UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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
[x] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended March 31, 2000
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from
_____________ to _____________
Commission File Number 333-10792
ICICI LIMITED
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant's name into English)
Mumbai, Maharashtra, India
(Jurisdiction of incorporation or organization)
ICICI Towers
Bandra-Kurla Complex
Mumbai - 400051
(Address of principal executive or organization)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of Each Class Name of Each Exchange on Which Registered
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act.
American Depositary Share
each represented by 5 Equity Shares, par value Rs. 10 share.
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
Not Applicable
(Title of Class)
Indicate 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 - 785,311,548 Equity Shares
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 month (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 X No______
Indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17 Item 18 X
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TABLE OF CONTENTS
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Cross Reference Sheet ..................................................... 3
Certain Definitions. ...................................................... 5
Forward-Looking Statements ................................................ 6
Exchange Rates. ........................................................... 7
Risk Factors .............................................................. 8
Business
Overview. ........................................................... 20
History. ............................................................ 21
Shareholding Structure and Relationship with the Government of India. 22
Our Strategy. ....................................................... 23
Overview of Our Products and Services. .............................. 27
Corporate Banking Activities. ....................................... 27
Retail Banking Activities. .......................................... 34
Client Coverage. .................................................... 38
Distribution Network. ............................................... 39
Investments. ........................................................ 41
Technology. ......................................................... 44
Competition. ........................................................ 48
Other Activities. ................................................... 49
Subsidiaries and Affiliates. ........................................ 50
Risk Management. .................................................... 53
Loan Portfolio. ..................................................... 70
Non-Performing Loans. ............................................... 73
Funding. ............................................................ 81
Properties. ......................................................... 86
Legal and Regulatory Proceedings. ................................... 86
Employees. .......................................................... 87
Selected Consolidated Financial and Operating Data. ....................... 89
Management's Discussion and Analysis of Financial Condition and Results of
Operations. ......................................................... 95
Management. ............................................................... 124
Overview of the Indian Financial Sector. .................................. 138
Supervision and Regulation. ............................................... 150
Exchange Controls. ........................................................ 158
Nature of the Indian Securities Trading Market. ........................... 160
Restriction on Foreign Ownership of Indian Securities. .................... 171
Dividends. ................................................................ 174
Taxation. ................................................................. 175
Use of Proceeds ........................................................... 181
Presentation of Financial Information ..................................... 182
Additional Information .................................................... 183
Selected Financial Information for ICICI under Indian GAAP ................ 185
Significant Differences between Indian GAAP and US GAAP ................... 188
Index to US GAAP Consolidated Financial Statements. ....................... F-1
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CROSS REFERENCE SHEET
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
See "Exchange Rates", "Risk Factors" and "Selected Consolidated Financial and
Operating Data".
Item 4. Information on the Company
See "Business", "Overview of the Indian Financial Sector" and "Supervision and
Regulation".
Item 5. Operating and Financial Review and Prospects
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations".
Item 6. Directors, Senior Management and Employees
See "Management" and "Business--Employees".
Item 7. Major Shareholders and Related Party Transactions
See "Business--Shareholding Structure and Relationship with the Government of
India" and "Management--Interest of Management in Certain Transactions".
Item 8. Financial Information
See the Report of Independent Auditors on ICICI's US GAAP Consolidated
Financial Statements and ICICI's US GAAP Consolidated Financial Statements and
the notes thereto.
Item 9. The Offer and Listing
See "Nature of the Indian Securities Trading Market".
Item 10. Additional Information
See "Exchange Controls", "Restriction on Foreign Ownership of Indian
Securities", "Dividends", "Taxation" and "Additional Information".
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Item 12. Description of Securities Other than Equity Securities
Not applicable.
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
See "Use of Proceeds".
PART III
Item 18. Financial Statements
See the Report of Independent Auditors on ICICI's US GAAP Consolidated
Financial Statements and ICICI's US GAAP Consolidated Financial Statements and
the notes thereto.
Item 19. Exhibits
See the Exhibit Index and attached exhibits, if any.
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CERTAIN DEFINITIONS
In this annual report, all references to the "ICICI group", "the group",
"we", "our" and "us" are to ICICI Limited and its consolidated subsidiaries.
They also include, as the context requires, references to activities that are
carried out by specific group entities. References to specific data applicable
to particular group companies are made by reference to the name of that
particular company. References to "ICICI" are to ICICI Limited on an
unconsolidated basis.
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FORWARD-LOOKING STATEMENTS
We have included statements in this annual report which contain words or
phrases such as "will", "aim", "will likely result", "believe", "expect", "will
continue", "anticipate", "estimate", "intend", "plan", "contemplate", "seek
to", "future", "objective", "goal", "project", "should", "will pursue" and
similar expressions or variations of such expressions, that are
"forward-looking statements". Actual results may differ materially from those
suggested by the forward-looking statements due to certain risks or
uncertainties associated with our expectations with respect to, but not limited
to, our ability to successfully implement our strategy, future levels of
non-performing loans, our growth and expansion, the adequacy of our allowance
for credit and investment losses, technological changes, investment income,
cash flow projections and our exposure to market risks. By their nature,
certain of the market risk disclosures are only estimates and could be
materially different from what actually occur in the future. As a result,
actual future gains, losses or impact on net interest income could materially
differ from those that have been estimated.
In addition, other factors that could cause actual results to differ
materially from those estimated by the forward-looking statements contained in
this annual report include, but are not limited to: general economic and
political conditions in India, south east Asia, and the other countries which
have an impact on our business activities or investments, the monetary and
interest rate policies of India, inflation, deflation, unanticipated turbulence
in interest rates, foreign exchange rates, equity prices or other rates or
prices, the performance of the financial markets in India and globally, 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 further discussion on the factors that could cause actual
results to differ, see the discussion under "Risk Factors" contained in this
annual report.
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EXCHANGE RATES
Fluctuations in the exchange rate between the Indian rupee and the US
dollar will affect the US dollar equivalent of the Indian rupee price of the
equity shares on the Indian stock exchanges and, as a result, will likely
affect the market price of the ADSs in the United States. These fluctuations
will also affect the conversion into US dollars by the depositary of any cash
dividends paid in Indian rupees on the equity shares represented by ADSs.
On an average annual basis, the rupee has consistently declined against
the dollar since 1980. In early July 1991, the government of India adjusted
the rupee downward by an aggregate of approximately 20.0% against the dollar
as part of an economic package designed to overcome an external payments
crisis.
The following table sets forth, for the periods indicated, certain
information concerning the exchange rates between Indian rupees and US dollars
based on the noon buying rate:
Fiscal Year Period End(1) Average(1)(2)
--------------------------------------------------------------------------
1996 ......................... 34.35 33.47
1997 ......................... 35.88 35.70
1998 ......................... 39.53 37.37
1999 ......................... 42.50 42.27
2000 ......................... 43.65 43.46
2001 (through September 15) .. 45.85 44.80
Month High Low
-------------------------------------------------------------------
March 2000 ................... 43.65 43.58
April 2000 ................... 43.75 43.63
May 2000 ..................... 44.65 43.67
June 2000 .................... 44.85 44.65
July 2000 .................... 45.15 44.69
August 2000 .................. 46.05 45.15
_____________
(1) The noon buying rate at each period end and the average rate for each
period differed from the exchange rates used in the preparation of our
consolidated financial statements.
(2) Represents the average of the noon buying rate on the last business day of
each month during the period.
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 above, or at all. Except in certain sections
which are based on publicly available data, all translations from rupees to
dollars are based on the noon buying rate in the City of New York for cable
transfers in rupees at March 31, 2000. The Federal Reserve Bank of New York
certifies this rate for customs purposes on each date the rate is given. The
noon buying rate on March 31, 2000 was Rs. 43.65 per US$ 1.00. The noon buying
rate on September 15, 2000 was Rs. 45.85 per US$ 1.00. The exchange rates used
for convenience translations differ from the actual rates used in the
preparation of our consolidated financial statements.
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RISK FACTORS
You should carefully consider the following risk factors as well as the
other information contained in this annual report in evaluating us and our
business.
Risks Relating to India
A slowdown in economic growth in India could cause our business to suffer.
Our performance and the quality and growth of our assets are necessarily
dependent on the health of the Indian economy. The Indian economy has shown
sustained growth over the past five years with real GDP increasing from Rs.
7,813.5 billion (US$ 179.0 billion) in fiscal 1994 to Rs. 11,513.6 billion
(US$ 263.8 billion) in fiscal 2000. However, there was a slowdown in
industrial growth in fiscal 1997 and 1999. Industrial production in India
suffered during these years as a result of the global downturn in commodity
prices, particularly in the man-made fibers, iron and steel and textile
sectors. This slowdown in the industrial growth also had an adverse impact on
manufacturing industries. Although, industrial growth recovered in fiscal
2000, any future slowdown in the Indian economy or future volatility of global
commodity prices, in particular oil and steel prices, could adversely affect
our borrowers and contractual counterparties. This in turn could adversely
affect our business, including our ability to grow our asset portfolio, the
quality of our assets, and our ability to implement our strategy.
A significant change in the Indian government's economic liberalization
and deregulation policies could disrupt our business and cause the price
of our equity shares and our ADSs to go down.
We are an Indian group and almost all of our assets and customers are
located in India. The Indian government has traditionally exercised and
continues to exercise a dominant influence over many aspects of the economy.
Its economic policies have had and could continue to have a significant effect
on private-sector entities, including us, and on market conditions and prices
of Indian securities, including our equity shares and our ADSs.
Since 1996, the government of India has changed four times. The most
recent parliamentary elections were completed in October 1999. A coalition
government led by the Bhartiya Janata Party was formed with A.B. Vajpayee as
the prime minister of India. Although the Vajpayee government has continued
India's current economic liberalization and deregulation policies, a
significant change in the government's policies could adversely affect business
and economic conditions in India in general as well as our business, our future
financial performance and the price of our equity shares and our ADSs.
Financial instability in other countries, particularly emerging market
countries in Asia, could disrupt our business and cause the price of our
equity shares and our ADSs to go down.
The Indian market and the Indian economy are influenced by economic and
market conditions in other countries, particularly emerging market countries in
Asia. Financial turmoil in Asia, Russia and elsewhere in the world in recent
years has affected the Indian economy even though India was relatively
unaffected by the financial and liquidity crisis experienced elsewhere.
Although economic conditions are different in each country, investors'
reactions to developments in one country can have adverse effects on the
securities of companies in other countries, including India. A loss of investor
confidence in the financial systems of other emerging markets may cause
increased volatility in Indian financial markets and indirectly, in the Indian
economy in general. Any worldwide financial instability could also have a
negative impact on the Indian economy. Financial disruptions may happen again
and could have an
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adverse effect on our business, our future financial performance or the price
of our equity shares and our ADSs.
Deteriorating trade deficits and economic sanctions could cause our
business to suffer and the price of our equity shares and our ADSs to go
down.
India's trade relationships with other countries can also influence Indian
economic conditions. In fiscal 2000, India experienced a trade deficit of Rs.
741.2 billion (US$ 17.0 billion). If trade deficits increase or are no longer
manageable, the Indian economy, and therefore our business and the price of our
equity shares and our ADSs, could be adversely affected.
In May 1998, the United States imposed economic sanctions against India in
response to India's continued testing of nuclear devices. These sanctions have
now partly been lifted. We cannot be sure, however, that these sanctions would
not be reactivated or that additional economic sanctions of this nature will
not be imposed by the United States or any other country, or that such
sanctions will not have a material adverse effect on our business, our future
financial performance or the price of our equity shares and our ADSs.
A significant change in the composition of the Indian economy may affect
our business.
The Indian economy is in a state of transition. The share of the services
sector of total GDP is rising while that of the industrial and agricultural
sector is declining. It is difficult to gauge the impact of such fundamental
economic changes on our business. We cannot be certain that these changes will
not have a material adverse effect on our business.
If regional hostilities increase, our business could suffer and the price
of our equity shares and our ADSs could go down.
India has from time to time experienced social and civil unrest and
hostilities with neighboring countries. During May-July 1999, there were armed
conflicts over parts of Kashmir involving the Indian army and infiltrators from
Pakistan into Indian territory. India and Pakistan were in a heightened state
of hostilities with significant loss of life and troop conflicts. The
hostilities have since substantially abated. The hostilities between India and
Pakistan are particularly threatening because both India and Pakistan are
nuclear powers. Additionally, Pakistan experienced a military coup in October
1999 and has been under military rule since that time, resulting in further
tensions between India and Pakistan. Although these recent hostilities and the
change of government in Pakistan did not have an adverse impact on our
business, we cannot be certain that hostilities will not happen in the future.
If this was to occur, it is possible that such hostilities could lead to
political or economic instability in India and a possible adverse effect on our
business, our future financial performance and the price of our equity shares
and our ADSs.
Risks Relating to Our Business
Because the regulations for the classification and treatment of
non-performing loans in India are not as stringent as regulations in the
US and other developed economies, we are likely to classify and reserve
against non-performing loans significantly later than our counterparts in
more developed countries and we may not set aside comparable amounts of
allowance for credit losses.
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The Indian financial system is primarily regulated by the Reserve Bank of
India. Rules and regulations relating to banks and financial institutions in
India are less restrictive than in the United States and other developed
countries.
The most significant area is the treatment of non-performing loans in
India. We treat loans as non-performing and place them on a non-accrual basis
(that is, we no longer recognize payments of interest unless and until payments
are actually received) when we determine that interest or principal is past due
beyond specified periods or that the payment of interest or principal is
doubtful. Under Indian practice, loans are classified as non-performing by
financial institutions when interest is past due for 180 days (typically two
interest payments) or principal is past due for 365 days (typically four
principal repayments). Payments on most loans are on a quarterly basis. "Past
due" means any amount that is outstanding for one month beyond the due date.
This time period is much longer than in the United States and other developed
countries where loans are generally placed on a non-accrual basis when any
payment, including any periodic principal payment, is not paid for a 90-day
period. In addition, under US GAAP, we provide for loan losses based on our
internal subjective assessment of the possibility of recovery of such loans
based principally on the realizable value of collateral and not, as is the case
in many other economies, based on a specific formula, numerical guideline,
grading or classification scheme. As a result, we are likely to classify and
reserve against non-performing loans significantly later than they would be in
more developed countries. As a result, we may not set aside comparable amounts
of allowance for credit losses as would financial institutions in the United
States or other developed countries.
A large proportion of our loans is project finance assistance which is
particularly vulnerable to completion risk.
Long-term project finance assistance is a significant proportion of our
asset portfolio, and we expect that it will continue to be a significant
proportion of our asset portfolio. The viability of these projects depends upon
a number of factors, including project completion risk, market demand,
government policies and the overall economic environment in India and
international markets. We cannot be sure that these projects will perform as
anticipated. Over the last several years, we have experienced a high level of
non-performing loans in our project finance loan portfolio to manufacturing
companies as a result of the downturn in certain global commodity markets and
increased competition in India. In addition, while there are no non-performing
loans in the infrastructure project finance portfolio, a significant portion of
these projects are still under implementation and present risks such as delays
in the commencement of operations and therefore delays in the project's ability
to generate revenues. Our infrastructure project finance loans are largely
recent loans and, as a result, asset quality problems may not appear until the
future. If any of these loans were to become non-performing, the quality of our
loan portfolio could be adversely affected.
We have high concentrations of loans to certain customers and to certain
sectors and if any of these loans were to become non-performing, the
quality of our loan portfolio could be adversely affected.
