retirement, death or termination of employment based on the respective employee’s salary and the years of employment with the Group. The gratuity benefit provided by the Group 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 through a fund administered by a Board of Trustees and managed by ICICI Prudential Life Insurance Company Limited. The parent company is responsible for settling the gratuity obligation through contributions to the fund.
In respect of the remaining entities within the Group, the gratuity benefit is provided through annual contributions to a fund administered and managed by Life Insurance Corporation of India (LIC) and ICICI Prudential Life Insurance Company Limited. Under this scheme, the settlement obligation and contribution to be paid remains with the Group, although LIC and ICICI Prudential Life Insurance Company Limited administer the scheme.
The following table sets forth, for the periods indicated, the funded status of the plans and the amounts recognized in the financial statements.
Rupees in million
F-160 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements The following table sets forth, for the periods indicated, the components of the net gratuity cost.
Rupees in million
The discount rate for the corresponding tenure of obligations for gratuity is selected by reference to local government security yield with a premium added to reflect the additional risk for AAA rated corporate bonds.
The following table sets forth, for the periods indicated, the weighted average assumptions used to determine net periodic benefit cost.
The following table sets forth, for the periods indicated, the weighted average assumptions used to determine benefit obligations.
Plan assets
The Group 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 7 to 8 years.
The following table sets forth, for the periods indicated, the Group’s asset allocation for gratuity by asset category based on fair values.
Rupees in million
F-161 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
The following table sets forth, for the periods indicated, the Group’s target asset allocation for gratuity by asset category.
The plan assets primarily consist of investments made in funds managed by external entities, which are primarily in equity, money market instruments and debt instruments in different proportions depending on the objective of schemes. The value of the plan assets in funds managed by ICICI Prudential Life Insurance Company Limited has been arrived at based on the net asset value per unit of individual
ICICI Prudential Life Insurance Company Limited 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 strategies are targeted to produce a return that, when combined with the Group’s contribution to the funds will maintain the fund’s ability to meet all required benefit obligations. ICICI Prudential Life Insurance Company Limited functions within the regulated investment norms.
LIC administers the plan fund and it independently determines the target allocation by asset category. The selection of investments and the asset category is determined by LIC. The investment strategy is to invest in a prudent manner to produce a return that will enable the fund to meet the required benefit obligations. LIC, which is owned by Government of India, functions within regulated investment norms.
The plan assets are mainly invested in various gratuity schemes of the insurance companies to limit the impact of individual investment. The Group’s entire investment of plan assets is in India and
F-162 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements The following table sets forth, the benefit expected to be paid in each of the next five fiscal years and thereafter.
Rupees in million
The expected benefits are based on the same assumptions as used to measure the Group’s benefit obligation at March 31,
Pension
The Group 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 Group. Employees covered by the pension plan are not eligible for benefits under the provident fund plan. The pension plan pertained to the employees of erstwhile Bank of Madura, erstwhile Sangli Bank and erstwhile Bank of Rajasthan which were acquired with effect from March 2001, April 2007 and August 2010 respectively. The
Group makes contribution to a trust which administers the funds on its own account or through insurance companies.
The following table sets forth, for the periods indicated, the funded status of the plan and the amounts recognized in the financial statements.
Rupees in million
F-163 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
The following table sets forth, for the periods indicated, the components of the net pension cost.
Rupees in million
The discount rate for the corresponding tenure of obligations for pension is selected by reference to government security yield with a premium added to reflect the additional risk corresponding to AAA rated corporate bonds.
The following table sets forth, for the periods indicated, the weighted average assumptions used to determine net periodic benefit cost.
The following table sets forth, for the periods indicated, the weighted average assumptions used to determine benefit obligations.
The compensation escalation rate eligible for pension was determined at the time of acquisition and the same escalation rate is consistently considered for computation of benefit obligations and periodic cost. F-164 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
Plan Assets
The Group 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 7 to 8 years.
The following table sets forth, for the periods indicated, the Group’s asset allocation and target asset allocation for pension by asset category based on fair values.
Rupees in million
The
The Group’s entire investment of plan assets are in India and invested in government securities, corporate bonds, equity securities and equity traded funds. Trustees manage the plan assets of the Group by investing in above securities as per the investment pattern and guidelines prescribed under the Indian income tax law. Securities are purchased after considering credit rating, comparative yields and tenure of investment.
The following table sets forth, the benefit expected to be paid in each of the next five fiscal years and thereafter.