At year-end fiscal 2000, our 20 largest loans, based on outstanding
balances, totaled approximately Rs. 146.5 billion (US$ 3.4 billion), which
represented approximately 24.6% of our total loans. Our largest single loan
exposure, based on outstanding balances, at that date was approximately Rs.
17.5 billion (US$ 402 million), which represented approximately 2.9% of our
total loans. The largest group of companies under the same management control
accounted for approximately 5.4% of our total loans. At year-end fiscal 2000,
none of our 20 largest loans based on outstanding balances was classified
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as non-performing. However, if any of these loans were to become
non-performing, the quality of our loan portfolio could be adversely affected.
At year-end fiscal 2000, we had extended loans to nearly every industrial
sector in India. At that date, approximately 59.1% of our gross non-performing
loan portfolio was concentrated in eight sectors: textiles (11.9%), man-made
fibers (10.9%), iron and steel (9.3%), basic chemicals (6.4%), plastics (5.6%),
paper and paper products (5.0%), metal products (5.0%) and electronics (5.0%).
Our total loan portfolio also has a significant concentration of loans in each
of these eight sectors. These sectors have been adversely affected by economic
conditions from fiscal 1997 to fiscal 1999 in varying degrees. Although our
loan portfolio contains loans to a wide variety of businesses, financial
difficulties in these sectors could increase our level of non-performing loans
and adversely affect our business, our future financial performance and the
price of our equity shares and our ADSs.
If we are not able to control or reduce the level of non-performing loans
in our portfolio, our business will suffer.
Our gross non-performing loans represented 11.59% of our gross loan
portfolio at year-end fiscal 2000. Our net non-performing loans represented
6.23% of our net loans at year-end fiscal 2000. Although we believe that our
allowance for loan losses is adequate to cover all known losses in our
portfolio of assets, the level of our non-performing loans is higher than the
average percentage of non-performing loans in the portfolios of banks in more
developed countries. In addition, in absolute terms, our gross non-performing
loans grew by 18.2% in fiscal 2000, by 29.6% in fiscal 1999 and by 56.8% in
fiscal 1998. The growth in non-performing loans can be attributed to several
factors, including a sharp decline in commodity prices until the end of fiscal
1999, which reduced profitability for certain of our borrowers, a slowdown in
industrial growth from 1997 to 1999, the restructuring of certain Indian
companies in sectors such as iron and steel and man-made fibers, and increased
competition arising from economic liberalization in India. Further, our
growth-oriented strategy has involved a significant increase in our loan
portfolio. We cannot assure you that there will be no additional non-performing
loans on account of these new loans.
A number of factors will affect our ability to control and reduce
non-performing loans. Some of these, including developments in the Indian
economy, movements in global commodity markets, global competition, interest
rates and exchange rates, are not within our control. Although we are
increasing our efforts to improve collections and to foreclose on existing
non-performing loans, we cannot assure you that we will be successful in our
efforts or that the overall quality of our loan portfolio will not deteriorate
in the future. If we are not able to control and reduce our non-performing
loans, our plans for growth, our net income and our stockholders' equity could
be adversely affected.
If we are not able to improve our allowance for credit losses as a
percentage of non-performing loans, the price of our equity shares and our
ADSs could go down.
Our allowance for credit losses represented 49.31% of our gross
non-performing loans at year-end fiscal 2000. Although we believe that our
allowance for credit losses is adequate to cover all known losses in our asset
portfolio, we cannot assure you that there will be no further deterioration in
the allowance for credit losses as a percentage of gross non-performing loans
or otherwise. In the event of any further deterioration in our non-performing
loan portfolio, there may be an adverse impact on our net income.
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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.
Substantially all of ICICI's loans are secured by real property, including
property, plant and equipment. Although it is our practice to lend between
60.0% and 80.0% of the appraised value of this type of collateral security, an
economic downturn could result in a fall in relevant collateral values. In
India, foreclosure on collateral generally requires a written petition to an
Indian court. An application, when made, may be subject to delays and
administrative requirements that may result, or be accompanied by, a decrease
in the value of the collateral. These delays can last for several years. In the
event a borrower makes a reference to a specialized quasi-judicial authority
called the Board for Industrial and Financial Reconstruction, foreclosure and
enforceability of collateral is stayed. We cannot guarantee that we will be
able to realize the full value on our collateral, as a result of, among other
factors, delays in bankruptcy foreclosure proceedings, defects in the
perfection of collateral and fraudulent transfers by borrowers. A failure to
recover the expected value of collateral security could expose us to a
potential loss. Any unexpected losses could reduce our stockholders' equity and
adversely affect our business.
We face greater credit risks than banks in developed countries.
Our principal business is providing financing to our clients, virtually
all of whom are based in India. In the past, we have focused our activities on
large-scale project finance projects. Increasingly, we are focusing on large
corporate customers, many of whom have strong credit ratings, as well as on
select middle market companies and individuals. Our loans to middle market
companies can be expected to be more severely affected by adverse developments
in the Indian economy than loans to large corporations. In all of these cases,
we are subject to the credit risk that our borrowers may not pay us in a timely
fashion or at all. The credit risk of all our borrowers is higher than in more
developed countries due to the higher uncertainty in our regulatory, political
and economic environment. Higher credit risk may expose us to a potential loss
which would adversely affect our business, our future financial performance and
the price of our equity shares and our ADSs.
Our business is particularly vulnerable to volatility in interest rates
caused by deregulation of the financial sector in India.
Over the last few years, the Indian government has deregulated the
financial sector, which has increased competition. Before 1991, our operations
and profitability substantially reflected our lending at interest rates set by
the Indian government and were funded to a large extent by relatively low-cost
government guaranteed rupee funds. From August 1991, ICICI was permitted
flexibility in setting interest rates on virtually all of the loans it extends.
Since 1992, ICICI was also required to raise all its new domestic funds at
market rates. These developments have resulted in greater volatility of
interest rates and margins for substantially all financial institutions in
India, including ICICI. Based on our lending book's asset-liability position at
year-end fiscal 2000, our net interest income would decrease with a decline in
interest rates. We expect that this decline would be offset, in part, by the
positive impact on our trading book. The volatility in interest rates could
adversely affect our business, our future financial performance and the price
of our equity shares and our ADSs.
If we cannot access low-cost funds, our business could suffer.
ICICI traditionally relied on wholesale funding from institutional sources
such as banks, financial institutions and other investment institutions. By
comparison, many of our competitors are banks that have a greater proportion of
low-cost demand deposits and transaction accounts. As a result, the sources
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of our funds tend to be higher in cost, more easily affected by external
factors such as credit ratings, and subject to greater volatility compared to
savings and demand deposits in India. Although we have made some attempts to
diversify our funding sources towards the retail market with the creation of
ICICI Bank in 1994, total deposits were only approximately 13.7% of our total
liabilities at year-end fiscal 2000. We cannot guarantee that we will be able
to increase or maintain our current levels of funding at competitive rates and
failure to do so could adversely affect our business.
If we are not able to succeed in our new business areas, we may not be
able to meet our projected earnings and growth targets.
Throughout ICICI's existence, ICICI has primarily been in the business of
providing project financing. In recent periods, we have developed our
corporate finance and working capital finance businesses. These businesses are
sufficiently different from our historical project finance business and
require new skills in order to succeed. We have also sought to develop our
retail banking business with the creation of ICICI Bank in 1994 and the
creation of our personal financial services group in fiscal 1999. We also
recognize that retail banking is a substantially different business than
corporate banking and requires very different personnel, skills and
infrastructure. Growing our corporate finance, working capital finance and
retail businesses is a critical component of our future growth strategy and
our projections of earnings.
We cannot assure you that we have accurately estimated the relevant demand
for our new banking products. In particular, we are a new entrant in the retail
banking market and existing competition may impede our ability to penetrate
this sector. Retail banking could expose us to the risk of financial
irregularities by various intermediaries and investors. We cannot assure you
that we will be able to master and deliver the skills and management
information systems necessary to successfully manage these new businesses. We
are also looking at business opportunities in certain sectors of the economy
with which we have not traditionally been involved, including the agri-business
sector and the information technology sector. In addition, we have launched
several Internet-based products for our retail and corporate customers
including online bill payments, online account opening and online brokering
services. We have also recently entered the Indian credit card market and
started offering mobile phone banking services. We also intend to enter the
insurance business. We cannot be certain that these sectors will perform as
anticipated. Our inability to grow in new business areas may adversely affect
our business, our future financial performance and the price of our equity
shares and our ADSs.
The success of our electronic-commerce and Internet ventures will depend,
in part, on the development of the new and evolving market for the
Internet in India.
We have offered Internet banking services to our customers since October
1997 through ICICI Bank. At year-end fiscal 2000, ICICI Bank had approximately
110,000 customers for its Infinity Internet banking service which has increased
to 209,000 customers at August 31, 2000. The demand for and market acceptance
of Internet banking are subject to a high level of uncertainty and are
substantially dependent upon the adoption of the Internet for general commerce
and financial services transactions in India.
Many of our existing customers and potential customers have only a very
limited experience with the Internet as a communication medium. In order to
realize significant revenue from our Internet-related products and services,
we will have to persuade our customers to conduct banking and financial
services transactions through the Internet. In addition, the cost to Indian
customers of obtaining the hardware, software and communication links
necessary to connect to the Internet is too high to enable many people in
India to afford to use these services at this time. Although relevant
legislation has been proposed by the
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government of India, critical issues concerning the commercial use of the
Internet, such as security, legal recognition of electronic records, validity
of contracts entered into online and the validity of digital signatures, remain
unresolved and may inhibit growth. If Internet banking does not continue to
grow or grows slower than expected, we will not be able to meet our projected
earnings and growth related to our Internet banking business.
The success of our Internet-related strategy will depend, in part, on the
development of adequate infrastructure for the Internet in India.
The Internet may not be accepted as a viable commercial marketplace in
India for a number of reasons, including inadequate development of the
necessary network infrastructure. There can be no assurance that the Internet
infrastructure will be able to support the demands of its anticipated growth.
Inadequate infrastructure could result in slower response times and adversely
affect usage of the Internet generally. If the infrastructure for the Internet
does not effectively support growth that may occur, we will not be able to
execute our growth strategy for our Internet-related businesses.
Our business is very competitive and our growth strategy depends on our
ability to compete effectively.
Interest rate deregulation and other liberalization measures affecting the
financial sector have increased our exposure to competition. The liberalization
process has led to increased access for our customers to alternative sources of
funds, such as domestic and foreign commercial banks and the domestic and
international capital markets. Our corporate banking business will continue to
face competition from Indian and foreign commercial banks. We will also face
competition from Indian and foreign commercial banks and non-banking finance
companies in the development of our retail banking business. In addition, as we
increasingly raise our funds from market sources, we will face increasing
competition for such funds. The Indian financial sector may experience further
consolidation, resulting in fewer financial institutions, some of which may
have greater resources than us. Our future success will depend upon our ability
to compete effectively. Due to competitive pressures, we may be unable to
successfully execute our growth strategy and offer products and services at
reasonable returns and this may adversely impact our business.
If we are not able to manage our rapid growth, our business could be
disrupted and the price of our equity shares and our ADSs could go down.
Our asset growth rate has been significantly higher than the Indian GDP
growth rate over the last five fiscal years. Our assets grew 28.8% in fiscal
1998, 33.4% in fiscal 1999 and 19.5% in fiscal 2000 compared to real GDP growth
of 5.0% in fiscal 1998, 6.8% in fiscal 1999 and 6.4% in fiscal 2000. We expect
to continue to operate under a strong growth-focused strategy. Our growth is
expected to place significant demands on our management and other resources and
will require us to continue to develop and improve our operational, credit,
financial and other internal risk controls. Our inability to manage our growth
effectively could have a material adverse effect on our business, our future
financial performance and the price of our equity shares and our ADSs.
If we are not able to integrate our recent acquisitions or any future
acquisitions, our business could be disrupted and the price of our equity
shares and our ADSs could go down.
In the last three years, we acquired two non-bank finance companies, ITC
Classic Finance Limited and Anagram Finance Limited. We have no understanding,
commitment or agreement with respect to any material future acquisition or
investment, though we may seek opportunities for growth
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<PAGE>
through future acquisitions. Any future acquisitions may involve a number of
risks, including deterioration of asset quality, diversion of our management's
attention required to integrate the acquired business and the failure to retain
key acquired personnel and clients, some or all of which could have an adverse
effect on our business, our future financial performance and the price of our
equity shares and our ADSs.
Material changes in the regulations which govern us could cause our
business to suffer and the price of our equity shares and our ADSs to go
down.
Financial institutions and banks in India operate in a highly regulated
environment. The Reserve Bank of India extensively supervises and regulates
financial institutions and banks. In addition, these institutions are subject
generally to changes in Indian law, as well as to changes in regulation and
governmental policies, income tax laws and accounting principles. We cannot
assure you that laws and regulations governing the financial institutions and
banking sector will not change in the future or that any changes will not
adversely affect our business, our future financial performance and the price
of our equity shares and our ADSs.
Significant security breaches could adversely impact our business.
We seek to protect our computer systems and network infrastructure from
physical break-ins as well as security breaches and other disruptive problems
caused by our increased use of the Internet. Computer break-ins and power
disruptions could affect the security of information stored in and transmitted
through these computer systems and network infrastructure. We employ security
systems, including firewalls and password encryption, designed to minimize the
risk of security breaches. Though we intend to continue to implement security
technology and establish operational procedures to prevent break-ins, damage
and failures, there can be no assurance that these security measures will be
successful. A significant failure in security measures could have a material
adverse effect on our business and our future financial performance.
Risks Relating to the ADSs and Equity Shares
You will not be able to vote your ADSs.
ADS holders have no voting rights unlike holders of the equity shares who
have voting rights. The depositary will exercise its right to vote on the
equity shares represented by the ADSs as directed by ICICI's board of
directors. If you wish, you may withdraw the equity shares underlying the ADSs
and seek to vote the equity shares you obtain from the withdrawal. However, for
foreign investors, this withdrawal process may be subject to delays. For a
discussion of the legal restrictions triggered by a withdrawal of the equity
shares from the depositary facility upon surrender of ADSs, see "Restriction on
Foreign Ownership of Indian Securities".
US investors will be subject to special tax and interest charges if ICICI
is considered to be a passive foreign investment company.
It is likely that ICICI will be a "passive foreign investment company" for
US federal income tax purposes. See "Taxation--United States Tax--Passive
Foreign Investment Company Rules". Assuming that ICICI is a passive foreign
investment company and you are a US investor in our ADSs, you will be subject
to special federal income tax rules that may have negative tax consequences and
will require annual reporting. See "Taxation--United States Tax".
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Your ability to withdraw equity shares from the depositary facility is
uncertain and may be subject to delays.
India's restrictions on foreign ownership of Indian companies limit the
number of shares that may be owned by foreign investors and generally require
government approval for foreign ownership. Investors who withdraw equity shares
from the depositary facility will be subject to Indian regulatory restrictions
on foreign ownership upon withdrawal. It is possible that this withdrawal
process may be subject to delays. For a discussion of the legal restrictions
triggered by a withdrawal of equity shares from the depositary facility upon
surrender of ADSs, see "Restriction on Foreign Ownership of Indian Securities".
Your ability to sell in India any equity shares withdrawn from the
depositary facility may be subject to delays if specific government
approval is required.
ADS holders seeking to sell in India any equity shares withdrawn upon
surrender of an ADS will require Reserve Bank of India approval for each such
transaction unless the sale of such equity shares is made on a stock exchange
or in connection with an offer made under the regulations regarding takeovers.
We cannot guarantee that any approval will be obtained in a timely manner or at
all. Because of possible delays in obtaining 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.
You are unable to withdraw and redeposit shares in the depositary
facility.
Because of certain Indian legal restrictions, the supply of ADSs may be
limited. The only way to add to the supply of ADSs will be through a primary
issuance because the depositary will not be permitted to accept deposits of
outstanding equity shares and issue ADSs representing such shares. Therefore,
an ADS holder who surrenders an ADS and withdraws equity shares will not be
permitted to redeposit his equity shares in the depositary facility. In
addition, an investor who has purchased equity shares on the Indian market will
not be able to deposit them in the ADS program. The inability of investors to
withdraw from and re-enter the depositary facility increases the risk that the
market price of the ADSs will be below that of the equity shares.
Certain shareholders own a large percentage of ICICI's equity shares.
Their actions could adversely affect the price of the ADSs.
ICICI's principal shareholders are the Life Insurance Corporation of India
and the General Insurance Corporation of India and its subsidiaries, each of
which is controlled by the Indian government. ICICI's board of directors has
one nominee from the government of India and another government director who is
invited to be a member of the board rather than nominated. ICICI also has a
director representing the General Insurance Corporation of India and another
director representing the Life Insurance Corporation of India. At year-end
fiscal 2000, government-controlled entities owned approximately 32.4% of
ICICI's outstanding equity shares. As a result of such share ownership, the
Indian government will continue to have the ability to exercise influence over
most matters requiring approval of ICICI's shareholders, including the election
and removal of directors and significant corporate actions.
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Conditions in the Indian securities market may affect the price or
liquidity of the equity shares and the ADSs.
The Indian securities markets are smaller and more volatile than
securities markets in developed economies. The Indian stock exchanges have in
the past experienced substantial fluctuations in the prices of listed
securities.
Indian stock exchanges have also experienced problems that have affected
the market price and liquidity of the securities of Indian companies. These
problems have included temporary exchange closures, broker defaults, settlement
delays and strikes by brokers. The Stock Exchange, Mumbai, formerly known as
the Bombay Stock Exchange or the BSE, was closed for three days in March 1995
following a default by a broker. In addition, the governing bodies of the
Indian stock exchanges have from time to time imposed restrictions on trading
in certain securities, limitations on price movements and margin requirements.
Further, from time to time, disputes have occurred between listed companies and
stock exchanges and other regulatory bodies, which in some cases may have had a
negative effect on market sentiment. Similar problems could happen in the
future and, if they did, they could affect the market price and liquidity of
our equity shares and our ADSs.
Settlement of trades of equity shares on Indian stock exchanges may be
subject to delays.
The equity shares represented by the ADSs are listed on the Bangalore,
Calcutta, Delhi, Madras, Mangalore and Vadodara Stock Exchanges, the BSE and
the National Stock Exchange of India. 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.
As a result of Indian government regulation of foreign ownership, the
price of our ADSs could go down.
Foreign ownership of Indian securities is heavily regulated and is
generally restricted. ADSs issued by companies in certain emerging markets,
including India, may trade at a discount or premium to the underlying equity
shares, in part because of the restrictions on foreign ownership of the
underlying equity shares.
Your holdings may be diluted by additional issuances of equity and any
dilution may adversely affect the market price of our ADSs.
Up to 5.0% of ICICI's issued equity shares may be issued in accordance
with ICICI's employee stock option scheme to eligible employees of ICICI and
its subsidiaries. These issuances, and any future issuance of equity shares,
will dilute the positions of investors in the ADSs and could adversely affect
the market price of our ADSs.
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You may be unable to exercise preemptive rights available to other
shareholders.
A company incorporated in India must offer its holders of equity shares
preemptive rights to subscribe and pay for a proportionate number of shares to
maintain their existing ownership percentages prior to the issuance of any new
equity shares, unless these rights have been waived by at least 75.0% of the
company's shareholders present and voting at a shareholders' general meeting.
US investors in ADSs may be unable to exercise preemptive rights for equity
shares underlying ADSs unless a registration statement under the Securities Act
is effective with respect to such rights or an exemption from the registration
requirements of the Securities Act is available. Our decision to file a
registration statement will depend on the costs and potential liabilities
associated with any such registration statement as well as the perceived
benefits of enabling US investors in ADSs to exercise their preemptive rights
and any other factors we consider appropriate at the time. We do not commit
that we would file a registration statement under these circumstances. If ICICI
issues any such securities in the future, such securities may be issued to the
depositary, which may sell such securities in the securities markets in India
for the benefit of the investors in the ADSs. There can be no assurance as to
the value, if any, the depositary would receive upon the sale of these
securities. To the extent that investors in ADSs are unable to exercise
preemptive rights, their proportional interests in ICICI would be reduced.
Because the equity shares underlying the ADSs are quoted in rupees in
India, you may be subject to potential losses arising out of exchange rate
risk on the Indian rupee and risks associated with the conversion of rupee
proceeds into foreign currency.
Investors that purchase ADSs are required to pay for the ADSs in US
dollars. Investors are subject to currency fluctuation risk and convertibility
risks since the equity shares are quoted in rupees on the Indian stock
exchanges on which they are listed. Dividends on the equity shares will also be
paid in rupees, and then converted into US dollars for distribution to ADS
investors. Investors that seek to convert the rupee proceeds of a sale of
equity shares withdrawn upon surrender of ADSs into foreign currency and export
the foreign currency will need to obtain the approval of the Reserve Bank of
India for each such transaction. In addition, investors that seek to sell
equity shares withdrawn from the depositary facility will have to obtain
approval from the Reserve Bank of India, unless the sale is made on a stock
exchange or in connection with an offer made under the regulations regarding
takeovers. Holders of rupees in India may also generally not purchase foreign
currency without general or special approval from the Reserve Bank of India.
However, dividends received by the depositary in rupees and, subject to
approval by the Reserve Bank of India, rupee proceeds arising from the sale on
an Indian stock exchange of equity shares which have been withdrawn from the
depositary facility, may be converted into US dollars at the market rate.
On an average annual basis, the rupee has declined against the US dollar
since 1980. As measured by the Reserve Bank of India's reference rate, the
rupee lost approximately 28.4% of its value against the US dollar in the last
four years, depreciating from Rs. 35.68 per US$ 1.00 on August 30, 1996 to Rs.
45.80 per US$ 1.00 on August 31, 2000. In addition, in the past, the Indian
economy has experienced severe foreign exchange shortages. In 1991, the
government of India obtained substantial foreign financial assistance,
including a US$ 2.3 billion standby arrangement with the International Monetary
Fund, in order to avert difficulties in servicing India's external debt. The
government of India repaid US$ 1.1 billion of this amount in April 1994.
India's foreign exchange reserves have since increased to US$ 35.6 billion at
September 1, 2000.
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You may be subject to Indian taxes arising out of capital gains.
Generally, capital gains, whether short-term or long-term, arising on the
sale of the underlying equity shares in India are subject to Indian capital
gains tax. For the purpose of computing the amount of capital gains subject to
tax, Indian law specifies that the cost of acquisition of the equity shares
will be deemed to be the share price prevailing on the BSE or the National
Stock Exchange on the date the depositary advises the custodian to redeem
receipts in exchange for underlying equity shares. The period of holding of
such equity shares, for determining whether the gain is long-term or
short-term, commences on the date of the giving of such notice by the
depositary to the custodian. Investors are advised to consult their own tax
advisers and to consider carefully the potential tax consequences of an
investment in the ADSs.
There may be less company information available in Indian securities
markets than securities markets in developed countries.
There is a difference between the level of regulation and monitoring of
the Indian securities markets and the activities of investors, brokers and
other participants and that of markets in the United States and other developed
economies. The Securities and Exchange Board of India is responsible for
improving disclosure and other regulatory standards for the Indian securities
markets. The Securities and Exchange Board of India has issued regulations and
guidelines on disclosure requirements, insider trading and other matters. There
may, however, be less publicly available information about Indian companies
than is regularly made available by public companies in developed economies.
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BUSINESS
Overview
We are a diversified financial services group organized under the laws of
India. We offer a wide range of products and services to corporate and retail
customers in India through a number of business operations, subsidiaries and
affiliates. At year-end fiscal 2000, we had assets of Rs. 780.7 billion (US$
17.9 billion) and stockholders' equity of Rs. 70.9 billion (US$ 1.6 billion).
Our net income for fiscal 2000 was Rs. 9.3 billion (US$ 214 million).
Most of our activities are carried out through ICICI, which accounted for
82.2% of our consolidated assets at year-end fiscal 2000 and 76.3% of our net
income for fiscal 2000. ICICI is one of the largest of all Indian financial
institutions, banks and finance companies in terms of assets. ICICI has:
o a track record of continuous profitability and dividend payments
since fiscal 1956;
o close relationships with a client base of over 1,000 Indian
corporations, including most of the 150 largest corporations in
India, and a growing retail base of about 3.7 million bondholders;
o long-standing relationships with the government of India and a number
of multilateral and bilateral development agencies;
o an independent board consisting of the senior management personnel of
leading Indian and international commercial enterprises and highly
qualified professionals; and
o a strong management team with a demonstrated track record of managing
growth and capitalizing on new business opportunities over the last
few years.
We provide a wide range of products and services aimed at fulfilling the
banking and financial needs of India's corporate and retail sectors. Our
business today consists primarily of corporate banking activities, including
project finance, corporate finance and working capital finance. In the last
five years, we have been offering retail banking services, including taking
retail deposits and offering retail bonds. We started offering retail credit
products in fiscal 1999 and now offer retail credit products such as home and
automobile loans and other consumer finance products and services. We also
engage in a number of advisory, investment and other financial activities.
We have consistently used technology to differentiate our products and
services from those of our competitors. For example, our commercial banking
subsidiary, ICICI Bank was the first bank in India to offer Internet banking.
Other technology-driven products include electronic commerce-based
business-to-business and business-to-consumer banking solutions, web
brokering, cash management services and mobile phone banking services. To
support these technology initiatives, we have set up online real time
transaction processing systems. We remain focused on changes in customer needs
and technological advances and seek to remain at the forefront of electronic
banking in India.
Our legal name is ICICI Limited but we are known commercially as ICICI. We
were incorporated in 1955 under the laws of India as a limited liability
corporation. Our principal corporate office is located at ICICI Towers,
Bandra-Kurla Complex, Mumbai - 400051, Maharashtra, India and our telephone
number is +91 22 6531414.
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History
ICICI was formed in 1955 at the initiative of the World Bank, the
government of India and representatives of Indian industry. 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. ICICI typically
obtained funds for these activities through a variety of government-sponsored
and government-assisted programs designed to facilitate industrial development
in India.
With the liberalization of the financial sector in India in the 1990s, we
transformed our business from a development financial institution offering only
project finance to a diversified financial services group offering a wide
variety of products and services. As India's economy became more
market-oriented and integrated with the world economy, we capitalized on the
new opportunities to provide a wider range of financial products and services
to a broader spectrum of clients. We set up independent operations through the
incorporation of subsidiaries and affiliates in the areas of venture capital
funding (1988), asset management (1993), investment banking (1993), commercial
banking (1994) and Internet stock trading (1999). Simultaneously, we began
diversifying our funding plans away from complete reliance on
government-assisted programs to more market-oriented sources.
In 1996, ICICI merged into it SCICI Limited, a diversified project finance
and shipping finance lender, of which ICICI owned 19.9% (including the
conversion of partly-convertible notes of SCICI into equity shares on December
15, 1996), to eliminate overlapping business activities and to create
operational efficiencies. In 1997, ICICI acquired ITC Classic Finance Limited,
a non-bank finance company focused on retail deposit taking and corporate
finance with Rs. 14.0 billion (US$ 321 million) in assets, to create a deposit
distribution network, primarily in the eastern part of India. In 1998, ICICI
acquired Anagram Finance Limited, a non-bank finance company primarily in the
automobile financing sector, which had an asset base of Rs. 9.6 billion (US$
220 million). This was done to support our entry into the retail asset
financing market.
In May 1994, when ICICI obtained its commercial banking license to
establish ICICI Bank, the Reserve Bank of India imposed a condition that ICICI
reduce its ownership interest in ICICI Bank in stages, first to not more than
75.0% and ultimately to no more than 40.0%. In fiscal 1998, ICICI reduced its
ownership interest to just below 75.0% as required through a public offering in
India. In March 2000, ICICI Bank completed an equity offering in the form of
ADSs listed on the New York Stock Exchange in the amount of US$ 175 million.
After this offering, ICICI's ownership interest in ICICI Bank was approximately
62.2%. A discussion paper issued by the Reserve Bank of India in January 1999
states that if a long-term lending institution chooses to provide commercial
banking services directly, permission to create a 100.0% owned banking
subsidiary would be considered. ICICI is presently in discussion with the
Reserve Bank of India to determine whether and to what extent it may still be
required to sell or reduce its interest in ICICI Bank. ICICI Bank is legally
prevented from making loans to ICICI and is required to maintain an arms-length
relationship with ICICI. In the monetary and credit policy in April 2000, the
Reserve Bank of India announced that it would consider proposals from financial
institutions, like ICICI, who wish to convert themselves into banks on a
case-by-case basis.
We operate principally through ICICI and 25 subsidiaries and two
affiliates including our commercial banking subsidiary, ICICI Bank, and our
investment banking subsidiary, ICICI Securities and Finance Company Limited.
Together with our subsidiaries, we operate as a "universal" bank offering a
wide range of products and services to corporate and retail customers in India.
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Under the Indian Companies Act, ICICI is designated as a public financial
institution. This status allows us certain funding advantages, such as greater
incentives for commercial banks and non-government provident, superannuation
and gratuity funds to invest in certain securities issued by public financial
institutions. See "Supervision and Regulation--Public Financial Institution
Status".
Shareholding Structure and Relationship with the Government of India
We have always operated as an autonomous and independent commercial
enterprise, making decisions and pursuing strategies that are designed to
maximize shareholder value, and the Indian government has never directly held
any shares in ICICI. However, reflecting the dominant role of the Indian
government in the Indian economy and ICICI's status as a public financial
institution, ICICI's principal shareholders are government-controlled. They
include the Life Insurance Corporation of India, the General Insurance
Corporation of India and its subsidiaries and the Unit Trust of India. There is
no shareholders agreement or voting trust relating to the ownership of the
shares owned by the government-controlled shareholders.
The following table sets forth, at year-end fiscal 2000, certain
information regarding the ownership of ICICI's equity shares.
<TABLE>
<S> <C> <C>
----------------------------------------
Percentage of total
equity shares Number of equity
outstanding shares held
----------------------------------------
Government-controlled shareholders:
Life Insurance Corporation of India ................................. 11.1% 87,405,811
General Insurance Corporation of India and its subsidiaries ......... 11.2 87,762,618
Unit Trust of India. ................................................ 6.9 53,852,596
Other government-controlled institutions ............................ 3.2 25,513,796
------------------------------
Total government-controlled shareholders. ................................. 32.4 254,534,821
------------------------------
Other Indian investors:
Individual domestic investors (1). .................................. 10.7 84,218,829
Bajaj Auto Limited ..................................................... 5.5 42,881,678
Indian corporates and others (excluding Bajaj Auto Limited) ......... 3.1 24,574,799
------------------------------
Total other Indian investors. ............................................. 19.3 151,675,306
------------------------------
Total Indian investors. ............................................ 51.7 406,210,127
------------------------------
Foreign investors:
Deutsche Bank, as depositary(2). .................................... 32.7 256,414,285
Foreign institutional investors, foreign banks, overseas corporate
bodies and non-resident Indians. .................................... 15.6 122,687,136
------------------------------
Total foreign investors. .................................................. 48.3 379,101,421
------------------------------
100.0% 785,311,548
==============================
</TABLE>
_____________
(1) Executive officers and directors as a group held less than 0.1% of the
equity shares as of this date.