Rupees in million
The expected benefits are based on the same assumption as used to measure the Group’s benefit obligation at March 31,
The Group as lessee
F-165 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements Operating lease Operating lease liabilities and right of use assets are recognized at the lease commencement date based on the present value of the future minimum lease payments over the lease term. The future lease payments are discounted at a rate that represents the Group’s incremental borrowing rate for financing instruments of a similar term and are included in accounts payable and other liabilities. The operating lease right of use asset, included in premises and equipment, also includes any lease prepayments made, plus initial direct costs incurred, less any lease incentives received. Rental expense associated with operating leases is recognized on a straight-line basis over the lease term, and is included in the consolidated statements of income. The following table sets forth, the information related to the Group’s operating leases. Rupees in million
The following table sets forth, the future payments under operating leases as of March 31, 2023. Rupees in million
The Group does not have any other significant future commitments at the end of fiscal 2023. F-166 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements Finance lease Finance lease liabilities and right of use assets are recognized at the lease commencement date based on the present value of the future minimum lease payments over the lease term. The future lease payments are discounted at a rate that represents the implicit rate in the lease. Rental expense associated with finance leases is recognized on a straight-line basis over the lease term, and is included in the consolidated statements of income. The following tables provide information related to the Bank’s finance leases: Rupees in million
The following table sets forth, the future payments under finance leases as of March 31, 2023. Rupees in million
Lease cost The Group’s lease cost recognized in profit and loss account during the fiscal year
F-167 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements I) Income taxes
Components of deferred tax balances
The following table sets forth, for the periods indicated, components of the deferred tax balances.
Rupees in million
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent on the generation of future taxable income during the periods in which the temporary differences become deductible. Management considers carryback availability, the scheduled reversal of deferred tax liabilities,
The Indian statutory income tax rate, including surcharge and cess was
Reconciliation of income tax
The following table sets forth, for the periods indicated, a reconciliation of expected income
F-168 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements Rupees in million
F-169 ICICI Bank Limited and subsidiaries Schedules forming part of the
Accounting for uncertainty in income taxes
The Group has a policy to include interest and penalties on income taxes, if any, within interest expense or income and income tax expense respectively. However, no interest expense has been recognized in view of the adequate income taxes paid by the
The Group has recognized income with respect to interest accrued or received on tax refunds due to the Group against favourable orders received from tax authorities amounting to Rs.
The following table sets forth, for the periods indicated, a reconciliation of the beginning and ending amount of unrecognized tax benefits.
Rupees in million
The Group’s total unrecognized tax benefits, if recognized, would reduce
The Group’s major tax jurisdiction is India and the assessments are not yet completed for fiscal
Significant changes in the amount of unrecognized tax benefits within the next 12 months cannot be reasonably estimated as the changes would depend upon the progress of tax examinations with various
Basic earnings per share is net income per weighted average equity shares. Diluted earnings per share reflects the effect that existing options would have on the basic earnings per share if they were to be exercised, by increasing the number of equity shares.
F-170 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements The basic and diluted earnings per share under U.S. GAAP differs to the extent that income under U.S. GAAP differs.
The following table sets forth, for the periods indicated, the computation of earnings per share as per U.S. GAAP.
Rupees in million, except per share data
The following table sets forth, for the periods indicated, details of comprehensive income.
Rupees in million
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements o) Guarantees
As a part of its
The credit risks 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 Group’s obligations under the guarantees at March 31,
The following table sets forth, the details of guarantees outstanding at March 31,
Rupees in million
The following table sets forth, the details of guarantees outstanding at March 31, 2022. Rupees in million
The Group has collateral available to reimburse potential losses on its guarantees. At March 31,
Performance risk
For each corporate borrower, a credit rating is assigned at the time the exposure is being evaluated for approval and the rating is reviewed periodically thereafter. At the time of assigning a credit rating, the possibility of non-performance or non-payment is evaluated. Additionally, an assessment of the borrower's capacity to repay obligations in the event of invocation is also evaluated. Thus, a comprehensive risk assessment is undertaken at the time of sanctioning such
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
Statutory liquidity requirement
In accordance with the Banking Regulation Act, 1949, the Bank is required to maintain a specified percentage of its net demand and time liabilities by way of liquid unencumbered assets like cash, gold and approved securities. The amount of securities required to be maintained at March 31,
Capital Adequacy
The Bank
At March 31,
The total capital adequacy ratio of the Bank calculated in accordance with the Reserve Bank of India guidelines on Basel III at March 31,
F-173 ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
From September 8, 2021 (the effective date of merger), ICICI General ceased to be a subsidiary and became affiliate of the Bank and accordingly has been accounted as per the equity method of accounting in Consolidated Financial Statements under U.S. GAAP. Accordingly, the numbers for previous periods may not be comparable. For and on behalf of Board of Directors
Mumbai July 28, 2023 F-174
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|