(2) Deutsche Bank holds the shares as depositary on behalf of investors of all
51.28 million ADSs outstanding which are listed on the New York Stock
Exchange. In September 1999, 32.14 million ADSs were offered in a
SEC-registered public offering and 19.14 million ADSs were issued
following the exchange offer of ICICI's GDRs for its SEC-registered ADSs
on a one-for-one basis.
The composition of ICICI's board of directors reflects the principal
shareholdings held by the government-controlled institutions, the terms of the
Indian government's credit and guarantee facilities and the wide public
ownership in India. Under the terms of the loan and guarantee facilities
provided to ICICI, the government of India is entitled to appoint and has
appointed one representative to ICICI's board. In addition to the
government-nominated director, ICICI has traditionally invited a
representative
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of the Ministry of Industry to be one of its directors. The government-
controlled insurance companies that are ICICI's largest shareholders, General
Insurance Corporation of India and its subsidiaries and Life Insurance
Corporation of India, also each have a representative on ICICI's board. Of the
remaining 11 directors, the Chairman is the former executive chairman of ICICI,
three are executive directors, six are from a broad range of industrial
companies and one is a professor. See "Management--Directors and Executive
Officers".
ICICI raised US$ 315 million through an offering of 32.14 million ADSs in
September 1999. ICICI, like some other Indian companies, must obtain the
Ministry of Finance's approval to raise equity in the international markets. It
was a condition of the Ministry of Finance's approval for the ADS offering in
September 1999 that the total foreign equity shareholding in ICICI, by all
possible routes, may not exceed 49.0%, that control must rest with Indian
shareholders, that investors in the ADSs may not be granted voting rights and
that all of the ADSs will be voted by the depositary in accordance with the
direction of the board of directors. In accordance with the conditions
stipulated by the Ministry of Finance in its approval of ICICI's offering of
ADSs, the depositary has the right to vote on the equity shares represented by
the ADSs as directed by ICICI's board of directors so as to keep management
control of ICICI in the hands of Indian shareholders. ICICI does not have any
agreement with its government-controlled shareholders regarding management
control, voting rights, anti-dilution or any other matter.
To prevent dilution of the ownership of the principal government-
controlled shareholders and in light of the government's desire that control
must rest with Indian shareholders, ICICI offered 68.5 million equity shares to
its principal government-controlled shareholders, the Life Insurance
Corporation of India, General Insurance Corporation of India and its
subsidiaries and Unit Trust of India, in a private placement on September 9,
1999 and also offered 41.5 million equity shares in a public offering in India
from September 9-14, 1999. Both of these offerings were carried out at a price
of Rs. 73.00 per equity share, approximately the market price on August 19,
1999, the date the board of directors approved the private placement and the
domestic public offering.
The holding of foreign investors in ICICI increased to 48.3% at year-end
fiscal 2000 from 36.3% at year-end fiscal 1997 primarily due to the offering
of ADSs in September 1999. The holding of government-controlled shareholders
declined to 32.4% at year-end fiscal 2000 from 37.2% at year-end fiscal 1997.
The holding of other Indian investors declined to 19.3% at year-end fiscal 2000
from 26.1% at year-end fiscal 1997.
Our Strategy
The liberalization and rapid growth of the Indian economy has provided us
with significant opportunities to provide superior financial products and
services to Indian companies and the retail sector. Our objective is to
enhance our position as India's premier provider of financial services.
The key elements of our business strategy are to:
o focus on quality growth opportunities by:
- maintaining and enhancing our strengths in corporate banking; and
- building a strong retail franchise;
o emphasize conservative risk management practices and enhance asset
quality;
o use technology for competitive advantages; and
o attract and retain talented professionals.
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Focus on Quality Growth Opportunities by:
Maintaining and Enhancing our Strengths in Corporate Banking
We have a track record of more than 40 years of providing financial
products and services to Indian companies. We enjoy a strong market position
in a number of profitable business segments, and will continue to seek to gain
market share in growth areas such as the infrastructure and the oil, gas and
petrochemicals sectors. We have also built up a significant presence in the
market for shorter-term lending including working capital finance, to be able
to offer a more complete range of credit products across varying maturities.
Our focus has been on structured finance including securitization and
customized financing structures based on capturing the cash flows generated
from the borrower's business. We believe this strategy will help us create a
diverse asset base, achieve stable revenues and lower the risk to shareholder
returns. We continue to develop our expertise in providing value-added
advisory services, such as project structuring, loan and equity syndication,
and merger and acquisition services. Our goal is to provide a comprehensive
and integrated service to corporate treasurers through our relationship
managers. We aim to increase the cross-selling of our products and services
and maximize the value of our corporate relationships.
Building a Strong Retail Franchise
India has a large and growing retail customer base estimated at 34
million middle and upper income households, of which we have identified about
six million households as our target segment based on a certain level of
monthly income and residence in selected urban areas. We believe our
established brand name, strong corporate relationships and retail investor
base, together with the absence of strong mass market players in retail
assets, provide us with a unique opportunity to build a profitable retail
franchise. During fiscal 2000, our personal financial services group, which
looks after our retail asset business, launched several products to broaden
our retail product range, including consumer durable finance products and
personal loans. In addition, we launched credit cards through our banking
subsidiary, ICICI Bank. We were able to attract over one million subscribers
to our offerings of unsecured redeemable bonds during the year.
We are building a distribution network with multiple outlets to provide
our customers with enhanced choice and convenience. In addition to expanding
ICICI Bank's branch network, we have set up a network of low-cost marketing
and servicing outlets called ICICI Centers. In fiscal 2000, we opened 75 such
centers, spread over a geographically diverse area. By effectively using
technology, we seek to grow our retail market share through other low-cost
delivery channels, such as the Internet and telephone call centers, providing
us with a competitive advantage relative to large branch networks. We opened
four call centers during the year, which are already receiving significant
call volumes. We also expanded the range of services offered under Internet
banking, and were able to increase our online customer base to about 209,000
customers at August 31, 2000. We will continue to use our strong corporate
relationships to expand our base of high net worth individual and salaried
professional customers by use of products such as "Power Pay", a corporate
payroll management product.
We believe that our multi-channel distribution network, coupled with the
transaction processing capabilities of our information technology subsidiary,
ICICI Infotech Services Limited, has allowed us to develop an efficient
servicing and collections infrastructure critical to the success of a retail
business. We are using the Retail Customer Data Mart, a database that
consolidates retail customer and product data across all ICICI group companies
including ICICI's 3.7 million retail bond customers. This data is analyzed for
customer segmentation and is used in our targeted marketing campaigns. For
example, we
24
<PAGE>
use this database to determine which high net worth individuals we should grant
our credit cards with pre-approved credit limits. We plan to continue our use
of this and similar information systems to enhance customer loyalty through
increased cross selling. Through these initiatives and our stringent credit
standards, we believe we are well positioned to achieve strong growth in retail
banking.
Emphasize Conservative Risk Management Practices and Enhance Asset Quality
We believe that conservative risk management policies, processes and
controls are critical for long-term sustainable competitive advantages in our
business. ICICI's Risk Management Group is an independent, centralized group
responsible for establishing and implementing company-wide risk management
policies, with an increasing focus on enhancing asset quality. We will
continue to build on our credit risk management procedures, credit evaluation
and rating methodology, credit risk pricing models, proprietary analytics and
monitoring and control mechanisms. We expect to enter new product markets only
after conducting detailed risk analysis and pilot testing programs.
To reduce risk, we are in the process of diversifying our loan portfolio
towards shorter-term loans to highly-rated corporate customers, structured
project finance and retail lending. In addition, we seek to lower the credit
risk profile of the loan portfolio through the increased use of financing
structures based on a security interest in the cash flows generated from the
business of the borrower and increased collateral, including additional
security in the form of liquid assets, such as investment securities and
readily marketable real property. We also mitigate project risk through the
allocation of risk to various project counterparties, such as construction
contractors, operations and maintenance contractors and raw material and fuel
suppliers, by entering into rigorous project contracts with those
counterparties. We intend to continue to seek to obtain conservative
collateral positions on productive assets, such as property, plant and
equipment, over which we would typically secure first lien status.
Management has placed great emphasis on asset quality and this focus has
been institutionalized across the organization, with asset quality parameters
being a key factor in employee performance evaluation. We believe that our
adoption of US GAAP, including its associated provisioning requirements,
embodies a more conservative approach to quantifying credit losses. We believe
we are the market drivers in India in achieving early settlements with
troubled borrowers, thus maximizing our cash flows from these loans. Our
Special Asset Management Group, which was created to take care of large
non-performing loans and problem loans, has spearheaded our efforts in this
direction.
Use Technology for Competitive Advantages
We will continue with our policy of making substantial investments in
technology to achieve a significant competitive advantage. Our subsidiary,
ICICI Infotech, will manage all key technology projects.
Our key objectives behind our information technology strategy continue to
be:
o building a cost-efficient distribution network to accelerate the
development of our retail franchise;
o widening and deepening our retail franchise by offering our clients
business-to-consumer solutions;
o enhancing cross-selling and client segmenting capability by using
analytical tools and efficient data storage and retrieval systems;
o strengthening our corporate franchise by offering our clients
business-to-business solutions;
25
<PAGE>
o improving credit risk and market risk management; and
o improving product, client and business unit profitability analysis to
enable optimal capital allocation.
We believe that the Internet has created significant opportunities for
financial services providers to lower costs, enhance accessibility and improve
overall customer service, convenience and satisfaction. The key elements of our
Internet strategy to capitalize on these opportunities are to:
o web-enable existing product offerings to create value; and
o create new business opportunities through the Internet.
Attract and Retain Talented Professionals
We believe a key to our success will be our ability to continue to
maintain and grow a pool of strong and experienced professionals. We have been
very successful in building a team of talented professionals with relevant
experience, including experts in credit evaluation, risk management, retail
consumer products, technology and marketing. Recruitment is a key management
activity led by the Managing Director and Chief Executive Officer of ICICI and
we continue to attract graduates from the premier Indian business schools,
having recruited 73 such business graduates in fiscal 2000.
Our management team is committed to enhancing shareholder value and all
our performance targets seek to meet this primary objective. We believe we
have created the right balance of performance bonus, stock option and other
economic incentives for our employees so that they will be challenged to
aggressively develop business, achieve profitability and asset quality targets
and control risk. In the last two years, we have conducted a comprehensive
review of our organizational structure and procedures, working with
internationally recognized consulting firms. We intend to continue to
re-engineer our management and organizational structure to allow us to respond
effectively to changes in the business environment and enhance our overall
profitability.
26
<PAGE>
Overview of Our Products and Services
The following chart sets forth our existing products and services.
The ICICI Group
--------------------------------------------------------------------------------
Corporate Banking
--------------------------------------------------------------------------------
Project Corporate Working Investment Other
Finance Finance Capital Banking Activities
| Finance
|
----------------------------------------------------
Infrastructure Oil, Gas and Manufacturing
Finance Petrochemicals Sector Finance
The ICICI Group
--------------------------------------------------------------------------------
Retail Banking
--------------------------------------------------------------------------------
Web Savings Consumer
Trading(1) | Credit
| |
| |
---------------------------------------- |
Asset Bonds Deposits Checking |
Management Accounts |
|
------------------------------------------------------------
Credit Personal Automobile Home Consumer
Cards Loans Loans Loans Durable
Finance
_________
(1) Including the provision of depositary share accounts.
Corporate Banking Activities
Our corporate banking operations provide a range of products and services
to India's leading corporations and growth-oriented, middle market commercial
enterprises. This includes project finance in the infrastructure, oil, gas and
petrochemicals, and manufacturing sectors, corporate and working capital
finance and investment banking services. In addition, we also provide venture
capital funding and a range of fee and commission based services, including
cash management services, advisory services, loan syndication, letters of
credit, custodial services and corporate risk management services.
Consistent with our strategy of diversification, project loans to the
manufacturing sector, which are typically more dependent on world economic
cycles in various commodities, decreased to 40.8% of ICICI's total loan
portfolio at year-end fiscal 2000 from 73.0% at year-end fiscal 1997.
Correspondingly, project loans to the infrastructure and oil, gas and
petrochemicals sectors, as well as short-term financing and structured
solutions for highly-rated Indian corporate clients, have increased over the
same period.
ICICI's loan portfolio includes not only loans but also financing provided
to ICICI's clients through debentures issued by borrowers. An increasing
proportion of ICICI's financing is being provided in the form of debentures. We
believe that as the secondary debt markets in India become more active, lenders
will be able to more easily sell debentures, thereby allowing for better
management of mismatches in the maturities of assets and liabilities and
providing additional liquidity. The terms and conditions for debentures are
generally the same as those for loans.
27
<PAGE>
ICICI's loan portfolio forms virtually all of the group's corporate loans
with the exception of the working capital finance loans, which are provided by
ICICI Bank.
The following table sets forth, for the periods indicated, ICICI's gross
portfolio by sector and as a percentage of ICICI's total gross portfolio based
on the unconsolidated financial statements of ICICI prepared in accordance with
Indian GAAP, which is the only basis available. Management believes that these
unconsolidated figures provide useful information about trends in the
portfolio.
<TABLE>
At March 31,
----------------------------------------------------------------------------------------------------
1997 1998 1999 2000
----------------------------------------------------------------------------------------------------
% of % of % of % of
Amount total Amount total Amount total Amount Amount total
----------------------------------------------------------------------------------------------------
(Indian GAAP)
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Project finance:
Infrastructure finance ..... Rs. 25,468 8.6% Rs. 51,868 13.8% Rs. 62,639 13.3% Rs. 74,168 US$ 1,699 13.6%
Oil, gas and petrochemicals
finance .................. 27,287 9.2 32,997 8.8 61,842 13.1 68,816 1,577 2.6
Manufacturing sector
finance .................. 217,745 73.0 219,816 58.3 231,614 49.2 222,455 5,096 40.8
Corporate finance ............ 27,331 9.2 72,292 19.1 114,791 24.3 175,683 4,025 32.2
Personal finance ............. __ __ __ __ 602 0.1 4,537 104 0.8
----------------------------------------------------------------------------------------------------
Total ICICI gross portfolio .. Rs.297,831 100.0% Rs. 376,973 100.0% Rs. 471,488 100.0% Rs. 545,659 US$ 12,501 100.0%
====================================================================================================
</TABLE>
The following table sets forth, for the periods indicated, ICICI's
approvals by sector and as a percentage of ICICI's total approvals based on the
unconsolidated financial statements of ICICI prepared in accordance with Indian
GAAP. "Approvals" are the aggregate of all financial assistance, which have
been approved under ICICI's internal credit approval policies. Approvals
include funded assistance such as loans, debentures and equity investments and
non-funded assistance such as guarantees.
<TABLE>
Year ended March 31,
----------------------------------------------------------------------------------------------------
1997 1998 1999 2000
----------------------------------------------------------------------------------------------------
% of % of % of % of
Amount total Amount total Amount total Amount Amount total
----------------------------------------------------------------------------------------------------
(Indian GAAP)
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Project finance:
Infrastructure finance ..... Rs. 21,767 15.5% Rs. 59,721 24.2% Rs. 71,160 22.0% Rs. 70,372 US$ 1,612 15.8%
Oil, gas and
petrochemicals
finance ................. 14,554 10.3 25,846 10.5 17,444 5.4 37,372 856 8.4
Manufacturing sector
finance .................. 84,982 60.3 63,705 25.8 61,198 18.9 63,617 1,458 14.3
Corporate finance ............ 19,535 13.9 97,903 39.5 169,702 52.4 264,113 6,051 59.4
Personal finance ............. -- -- -- -- 4,202 1.3 9,314 213 2.1
----------------------------------------------------------------------------------------------------
Total ICICI approvals ........ Rs.140,838 100.0% Rs. 247,175 100.0% Rs. 323,706 100.0% Rs.444,788 US$ 10,190 100.0%
====================================================================================================
</TABLE>
Disbursements are typically made only after all necessary contractual
arrangements have been put in place. In project finance, disbursements lag
approvals for long periods because they are made in tranches throughout the
implementation period of a project. Disbursements include only funded
assistance such as loans, debentures and, to a lesser extent, equity
investments.
The following table sets forth, for the periods indicated, ICICI's
disbursements by sector and as a percentage of total disbursements based on the
unconsolidated financial statements of ICICI prepared in accordance with Indian
GAAP.
28
<PAGE>
<TABLE>
Year ended March 31,
-----------------------------------------------------------------------------------------------------
1997 1998 1999 2000
-----------------------------------------------------------------------------------------------------
% of % of % of % of
Amount total Amount total Amount total Amount Amount total
-----------------------------------------------------------------------------------------------------
(Indian GAAP)
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Project finance:
Infrastructure finance .....Rs. 11,805 10.6% Rs. 27,566 17.4% Rs. 14,622 7.6% Rs. 16,059 US$ 368 6.2%
Oil, gas and
petrochemicals finance ... 7,451 6.7 21,327 13.5 11,851 6.2 16,618 381 6.4
Manufacturing sector
finance .................. 74,933 67.0 52,278 33.1 47,778 24.9 37,353 856 14.5
Corporate finance ............ 17,620 15.7 56,899 36.0 113,798 59.1 181,243 4,152 70.2
Personal finance ............. -- -- -- -- 4,202 2.2 7,084 162 2.7
- ----------------------------------------------------------------------------------------------------
Total ICICI
disbursements ..............Rs.111,809 100.0% Rs.158,070 100.0% Rs.192,251 100.0% Rs.258,357 US$ 5,919 100.0%
=====================================================================================================
</TABLE>
Disbursements to the manufacturing sector have decreased over the past
four years, as we have consciously increased our exposure to the infrastructure
and oil, gas and petrochemicals sectors and the corporate finance business.
This shift in focus is consistent with our goal of diversifying our portfolio.
Working capital loans are generally made by ICICI Bank as described below.
The following table sets forth, for the periods indicated, information on ICICI
Bank's outstanding working capital finance loans.
<TABLE>
At March 31,
------------------------------------------------------------------------
1997 1998 1999 2000
------------------------------------------------------------------------
(Indian GAAP)
(in millions)
<S> <C> <C> <C> <C> <C>
Working capital finance ...... Rs. 7,266 Rs. 10,710 Rs. 22,696 Rs. 31,576 US$ 723
</TABLE>
Project Finance
We believe that we are the premier providers of project financing products
and services in India. For over 40 years, we have financed a vast majority of
the country's largest projects in the private sector. Our project finance
activities include medium-term and long-term lending to the manufacturing
sector and structured finance to the infrastructure and oil, gas and
petrochemicals sectors. We expect growth in our project finance business to be
driven by the increasing demand for structured finance for large projects.
These projects are structured with contractual mechanisms and security that are
designed to isolate and mitigate their inherent risks. Our project finance
business consists principally of extending rupee loans to our clients although
we do provide financing in foreign currencies. We also provide guarantees to
foreign lenders and export credit agencies, on behalf of our clients, typically
for large projects in the infrastructure sector. As part of our project finance
activities, we also provide lease financing for a wide range of imported and
locally manufactured equipment. Such asset-based financial assistance is
usually provided up to 100.0% of the asset's value. We believe we are one of
the largest lessors in India based on the volume of assets leased. We retain
ownership rights to the equipment and claim capital allowances on it. Our
leasing business has focused increasingly on high value assets, where our size
has proved to be a key competitive strength.
29
<PAGE>
ICICI's project finance activities are described below.
Manufacturing Sector Finance
Our manufacturing sector financing includes project-based lending to
companies in traditional manufacturing sectors, including iron, steel and metal
products, textiles, machinery and capital goods, cement and paper. As a result
of structural changes to the Indian economy, trade liberalization and the
downturn in prices of several major market commodities in fiscal 1999, many of
these industry segments went through a period of stress. Given our emphasis on
improving asset quality in view of the prevailing environment, we have
restricted approvals for new projects in the manufacturing sector.
We are now focusing our lending operations in this sector on those
companies that are controlled by entities that have the ability to commit
required financial resources, possess the technology and scale necessary to
compete globally and demonstrate financial viability through profitability
assessments and well defined business plans. We are also implementing tighter
security measures such as security interests in project contracts and escrow
accounts to capture cash flows.
Oil, Gas and Petrochemicals Finance
In 1996, we created a specialized oil, gas and petrochemicals group to
capitalize on the growth in financing opportunities afforded by ongoing
deregulation and privatization in these sectors. We believe that this group of
professionals has developed considerable in-house expertise in project
financing in the area of oil exploration and production, refineries, pipelines,
liquefied natural gas, petrochemicals and fertilizers. We expect that the
ongoing deregulation in these sectors and the resulting need for private
financing will continue to provide significant lending opportunities in the
future. We believe we are a market leader in India in financing large private
sector projects in the oil production, refining and petrochemicals industries.
We have provided financing to a number of the consortia, which purchased
certain of the oil fields auctioned by the government of India. These loans
were secured by the future receivables from the producing field. We also
structured the first securitization of oil receivables in India in fiscal 1999.
In addition to project finance lending to this sector, the group has been
involved in structuring innovative financing arrangements, syndication of debt
and providing advisory services for oil refinery projects.
Our oil, gas and petrochemicals finance group interacts closely with
government agencies to help formulate policy direction in this sector. ICICI's
Managing Director and Chief Executive Officer has chaired a key group
established by the government which has submitted a long-term plan for the
Indian hydrocarbon sector.
With the deregulation in the refinery sector almost complete, we expect
new business opportunities in the development of infrastructure for
distribution and marketing of petroleum products.
Infrastructure Finance
The liberalization and growth of the Indian economy in the 1990s has
sharply increased the demand for basic infrastructure services such as power,
telecommunications, urban infrastructure and transportation. The absence of
adequate basic infrastructure is seen as a major bottleneck to growth in the
economy, and future investments required in this sector are expected to be
significant. A committee formed by the government of India in 1996 estimated
this requirement to be in excess of Rs. 9.6 trillion (US$ 219.9 billion) over
the next 10 years, a substantial part of which is anticipated to come from the
private sector. We believe we are well positioned to finance this anticipated
growth due to our in-depth
30
<PAGE>
knowledge of the infrastructure sector, our expertise in structuring project
finance transactions, our strong relationships with most of the country's
leading project sponsors and our ability to commit substantial domestic
resources.
As part of our infrastructure financing strategy, in 1996, we had
established a specialized group with a mandate to:
o create in-depth, sector-specific knowledge;
o develop expertise in structuring limited recourse project finance
transactions;
o establish thorough and complete due diligence practices;
o develop expertise to syndicate large funding requirements; and
o capitalize on the growing business opportunities in the sector.
We believe this group is a market leader in terms of the number of
infrastructure project finance mandates awarded among those projects that meet
our credit risk criteria. We have been appointed lead arranger and project
advisor or facilitator in the significant majority of our mandates and have
been actively involved in developing financing structures and techniques. This
approach enables us to participate in attractive fee-based business, such as
loan syndication, underwriting and advisory services, and also enables us to
influence the project development and final project structure to meet our
credit risk standards.
We have structured and lead-managed several innovative and "first time"
transactions in the Indian market. These include the first tax-free bond
offering by an infrastructure project credit enhanced by ICICI's guarantee in
fiscal 1999 and the first two major acquisitions in the power sector in fiscal
1999 and 2000. The significant achievements during fiscal 2000 included the
successful financial closure of power projects with an aggregate capacity of
about 1,700 MW, developing a structured equity guarantee for the telecom
sector and advising a government agency in developing an expressway project.
As a result of our expertise and our leading position in the
infrastructure financing market, senior members of our management team have
increasingly been invited to serve on high-level public policy committees.
ICICI's Managing Director and Chief Executive Officer is a member of two
sub-groups set up by the Group on Telecom and IT Convergence appointed by the
government. One of the sub-groups looks at the ongoing problems of the telecom
sector and the proliferation of e-commerce, whereas the other sub-group
analyzes convergence-related issues. Earlier, ICICI's Managing Director and
Chief Executive Officer had also chaired a sub-group which conceptualized and
drafted a new telecom policy, that has since been adopted by the government of
India. ICICI was also mandated by the government to advise the Ministry of
Power on the restructuring of the power sector in India. In addition, members
of the infrastructure financing group have participated in committees
responsible for making recommendations for the development of projects in the
railway and road sectors.
Corporate Finance
In line with our strategy to offer our clients a broader range of products
and services, since 1996, we have increasingly offered short-term to
medium-term loans and structured finance products to our higher-rated corporate
clients. We have expanded our product mix to include a variety of products that
are designed to allow our clients to effectively manage their balance sheets
and cash flows, mitigate risks and enhance the credit rating of certain of
their debt issuances. In 1997, we established a dedicated structured products
group to offer our clients customized products which can allow them to raise
funds at more attractive rates and utilize off-balance sheet funding. Our
structured products group has focused
31
<PAGE>
specifically on the application of securitization techniques to credit enhance
our traditional lending products.
We believe securitization will be a growth area in India. The
securitization market in India is emerging and we are playing a leading role in
its growth and development. We have developed expertise in structuring
transactions across a variety of asset classes, including airline ticket
receivables, trade receivables, automobile hire purchase receivables, lease
rental receivables, export receivables, and credit card payments. We also
structured and executed the first two deals in India involving the
securitization of oil receivables in fiscal 1999. Going forward, we would
attempt to build the market for such transactions by establishing special
purpose vehicles to purchase receivables and selling interests in these
receivables in the domestic capital markets.
In a bid to widen our borrower base beyond our traditional clients, we
have introduced channel financing as a product that allows us to capture
lending opportunities in the distribution channel of highly-rated corporate
clients. Channel financing involves loans to dealers or suppliers in the
distribution channels of our major corporate clients. We typically lend to the
dealers or suppliers of these companies with varying types of credit
enhancement from these companies, which minimizes credit risk. We believe this
is a profitable business opportunity and being short-term in nature, lowers the
risk profile of our portfolio.
Working Capital Finance
As a complement to our corporate finance business, we provide short-term
working capital financing through ICICI Bank. ICICI Bank's working capital
product offerings include cash credit, demand loans, export finance, bills
discounting, cash management services, letters of credit, foreign exchange
management services and guarantees.
We also offer cash management services to our corporate and institutional
clients, allowing them to reduce the time period between collections and
remittances and thus streamline their cash flows. We believe we are the second
largest provider of cash management services in India.
We believe our existing corporate relationships will enable us to provide
working capital products to high growth middle market customers and large
companies and also to generate fee-based income. We are therefore focusing our
marketing efforts on increasing our market share in this segment.
Investment Banking
We offer investment banking services to Indian corporate customers
principally through ICICI Securities, our wholly owned subsidiary. ICICI
Securities provides investment banking services through three main business
lines -- corporate advisory, fixed income and equities. The clients of ICICI
Securities include a wide range of Indian and foreign corporations and
institutional investors. ICICI Securities is a non-bank finance company. For a
description of non-bank finance companies, see "Overview of the Indian
Financial Sector--Non-Bank Finance Companies".
Corporate Advisory
ICICI Securities provides a variety of advisory services, including advice
on financing and strategic transactions. ICICI Securities was one of the first
Indian investment banks to form a dedicated mergers and acquisitions group to
provide a range of services to large and mid-market Indian corporate clients
including business valuations, pricing and structuring of transactions,
financial and corporate
32
<PAGE>
restructuring. In addition, ICICI Securities provides specialized services such
as private equity syndication and privatization advisory services for public
sector companies.
Fixed Income
ICICI Securities is one of the market leaders in the Indian debt market.
In fiscal 2000, ICICI Securities assisted public sector entities, financial
institutions and corporates to raise over Rs. 120.0 billion (US$ 2.7 billion)
of debt. ICICI Securities is a primary dealer appointed and authorized by the
Reserve Bank of India to trade in government securities. As a primary dealer,
ICICI Securities is permitted to underwrite the issuance of government
securities and treasury bills and act as a market maker in these instruments.
ICICI Securities was the first primary dealer to commence activity in interest
rate derivative products such as interest rate swaps and forward rate
agreements following their introduction by the Reserve Bank of India in July
1999. ICICI Securities is also a leading player in the non-government debt
market in India. This activity primarily involves running a proprietary book
in various money market instruments.
Equities
ICICI Securities is one of the leading arrangers of equity securities in
the Indian capital markets. In equities, ICICI Securities offers a range of
products including underwriting of equity offerings, public and private
placement of corporate equity and assistance in buyback programs. Indian law
prohibits ICICI Securities from holding or trading ICICI equity shares.
Other Corporate Banking Activities
We provide a variety of other specialized corporate banking services to
our clients, including the following services.
Venture Capital Funding
We provide venture capital funding to start-up companies through ICICI
Venture Funds Management Company Limited. At year-end fiscal 2000, ICICI
Venture managed funds of Rs. 9.1 billion (US$ 208 million). It focuses on the
information technology and healthcare sectors. We believe that ICICI Venture is
the leading private equity investor in India, having invested in the maximum
number of private equity deals completed in the country to date and having
established a track record of successfully exiting from several investments.
Loan Syndication
The increasing large size of projects in Indian markets, particularly in
the infrastructure sector, has created the need for syndication of loans. We
have, over a period, developed an expertise in project appraisal, which is well
recognized by both domestic and international financial institutions. We have
set up a dedicated syndication desk. We expect that this will be an important
source of fee income for us. Our syndication capabilities have helped us
maintain our market share in arranging finance for large companies.
Custodial Services
We have a significant market share as a custodian of overseas depositary
banks for depositary receipt issues of Indian companies in the international
markets. The total assets held in custody on behalf of our clients, mainly
foreign institutional investors, offshore funds, overseas corporate bodies and
depository banks for GDR investors, has grown substantially from Rs. 54.1
billion (US$ 1.2 billion) at
33
<PAGE>
year-end fiscal 1996 to Rs. 282.8 billion (US$ 6.5 billion) at year-end fiscal
2000. In addition, ICICI is registered as a depositary participant of National
Securities Depository Limited and Central Depository Services (India) Limited,
the only two securities depositaries operating in India, and provides
electronic depositary facilities to investors including retail investors.
Corporate Risk Management Services
We offer risk management products to our corporate clients both through
ICICI and ICICI Bank. Our risk management products are currently limited to
foreign currency forward transactions and currency and interest rate swaps for
selected approved clients. We believe, however, that the demand for risk
management products will grow, and are building the capabilities to grow this
business. We are focusing particularly on setting up the sophisticated
infrastructure and internal control procedures which are critical to this
business.
Advisory Services
We provide additional advisory services to clients to complement our
financing services. Although we have been awarded mandates in various sectors,
we have focused particularly on advisory services in the energy sector,
particularly in connection with the restructuring and reform programs of
electricity boards in Indian states.
Retail Banking Activities
Historically, we have been a project finance lender with a large base of
corporate customers. We have, in the recent past, made efforts to diversify
from our strong corporate orientation. We believe that the Indian retail
financial services market is likely to experience significant growth in the
future.
We began our retail banking activities by raising deposits from retail
customers through ICICI Bank which was created in 1994. ICICI also offers a
variety of unsecured redeemable bonds and has built a customer base of about
3.7 million bondholders through the public issue of bonds. In addition, ICICI's
affiliate Prudential ICICI Asset Management Company, a joint venture between
Prudential Corporation Plc of the United Kingdom and ICICI, offers a variety of
mutual fund products targeted at this market.
In recent years, we have taken a number of steps to establish a stronger
retail orientation. The acquisitions of Anagram Finance, a consumer finance
company operating primarily in automobile financing, and ITC Classic Finance, a
company focused on retail deposit taking, were steps in this direction. In
1998, we set up our Personal Financial Services group to provide an entire
range of personal loans to individuals and coordinate our retail activities. We
offer a wide variety of products through various distribution channels, such as
physical branches, automated teller machines (or ATMs), the Internet, dedicated
franchisees and telephone call centers. Over the past two years, we have
launched several consumer credit products--automobile loans, home loans, loans
for consumer durable products, credit cards and personal loans products.
Our target market includes wage earners, professionals, businesspersons,
self-employed persons and other members of the Indian middle and upper class.
The National Council for Applied Economic Research, a well-established research
institute in India, estimated that in fiscal 1996, the middle and upper-income
segments (defined as those earning an effective income of more than Rs. 50,000
per annum) of the Indian population totaled approximately 34 million
households. While this provides an indication of the potential of the market,
we have adopted a focused approach by targeting a limited sub-segment of about
six million households based on a variety of parameters including monthly
income and
34
<PAGE>
residence in selected urban areas. We believe that this sub-segment is
currently experiencing an increasing need for financial products and services,
which are not readily available to them, and therefore represents an extremely
attractive business opportunity for us. Further, we expect our target market to
experience continued growth in line with the growth of the Indian economy.
All of our retail products are marketed under the ICICI brand, which our
research indicates is becoming a well-recognized financial services brand. To
enhance our brand equity, we have launched a comprehensive brand-building
campaign with advertisements in print and television, which resulted in our
achieving the highest top-of-the-mind advertising recall among Indian financial
sector brands. We have sponsored sports awards such as the ICICI "Safe Hands"
cricket awards and have launched a national investor education campaign that
seeks to establish ICICI's presence in the retail financial services area.
Retail Savings Products
Bond Issues
As part of our strategy to diversify our liability portfolio, we are
increasingly targeting the retail investor. ICICI offers a variety of unsecured
redeemable bonds to the Indian public. These bonds, which are not insured by
any Indian authority, are designed to address various investor needs, such as
the need for regular income, liquidity and tax saving. ICICI has built a
customer base of about 3.7 million bondholders through regular public issues of
unsecured redeemable medium-term and long-term bonds marketed under the brand
name of "ICICI Safety Bonds". During fiscal 2000, ICICI completed seven retail
bond issues raising approximately Rs. 25.7 billion (US$ 589 million) from about
1.2 million investors.
The key initiatives to strengthen our position in this market are:
o Product innovation. ICICI's bond offerings are designed to reflect
current market opportunities and investor needs. In each bond issue,
ICICI typically offers a range of bonds with varying maturities and
cash flow characteristics. During fiscal 2000, some bonds were
structured with superior liquidity features. In addition, ICICI
offers certain bonds that offer special tax benefits to the investor.
o Investor servicing. ICICI Infotech is the sole servicing agency for
all of ICICI's bondholders. Through its integrated document imaging
and management system, ICICI Infotech is equipped to handle a large
volume of bondholders' correspondence and transactions. We believe
that ICICI Infotech provides us a competitive advantage in respect of
investor servicing. See "--Technology--ICICI Infotech".
Deposit-taking and Checking Accounts
Since 1994, ICICI Bank has been accepting demand and time deposits. At
year-end fiscal 2000, ICICI Bank had retail deposits of Rs. 30.6 billion (US$
701 million) compared to Rs. 15.4 billion (US$ 353 million) at year-end fiscal
1999. These retails deposits equaled 31.0% of ICICI Bank's total deposits at
year-end fiscal 2000. ICICI Bank currently has approximately one million
accountholders who are serviced through its network of 86 bank branches and 16
extension counters. All deposits are unsecured liabilities and pay market rates
of interest. In India, Indian authorities insure only deposits of Rs. 100,000
or less.
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<PAGE>
In recent years, we have undertaken a number of specific initiatives to
increase ICICI Bank's customer base, including:
o In September 1996, ICICI Bank introduced to a select group of our
corporate customers "Power Pay", a direct deposit product to
streamline those clients' payroll payment systems. Currently, about
950 corporate clients are using this product, which allows their
employees to have pay checks deposited into savings accounts at ICICI
Bank that can be immediately accessed at various branches and ATMs
rather than having to wait for payroll checks to be deposited and
cashed. By helping our corporate customers streamline their payroll
process functions, we have in many cases found a large majority of
their employees opening savings accounts with ICICI Bank. With the
formation of client-focused relationship groups, there has been a
significant increase in the number of "Power Pay" customers. This has
resulted in a rapid increase in the number of savings accounts of
ICICI Bank from 109,120 at year-end fiscal 1999 to 291,784 at
year-end fiscal 2000. These new accountholders represent a consumer
base to which we believe we can effectively market the full range of
our retail financial service products.
o ICICI Bank has also introduced savings products that allow the
automatic transfer of idle balances from savings accounts to term
deposits resulting in higher yields.
o In 1997, ICICI Bank began offering "Infinity", an Internet banking
service, which allows customers to open and operate accounts on the
Internet. ICICI Bank was the first bank to offer this service in
India. We believe the expected increase in Internet usage will
accelerate our deposit growth through this channel. The total number
of Infinity customers was about 209,000 at August 31, 2000.
The Reserve Bank of India has recently deregulated the interest rate on
term deposits accepted by financial institutions. In view of this relaxation
and in line with ICICI's strategy to enhance its retail focus, ICICI plans to
raise a higher amount of funds by way of term deposits from the public in the
near term.
Retail Lending Activities
In fiscal 1999, we commenced our retail lending activities by offering a
select group of consumer loan products in the Indian retail markets--automobile
loans, home loans and loans for consumer durable products. We have put together
a team dedicated to retail lending activities, that currently operates out of
33 of our offices throughout India. ICICI offers a range of retail asset
products, including automobile loans, home loans and loans for consumer durable
products. Retail lending activities represented less than 1.0% of ICICI's gross
loans during each of fiscal 1999 and 2000.
Automobile Finance
Automobile finance generally involves the provision of retail consumer
credit for up to 60 months to acquire specified new automobiles. We currently
offer automobile loan products in 32 cities across India. Our strong corporate
relationships helped us to acquire "preferred financier" status for seven new
manufacturers introduced recently in India. Automobile loans are secured by the
purchased automobile. The total amount of automobile loans sanctioned in fiscal
2000 was Rs. 2.8 billion (US$ 65 million). In a recent survey conducted by J.D.
Power Asia Pacific on customer satisfaction, ICICI was ranked as the best in
overall satisfaction and scored higher in most of the factors compared to its
nearest competition.
36
<PAGE>
Home Finance
Our home finance business involves secured financing for the purchase or
construction of homes by salaried or self-employed individuals and, in some
cases, partnerships and corporations. We currently provide home finance in 17
cities across India. The total amount of home finance sanctioned in fiscal
2000 was Rs. 3.8 billion (US$ 86 million). Our home finance business is
managed by our group company ICICI Home Finance Company.
Consumer Durable Finance
Our consumer durable finance business involves the financing of home
products, such as refrigerators, televisions, washing machines, air
conditioners, two-wheeler vehicles and audio equipment. We currently provide
consumer durable finance in 23 cities across India. The total amount of
consumer durable finance sanctioned in fiscal 2000 was Rs. 0.4 billion (US$ 9
million).
Personal Loans
We currently provide personal loans in 17 cities across India. The total
amount of consumer durable finance sanctioned in fiscal 2000 was Rs. 33 million
(US$ 767,844).
Dealer Funding
We currently fund dealers who deal in automobiles, two wheelers and
commercial vehicles. The total amount of sanctions for dealer funding in fiscal
2000 was Rs. 1.9 billion (US$ 43 million).
Credit Cards
In January 2000, ICICI Bank launched its credit card operations. ICICI
Bank's credit card is the first credit card with Internet access by an Indian
company. The domestic credit card business in India is relatively
under-developed with a limited number of banks issuing credit cards. We believe
the low penetration of credit cards creates a significant business potential
for a domestic participant, such as ICICI Bank. As the Indian economy develops,
we expect that the retail market will seek short-term credit for personal uses,
and our offering of credit cards will facilitate further extension of our
retail credit business. We also expect that as credit usage increases, we will
be able to leverage our customer relationships to cross-sell additional retail
and consumer-oriented products and services. Through our credit card business,
we expect to further develop our retail customer database with information,
spending and repayment patterns and credit histories. We are currently
operating out of 10 locations. As with our other retail loan business, we
expect to stress conservative credit standards, including credit scoring and
strict monitoring of repayment patterns, to minimize risks associated with this
business. At year-end fiscal 2000, ICICI Bank had issued 12,307 credit cards
which has now increased to 54,613 cards.
Life Insurance
Following the deregulation of the insurance sector, private sector
companies have been allowed to enter the insurance business. It is expected that
the Insurance Regulatory and Development Authority will grant the first
licenses to new entrants by the end of October 2000. We plan to enter the life
insurance business through a joint venture partnership with Prudential plc of
the UK. This joint venture company, ICICI Prudential Life Insurance Company
Limited, has applied to the Insurance Regulatory and Development Authority for
a license.
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<PAGE>
The minimum equity capital required under the regulations for a new
insurance company is Rs. 1.0 billion. In line with the regulations, Prudential
is expected to hold up to a 26.0% stake in ICICI Prudential Life Insurance
Company with the balance being held by ICICI.
General
To build each of these retail lending businesses, we first undertook
detailed analysis of the size and potential profitability of these growing
markets, and sought the advice of external consultants. After being satisfied
with the results of our analysis, we created a back office infrastructure by
making use of the capabilities of ICICI Infotech, our information technology
subsidiary, which has an established track record in transaction processing.
ICICI's acquisition of Anagram Finance has been extremely useful in helping us
to establish a strong debt collection mechanism. In each of these businesses,
we first established a pilot program in one or two small locations, which
allowed us to learn from our first experiences before rolling out our products
in major centers. We have also augmented our management teams by hiring
experienced personnel, including credit personnel from other leading consumer
finance companies. These persons have brought with them significant experience
in the consumer finance business and in particular running start-up products in
consumer credit operations.
We believe the demand for consumer credit in India is growing rapidly and,
as a result, our retail banking revenue from this sector will increase and help
to diversify our loan portfolio. The ICICI brand has begun to achieve strong
consumer recognition and together with our intent to expand distribution driven
by technology, we expect to build a significant market presence. We believe
that our credit appraisal and collection processes will help us minimize risks
and that ICICI Infotech's centralized transaction processing capabilities will
allow us to provide superior client services.
Client Coverage
In fiscal 1999, in an effort to improve our client service and improve our
profitability, we reorganized our corporate structure and created three client
relationship groups--the Major Clients Group, the Growth Clients Group and the
Personal Financial Services Group. Collectively, these groups are responsible
for offering the full range of our products and services to our clients with an
emphasis on cross-selling and the generation of fee income. The activities of
each of these groups are as follows:
Major Clients Group
The Major Clients Group focuses on the financial needs of 150 of India's
leading corporations. This group consists of client bankers drawn from across
the ICICI group and operates out of the ICICI corporate office in Mumbai and
the regional offices at Calcutta, Chennai and Delhi. The group works in close
association with our specialized industry groups, our treasury division and our
structured product group. The goal of the Major Clients Group is to move beyond
"plain vanilla" lending and offer an integrated package of sophisticated
products and services to our major clients. The group seeks to cross-sell the
full range of our existing products and customized advice and offerings,
including loans, structured financing, treasury and cash management, advisory
services, debt syndication and mergers and acquisitions advice. The Major
Clients Group seeks to build on existing relationships and also focuses on
bringing into our portfolio major multi-national corporations and large
profitable public sector corporations.
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<PAGE>
Growth Clients Group
The Growth Clients Group focuses on middle market companies. Over the past
several years, the middle market segment has grown rapidly, particularly in
the areas of information technology, automobile components, consumer goods and
pharmaceuticals, and traditionally has had less access to financing compared
to our major clients. Continued growth among middle market companies is
expected to result in greater demand in volume and type of financial products
and services. The Growth Clients Group seeks to identify and build
relationships with these middle market clients and build upon existing client
relationships to ensure a broader distribution of our products. The Growth
Clients Group consists of client bankers drawn from across the ICICI group and
operates out of ICICI's nine zonal and regional offices. The Growth Clients
Group relies extensively on the ICICI Bank branches to provide growth
companies additional access to our products and services and for monitoring of
customer relationships. Close coordination and interaction with ICICI Bank
branches also enables the Growth Clients Group to be more sensitive to changes
in the local business market that affect middle market companies. We believe
that the rapid growth in the relatively under-banked middle market companies
offers us a significant opportunity to provide a wide variety of lending and
fee-based products, primarily working capital lines.
Personal Financial Services Group
We established the Personal Financial Services Group to focus on our
recent retail banking initiative. This group works in close coordination with
ICICI Bank and all other group distribution companies. To aid our retail
business efforts, we have assembled a team including lateral recruits with
significant credit, operations, marketing and sales experience from some of the
leading consumer finance companies in India. We are also engaged in a variety
of initiatives, including developing the information technology to bring
together our personal financial services into an integrated package accessible
to individual consumers through our various distribution network channels and
further enhancing the ICICI brand equity.
Distribution Network
We deliver our products and services through a variety of distribution
outlets ranging from traditional bank branches to ATMs and the Internet. We
believe that India's vast geography necessitates a variety of distribution
channels to best service our customers' needs. The key components of our
distribution network are described below.
The following table sets forth our principal domestic outlets.
At March 31,
------------------------
1998 1999 2000
------------------------
Regional offices 4 4 4
Zonal offices 5 5 5
ICICI Bank branches 33 55 81
ICICI Bank extension counters 4 9 16
ATMs 36 70 175
ICICI Centers -- -- 75
In addition to the above outlets, we use an agent network of over 10,000
agents and a franchising network of 35 franchises in 19 cities in India.
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ICICI Regional and Zonal Offices
ICICI has four regional offices in the metropolitan cities of Mumbai,
Calcutta, Chennai and Delhi and five zonal offices in Ahmedabad, Bangalore,
Coimbatore, Hyderabad and Pune. We also have a small development office in
Guwahati. Each of our regional and zonal offices is staffed primarily by
representatives of our Growth Clients Group, with representatives of the
Personal Financial Services Group in each location. Representatives of the
Major Clients Group and treasury, which are headquartered at Mumbai, are also
located at Delhi, Chennai and Calcutta. These Major Clients Group personnel
have electronic access to information concerning products, pricing and funding
costs, credit and risk management and other relevant information.
ICICI Bank's Branch Network
ICICI Bank had a fully computerized branch network with 81 branches and 16
extension counters across several Indian states at year-end fiscal 2000.
Extension counters are small offices primarily within office buildings or on
factory premises that provide commercial banking services. We believe that the
bank has achieved the basic geographical spread of its branch network and now
proposes to concentrate on consolidating the branch network in the top eight
metropolitan cities of India. Prior to opening a branch, we conduct a study in
which we assess the lending potential as well as market demand for deposits.
Based on the data on dispersion of households falling within ICICI Bank's
target segment, we believe that the eight metropolitan cities of India offer
maximum potential for retail banking. Branch locations are largely leased
rather than owned.
ICICI Bank ATMs
ICICI Bank has the largest network of ATMs in India. Of its 175 ATMs at
year-end fiscal 2000, 99 were located at bank branches and extension counters.
The remaining 76 were located at the offices of select corporate clients, large
residential developments, airports and major roads in metropolitan cities. At
August 31, 2000, ICICI Bank had 249 ATMs.
We intend to greatly increase the distribution of our ATMs over the next
two years to provide 24-hour access to cash and other select services to retail
customers. We are also currently engaged in discussions with other banks to
share our ATMs with other networks to further extend our ATM network for
increased customer access.
ICICI Centers
Given the breadth of India and its geographic diversity, we have decided
to augment our branch network with "ICICI Centers". These locations are
low-cost, stand-alone offices with two or three employees, which act as
marketing and service centers. We believe that these centers provide us an
efficient and cost-effective distribution network. We believe that the role of
these centers is particularly critical in India, because smaller cities, where
establishment of a large branch may prove to be uneconomical, account for a
significant share of household savings in India.
The centers are relatively small in size, fully networked, and market and
service ICICI Safety Bonds and other third party investment products like
mutual funds and initial public offerings. These centers are used primarily for
servicing the requirements of our large base of bondholders. Prior to opening
an ICICI Center, we conduct a review of the deposit market and the demand for
ICICI Safety
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Bonds. With the expansion in our retail credit business, these centers have
also become the point of contact for all personal finance products offered by
ICICI, though the actual sale of these products is conducted through an agent
or broker network. At year-end fiscal 2000, we had 75 ICICI Centers which has
increased to 85 at August 31, 2000.
ICICI Bank's Internet Access
We believe that Internet access and information is key to satisfying the
needs of certain customer segments. As a result, we maintain a website at
www.icici.com offering generalized information on our products and services.
ICICI Bank was the first bank in India to introduce Internet banking through
its product "Infinity". "Infinity" allows customers to access all
account-related information, perform on-line fund transfers to other ICICI Bank
accounts and give account instructions 24 hours a day, seven days a week
through our website. We have also extended our Internet banking channel to
allow transactions and bill payment facilities. We intend to continue to be at
the forefront of providing web-based products to our corporate and retail
customers. The number of Internet banking customers increased significantly to
about 209,000 at August 31, 2000 from 4,000 at year-end fiscal 1999.
ICICI Agent Network
ICICI sells bonds through a network of over 10,000 agents located
throughout India. This network is particularly critical for us in the smaller
cities and locations where it is not economical for us to have a physical
presence.
ICICI Franchisees
We have a franchisee network consisting of 35 franchisees in 19 cities
with approximately 2,000 employees. The franchisees deliver our retail credit
products. In addition to the ICICI Center network, these agencies help us
achieve deeper penetration by offering door-step service to the customer. These
agencies market our products on an exclusive basis. All credit and risk
management decisions pertaining to any customer are made by us and no agency
can extend credit to any customer without our approval. These agencies receive
a fee based on the volume of business generated by them.
ICICI Call Center
We have set up four call centers in fiscal 2000. The call centers function
24 hours a day and seven days a week and offer a self service to customers for
automated phone banking. Account related information is also available around
the clock. In addition, well-trained customer service officers offer
personalized services for banking, dematerialized securities and web brokering
customers and bond holders. The call centers are also used in product specific
campaigns to generate leads which are assigned to the franchisees for
fulfillment.
Investments
Our investment securities portfolio consists of long-term debt and equity
securities denominated in rupees.
We also have other securities not included as part of the investment
securities portfolio. They are:
o Investments in securities as part of our trading portfolio.
Government of India securities are a principal component of our
trading portfolio. The trading portfolio is discussed in detail in
the
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section "--Risk Management--Quantitative and Qualitative Disclosures
About Market Risk"; and
o Investments in debentures as part of our normal financing activities.
These securities are on identical terms and conditions as our loans
and are treated as part of our loan book for the purpose of asset
classification as well as calculating loan concentrations. This
portfolio is discussed in detail in the section "--Loan Portfolio".
Corporate Debt Securities
As part of our overall policy of acquiring a well-diversified portfolio,
we acquire corporate debt securities. Our portfolio of these securities at
year-end fiscal 2000 consisted largely of bonds issued by entities owned or
controlled by the government of India. Some of these bonds offer us attractive
yields due to their tax-free income and/or their attracting a lower capital
charge. Some of these bonds are also approved substitutes for certain directed
lending that ICICI Bank is required to do under Reserve Bank of India
regulations. See "Supervision and Regulation--Directed Lending--Priority Sector
Lending Requirements".
Total corporate debt securities in our investment securities portfolio
decreased to Rs. 3.4 billion (US$ 79 million) at year-end fiscal 2000 from Rs.
3.9 billion (US$ 89 million) at year-end fiscal 1999. At year-end fiscal 2000,
corporate debt securities were approximately 0.4% of our total assets and 18.1%
of our investment securities portfolio.
Equity Securities
From time to time, we acquire and hold equity securities. These
securities, which typically consist of ordinary shares, are acquired in
multiple ways: direct subscriptions, rights issues and by conversion of our
performing and to a small extent non-performing loans into equity. We have also
acquired equity securities in connection with underwritings conducted by ICICI
and ICICI Securities. A significant portion of these equity positions were
acquired at the time of the initial project finance assistance with the
intention of realizing capital gains arising from expected increases in market
prices. Conversion of non-performing loans into equity forms only a small part
of the total equity portfolio.
The decision to invest in equity securities along with project financing
activities is an independent business decision to participate in the equity of
the company with the intention of realizing capital gains arising out of
expected increases in market prices. This decision is taken strictly on a
case-by-case basis and there is no correlation between the basis for the
lending decision and the reasons for the equity investment. All of our equity
investments, other than in our subsidiaries and affiliates, are made with the
intent of holding them for medium-term to long-term periods strictly as
portfolio investments. The basis of valuation of our equity investments is
either the market value of the shares if they are shares for which current
quotations are available or the estimated fair value of the shares if they are
unquoted or unlisted shares or listed shares for which current quotations are
not available.
Equity securities were 1.8% of our total assets at year-end fiscal 2000
compared to 1.7% at year-end fiscal 1999 and 2.7% at year-end fiscal 1998.
Equity securities were 73.3% of our total investment portfolio at year-end
fiscal 2000 compared to 74.3% at year-end fiscal 1999 and 89.0% at year-end
fiscal 1998. As our equity investments are primarily in the nature of
long-term investments in start-up projects, returns on such investments
generally accrue well after commencement of operations by the projects. A
detailed discussion on the valuation of this portfolio is provided in the
section on "--Risk Management--Quantitative and Qualitative Disclosures About
Market Risk". An Investment Committee of ICICI's board
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<PAGE>
of directors sets the overall policy for divestment of ICICI's equity
securities. The Investment Committee has delegated powers to ICICI's executive
directors to execute divestments within the overall policy laid down by the
Investment Committee. In general, ICICI pursues a strategy of active management
of ICICI's long-term equity portfolio to maximize return on investment.
Securities Holdings
The following tables set forth, for the periods indicated, the gross
unrealized gains and losses within our investment securities portfolio and the
amortized cost and fair value of the portfolio by type of investment security.
<TABLE>
At March 31, 1998
----------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gain loss value
----------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C>
Available for sale:
Government of India securities... Rs. 9 Rs. -- Rs. -- Rs. 9
Corporate debt securities ....... 1,597 34 (40) 1,591
Equity securities(1)............. 19,118 1,953 (8,090) 12,981
----------------------------------------------------------
Total available for sale .............. 20,724 1,987 (8,130) 14,581
Held to maturity
Government of India securities .. -- -- -- --
Other debt securities ........... 1 -- -- 1
----------------------------------------------------------
Total held to maturity ................ 1 -- -- 1
----------------------------------------------------------
Total securities ...................... Rs. 20,725 Rs. 1,987 Rs. (8,130) Rs. 14,582
==========================================================
</TABLE>
_____________
(1) Includes non-marketable equity securities that are carried at cost, less
any provision for other than temporary diminution. The fair value of these
securities cannot be ascertained. At year-end fiscal 1998, the carrying
amount of these securities was Rs. 5.2 billion (US$ 118 million), which is
reported in both the amortized cost and fair value columns.
<TABLE>
At March 31, 1999
----------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gain loss value
----------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C>
Available for sale:
Government of India securities Rs. -- Rs. -- Rs. -- Rs. --
Corporate debt securities 3,851 12 -- 3,863
Equity securities(1) 19,226 1,178 (9,227) 11,177
----------------------------------------------------------
Total available for sale 23,077 1,190 (9,227) 15,040
Held to maturity:
Government of India securities -- -- -- --
Other debt securities 1 -- -- 1
----------------------------------------------------------
Total held to maturity 1 -- -- 1
----------------------------------------------------------
Total securities Rs. 23,078 Rs. 1,190 Rs. (9,227) Rs. 15,041
==========================================================
</TABLE>
___________________
(1) Includes non-marketable equity securities that are carried at cost, less
any provision for other than temporary diminution. The fair value of these
securities cannot be ascertained. At year-end fiscal 1999, the carrying
amount of these securities was Rs. 4.9 billion (US$ 112 million), which is
reported in both the amortized cost and fair value columns.
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<TABLE>
At March 31, 2000
------------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gain loss value
------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C>
Available for sale:
Government of India securities ...... Rs. 914 Rs. 89 Rs. -- Rs. 1,003 US$ 23
Corporate debt securities ........... 3,308 34 -- 3,342 77
Equity securities(1) ................ 17,654 1,203 (4,976) 13,881 318
------------------------------------------------------------------------
Total available for sale .................. 21,876 1,326 (4,976) 18,226 418
Held to maturity:
Government of India securities ...... 560 54 -- 614 14
Corporate debt securities. .......... 84 -- -- 84 2
Other debt securities ............... 1 -- -- 1 --
------------------------------------------------------------------------
Total held to maturity .................... 645 54 -- 699 16
------------------------------------------------------------------------
Total securities .......................... Rs. 22,521 Rs. 1,380 Rs. (4,976) Rs. 18,925 US$ 434
========================================================================
</TABLE>
________________
(1) Includes non-marketable equity securities that are carried at cost, less
any provision for other than temporary diminution. The fair value of these
securities cannot be ascertained. At year-end fiscal 2000, the carrying
amount of these securities was Rs. 8.5 billion (US$ 194 million), which is
reported in both the amortized cost and fair value columns.
The following table sets forth, for the period indicated, an analysis of
the maturity profile of our investments in corporate debt securities and the
yields thereon.
<TABLE>
At March 31, 2000
-----------------------------------------------------------------------------
After 1 year and After 5 year and
Within 1 year within 5 years within 10 years After 10 years
-----------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield
-----------------------------------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Corporate debt securities .............Rs. 487 10.4% Rs. 1,581 10.6% Rs. 1,358 11.1% Rs. -- --%
Other debt securities ................. -- -- -- -- 1 -- -- --
------- --------- --------- --------
Total interest-earning securities .....Rs. 487 10.4 Rs. 1,581 10.6 Rs. 1,359 11.1 -- --
======= ========= ========= ========
Total amortized cost ..................Rs. 483 -- Rs. 1,566 -- Rs. 1,344 -- -- --
Total market value .................... 487 -- 1,581 -- 1,359 -- -- --
</TABLE>
Technology
We believe information technology is a strategic tool for our business
operations to gain competitive advantage and to improve overall productivity
and efficiency of the organization. Information technology also assumes a
critical role in enhancing our ability to monitor and control credit and market
risk. We have made substantial investments in technology over the past few
years. We believe we are a leader in technology in the Indian financial
services, particularly in the delivery of banking products, treasury operations
and risk management functions. We have based our information technology focus
on:
o building our technology infrastructure to capitalize on advances in
telecommunications and data processing; and
o applying Internet-related technologies to existing product offerings and
to create new business opportunities through the Internet.
Building Our Technology Infrastructure
We were one of the first financial institutions in the country to put in
place a nationwide data communications network connecting all our offices.
During fiscal 2000, we implemented an upgraded network across all our
locations. By implementing a shared network, which can be used by both
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wholesale and retail businesses, we believe that we can better utilize our
network infrastructure at a lower cost. We propose to use this network for all
our communication needs, subject to prevailing regulation. We have also
established a sophisticated data center in Mumbai designed to operate on a 365
day a year, 24 hours a day basis.
During fiscal 2000, we also set up four call centers across the country
for effective servicing of all our retail clients. These centers are equipped
with sophisticated telecommunication equipment, including a voice switch, an
interactive voice response unit, computer telephony interface, automated call
dispatch and state-of-the-art phones and headsets.
We also implemented a series of product specific systems for our retail
operations that have allowed us to expedite the processing of our retail
products.
ICICI Infotech
ICICI Infotech, an ISO 9001 certified company, is our data processing arm
and has evolved from being a transaction processing house to an information
technology solutions provider with expertise in key technologies like workflow
management tools, web technologies and software development.
During fiscal 2000, the staff of all IT departments of our group companies
were transferred to ICICI Infotech. ICICI Infotech meets all IT requirements
for the entire ICICI group. This has resulted in better development of human
capital along the lines of best practices in the IT industry. It has also
helped in achieving critical mass and enhanced utilization of domain and
technical expertise in key areas. It has also resulted in shared networks,
common business solutions, the development of common IT policies and
procedures and shared expertise on specific projects.
The three main areas of business for ICICI Infotech are:
o software consultancy and development services;
o IT enabled services like transaction processing; and
o IT infrastructure and facilities management services.
ICICI Infotech has a dedicated team to service the ICICI group. During
fiscal 2000, ICICI Infotech was able to build a large skill base and project
management capabilities by executing several large projects for ICICI group
companies. During fiscal 2000, ICICI Infotech also put in place a business
development and implementation team for sourcing and developing external
businesses. ICICI Infotech intends to focus on software development relating to
the financial sector, web-based technologies and real time software. The
services of ICICI Infotech will include onsite projects and combined onsite /
offshore delivery mechanisms.
ICICI Infotech purchased for Rs. 17.8 million (US$ 407,789) the business
of Rohan Software Private Limited, a company focused on software consultancy
and development for the banking industry, in fiscal 2000. Rohan Software had
assets of Rs. 4.5 million (US$ 105,217) at year-end fiscal 1999 and net income
of Rs. 8.4 million (US$ 192,651) in fiscal 1999. This acquisition has
facilitated ICICI Infotech's recent entry into providing software solutions for
the banking industry.
ICICI Infotech has applied technology in its business processes to achieve
the best operating parameters. It has in place an integrated document imaging
and management system for handling investor correspondence and has leveraged
technological skills to enable the handling of a large volume of transactions.
ICICI Infotech is currently upgrading and streamlining its methodologies and
systems to
45
<PAGE>
handle all processing requirements arising from our retail business. ICICI
Infotech has also leveraged its understanding of information and process
management and has built the requisite capabilities to offer
information-related services as well as software solutions for transaction
processing.
Applying Internet-related Technologies
We believe that the Internet has created significant opportunities for
financial services providers to lower costs, enhance accessibility and improve
overall customer service, convenience and satisfaction. We have tried to use
this medium to:
o web-enable existing product offerings to create value; and
o create new business opportunities through the Internet.
Web-enabling existing product offerings to create value
By web-enabling our products, we have ensured multi-location, low-cost
access to our services on a 24-hour basis, achieved increased customer
acquisition and customer retention, improved customer service and achieved
significant cost savings. We believe that the increasing number of Internet
users in India, the demographic characteristics of these users and the relative
flexibility and convenience offered by the Internet provides a unique
opportunity to create value for our customers and us. It also provides us an
opportunity to cross-sell the group's products and services. We intend to
continue to use Internet as an important delivery channel for the distribution
of our products and services.
Internet banking services - Retail. We believe that Internet banking will
provide us with a wide range of potential benefits, including increased
revenue, wider market reach, entry into new market opportunities, decreased
costs and improved customer retention. ICICI Bank was the first bank to offer
Internet-based banking services in India. In November 1997, Bank Technology
News International listed ICICI Bank as one of 43 "Truly Internet Banks"
outside the United States. The Financial Times and UUNET of the United Kingdom
rated ICICI Bank's website as highly commended "Business Website of 1997" and
"Business Website of 1998". During fiscal 2000, Forbes Global, the leading
international magazine, reviewed ICICI Bank's Internet banking services in
their story regarding fifteen leading Internet banking services across the
world.
Internet banking services - Corporate. In August 1999, ICICI Bank launched
an Internet banking service, "Corporate Infinity" to deliver a full range of
high quality financial services to corporate customers at their offices. This
integrated client interface product allows the corporate customers to have a
single point of contact for their entire relationship with us. Corporate
Infinity offers, among other services, the following:
o details of transactions with the ICICI group;
o real-time access to financial markets;
o system-generated alerts including principal and interest payment
dates; and
o online fund transfers.
Payment services - closed-user group. In fiscal 2000, ICICI Bank launched
online electronic payment facilities for ICICI group's corporate customers and
their suppliers and dealers as a closed group, where the entire group is
required to maintain bank accounts with ICICI Bank. We use the Internet as the
delivery platform for this business-to-business electronic commerce product,
which we call "i-payments". Under this service, all payments from our
corporate customers to their suppliers and payments
46
<PAGE>
from the dealers to our corporate customers are made electronically. This
service offers a high level of convenience since no physical instruments are
required, all transactions are done online and the information may be viewed on
the Internet. This product can be customized to meet specific requirements of
individualcustomers, and has permitted the group to build new relationships
with leading corporates of India.
Open payment gateway. Subsequent to year-end fiscal 2000, we have set up a
payment gateway, "Payseal", to facilitate secured online business-to-consumer
(B2C) e-commerce transactions. Currently, Payseal is used in some of the
leading portals in India for payment services. We are currently working on
setting up a payment gateway to facilitate business-to-business e-commerce
transactions. The payment gateway is owned by ICICI ePayments Limited, a
wholly owned subsidiary of ICICI, and is being implemented by Compaq India,
QSI Payment Technologies, Australia and Financial Software & Systems Private
Limited.
Web brokering. We launched web broking services through our wholly owned
subsidiary, ICICI Web Trade Limited, in April 2000. This service involves
online integration of the customer's depositary share account, bank account
and securities brokerage account with us. We expect our web broking service to
be a key driver in customer acquisition and retention.
Create new business opportunities on the Internet.
We believe that the Internet is going to become a mainstream distribution
channel in the near future, and have tried to establish a presence by building
portals catering to a variety of product and lifestyle requirements. Some of
our key initiatives are discussed below.
Indiahomeseek.com. We launched a housing portal, Indiahomeseek.com, which
provides customers with a one-stop solution to all their financial and
information needs related to housing including property searches, procedural
requirements and the option to apply online for a home loan.
Traveljini.com. We have launched a travel site under the brand name
Traveljini.com in July 2000. It is a powerful click-and-brick model through its
relationship with travel agents. It offers a wide range of online services
including air booking, hotel booking, car booking, package tour bookings and
other travel products and services.
Billjuction.com. We have also launched a bill-payment portal under the
brand name Billjunction.com in May 2000. It is positioned as a one-stop
electronic bill presentment and payment portal allowing customers (of any bank)
to use their bank accounts to pay multiple billers. This is the first site of
its kind in India and enables customers of Indian public sector banks that do
not offer Internet banking also to pay their bills online.
Cafemumbai.com. With an intention to enhance our retail relationships, we
launched cafemumbai.com in May 2000 which is a city specific portal catering to
the people and travelers in Mumbai.
We also make equity investments in select companies in the Internet space
in areas including business-to-consumer solutions, business to business
solutions and Internet-enabling technologies which have a strategic fit with
our e-commerce initiatives. These investments have potential for value creation
and offer synergies with our other Internet offerings and investments.
47
<PAGE>
Competition
We face strong competition in all our principal areas of business from
other long-term lending institutions, Indian and foreign commercial banks,
investment banks and other non-bank financial institutions. We believe that our
principal competitive advantage over our competitors arises from our
long-standing customer relationships, our use of technology, our innovative
products and services and our highly motivated and skilled employees. Because
of these factors, we believe that we have a strong competitive position in the
Indian financial services market. We evaluate our competitive position based on
our principal lines of business, project finance, corporate and working capital
finance, retail banking and investment banking.
Project Finance
In project finance, our primary competitors are established long-term
lending institutions. In recent years, Indian and foreign commercial banks have
sought to expand their presence in this market.
We believe we have a competitive advantage due to our strong market
reputation and expertise in risk evaluation and mitigation and our ability to
raise fixed rate long-term funding in the domestic market at competitive rates.
We believe that our in-depth sector specific knowledge has allowed us to gain
credibility with project sponsors, overseas lenders and policy makers. Our
capabilities in understanding risks, policy related issues in the
infrastructure and oil, gas and petrochemicals sectors as well as our advisory,
structuring and syndication capabilities have been instrumental in making us
the preferred lead financier in these areas. According to publicly available
data, ICICI's share of total approvals by long-term lending institutions,
investment institutions and specialized financial institutions increased from
39.4% in fiscal 1999 to 42.9% in fiscal 2000 and ICICI's share of total
disbursements increased from 34.1% in fiscal 1999 to 38.5% in fiscal 2000.
Corporate Finance and Working Capital Finance
In corporate finance and working capital finance, we face strong
competition from other long-term lending institutions, public sector banks,
foreign banks and other new private sector banks. Our principal competition in
corporate lending comes from public sector banks, which have built extensive
branch networks that have enabled them to raise low-cost deposits and, as a
result, price their loans very competitively. Supported by their large retail
deposit bases, public sector banks have over 80.0% of the market share for
working capital financing. Traditionally, foreign banks have been active in
providing trade finance and other short-term financing products to the top tier
of Indian corporations. Although we are a relatively new entrant to this
business, we believe we have a competitive advantage due to our strong
corporate relationships, our ability to offer value-added structured products,
our ability to use technology to provide innovative products and services and
our efficient services and prompt turnaround times. This advantage is
demonstrated in the rapid growth of our corporate finance and working capital
finance business.
Retail Banking
The retail credit business in India is in an early stage of development.
As per-capita income levels grow, we expect strong growth in retail lending,
particularly in urban centers. In the retail markets, competition is primarily
from non-bank finance companies, foreign and Indian commercial banks and
housing finance companies. Foreign banks have the product and delivery
capabilities but are likely to focus on the upper income segments. By using
low-cost multiple channels for product delivery, superior
48
<PAGE>
technology, hiring experienced professionals to develop and market products and
leveraging on existing retail investors and infrastructure, we expect to gain a
significant share in this emerging market.
Indian commercial banks attract the majority of retail bank deposits,
historically the preferred retail savings product in India. ICICI has sought to
offset these advantages by using a highly successful marketing campaign which
prominently features the ICICI brand name, offering bonds at any time,
employing agents to increase investor awareness and providing liquidity through
market-making. ICICI has increasingly benefited from stronger demand from the
retail market for its bonds, as a result of these strategies combined with its
reputation as a well-managed institution. ICICI will actively use technology to
offer new products and win new accounts by offering superior service. ICICI
Bank, like other commercial banks, raises retail banking deposits. ICICI Bank
has capitalized on ICICI's corporate relationships to gain individual customer
accounts through payroll management products such as Power Pay and will
continue to pursue a multi-channel distribution strategy utilizing physical
branches, ATMs, telephone banking call centers and the Internet to reach
customers.
Investment Banking
In investment banking, our principal competition comes from other domestic
investment banks and investment banking divisions of foreign banks and foreign
investment banks, which may or may not have a local presence. We believe that
our well-established corporate relationships, our product structuring and
advisory skills and in-depth understanding of the local markets and local
investor base provide us with a competitive edge.
Other Activities
Developmental Activities
We have played a pivotal role in the development of the Indian financial
system. Since the 1970s, ICICI has promoted various entities, which have gone
on to play leading roles in the Indian financial system. These entities include
the Credit Rating Information Services of India Limited, which pioneered the
concept of credit rating in India and is today India's leading credit rating
agency; Housing Development Finance Corporation Limited, which is India's
largest housing finance company; and The OTC Exchange of India, which is
India's first screen-based trading system specializing in smaller companies.
ICICI currently holds an equity interest of 11.2% in the Credit Rating
Information Services of India Limited and 20.0% in The OTC Exchange of India.
Technology Funding
In recognition of the critical role of technology in industrial
development, we have become one of the largest arrangers of technology
financing in India, managing USAID and World Bank funds for their various
technology financing programs. We do not invest our own funds in these
projects, but earn advisory fees and gain expertise in emerging technologies
and business areas.
Social Initiatives
As a corporate citizen, we have endeavored to improve the lives of our
fellow citizens and strengthen our bonds with society. We have made efforts to
connect our business activities to wider social objectives emphasizing the
social responsibility of business enterprises. We provide financial and
technical support to various charitable, educational and social welfare
organizations. During fiscal 2000, we consistently supported a diverse range of
projects in the focus areas of education and healthcare. We
49
<PAGE>
are committed to social development and will continue to provide support and
catalyze the progress of the relatively underprivileged sections of society.
Management Education
We have also played an important role in setting up and supporting various
programs imparting management and technical education. We have also offered
our expertise to development financial institutions in developing countries
such as Bhutan, Ghana, Nepal, Sri Lanka and Uganda.
With the objective of establishing a world class business school in India,
we have joined an initiative of leading Indian corporations and international
firms in setting-up the Indian School of Business at Hyderabad, India. This
business school is affiliated with Northwestern University's J.L. Kellogg
Graduate School of Management and the University of Pennsylvania's Wharton
School.
Subsidiaries and Affiliates
We operate through a number of subsidiaries and affiliated companies,
including ICICI Bank, our majority-owned banking subsidiary, and ICICI
Securities, our investment banking subsidiary. All of these subsidiaries and
affiliated companies are incorporated or organized in India, except ICICI
International Limited, which is organized in Mauritius.
50
<PAGE>
The following table sets forth, for the periods indicated, certain
information relating to ICICI's subsidiaries and affiliates at year-end fiscal
2000.
<TABLE>
----------------------------------------------------------------------------------------------------------------
Stock-
Direct or holders'
indirect Total equity Assets at
Date of shareholding revenue in at March March 31,
Name formation Activities by ICICI fiscal 2000 31, 2000(1) 2000(1)
----------------------------------------------------------------------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C>
ICICI Bank January Commercial banking 62.2% Rs. 10,469 Rs. 11,495 Rs. 120,726
Limited(2) 1994 activities
ICICI Securities February Investment banking 99.9 3,000 2,555 22,673
Finance Company 1993 activities
Limited(3)
ICICI Infotech March Software consultancy 100.0 418 140 495
Services Limited 1991 and development services;
IT enabled services
including, transaction
processing; IT
infrastructure and
facilities management.
ICICI Brokerage March Securities broking 99.9 136 96 551
Services Limited 1995 activities
ICICI Personal March Lease finance, hire- 100.0 242 563 668
Financial 1997 purchase, factoring;
Services Limited distribution and
servicing of retail asset
products
ICICI Capital September Placing and 100.0 167 85 126
Services Limited 1994 distribution of liability
products
ICICI Venture Funds January Venture capital 100.0 1,851 317 466
Management 1988 management
Corporation
Limited
ICICI International January Offshore financing 100.0 28 19 24
Limited 1996 opportunities
ICICI KINFRA January Developing 76.0 11 4 11
Limited 1996 infrastructure projects
in the state of Kerala
ICICI West Bengal December Developing 75.9 10 12 15
Infrastructure 1995 infrastructure projects
Development in the state of West
Corporation Bengal
Limited
(footnotes on following page)
</TABLE>
51
<PAGE>
<TABLE>
----------------------------------------------------------------------------------------------------------------
Stock-
Direct or holders'
indirect Total equity Assets at
Date of shareholding revenue in at March March 31,
Name formation Activities by ICICI fiscal 2000 31, 2000(1) 2000(1)
----------------------------------------------------------------------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C>
ICICI Properties January Property holding/ 100.0% Rs. 5 Rs. 4 Rs. 300
Limited 1999(4) property management
arm for real estate
owned by ICICI group
ICICI Realty January Property holding/ 100.0 5 4 300
Limited 1999(4) property management arm
for real estate owned
by ICICI group
ICICI Real Estate January Property holding/ 100.0 30 9 368
Company Limited 1999(4) property management arm
for real estate owned
by ICICI group
ICICI Home Finance May Home financing 100.0 25 200 599
Company Limited 1999
ICICI April Trustees for bonds and 100.0 -- -- --
Trusteeship 1999 to devise schemes for
Services Limited raising funds
ICICI March Providing modern 100.0 -- -- 338
Knowledge Park(5) 1998 technology infrastructure
to domestic and overseas
corporations
ICICI Web Trade December Internet-based brokering 100.0 --- 200 93
Limited 1999 services
ICICI Investment March 2000 Investment manager 100.0 -- 100 --
Management Company or mutual funds
Prudential ICICI September Investment manager 45.0 292 581 693
Asset 1993 for mutual funds
Management
Company
Limited
Prudential ICICI August Trustee company for 45.0 4 4 10
Trust Limited 1993 mutual funds
</TABLE>
__________________
(1) All financial information prepared in accordance with Indian GAAP, except
where otherwise indicated in the footnotes.
(2) On a US GAAP basis, total revenues for fiscal 2000 were Rs. 10.2 billion
(US$ 234 million) and assets at year-end fiscal 2000 were Rs. 130.4
billion (US$ 3.0 billion).
(3) On a US GAAP basis, total revenues for fiscal 2000 were Rs. 3.1 billion
(US$ 71 million) and assets at year-end fiscal 2000 were Rs. 23.3 billion
(US$ 532 million).
(4) Date of acquisition.
(5) Not for-profit entity.
From year-end fiscal 2000 to August 31, 2000 ICICI has added seven more
subsidiaries. The following table sets forth certain information relating to
these subsidiaries.
52
<PAGE>
<TABLE>
-----------------------------------------------------------------------------------------------------------------------------------
Direct or indirect
Date of shareholding by
Name formation Activities ICICI
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ICICI ePayments Limited April 2000 Operator of payment gateway infrastructure 100.0%
ICICI Infotech Inc. May 2000 Software consultancy and development services 100.0
Ivory International Inc. June 2000 Software services provider 100.0
ICICI Securities Holding Inc. June 2000 Holding company for overseas operations of ICICI Securities 100.0
ICICI Securities Inc. June 2000 Investment banking activities in United States 100.0
ICICI Prudential Life Insurance July 2000 Life insurance business 100.0
Company Limited
Cafe Network Limited July 2000 Provider of localized content through city-specific portals 100.0
</TABLE>
Risk Management
As a financial services group, we are exposed to specific risks that are
particular to our lending and trading businesses and the environment within
which we operate. Our goal in risk management is to ensure that we understand,
measure and monitor the various risks that arise and that our organization
adheres strictly to the policies and procedures which are established to
address these risks. As a financial services group, we are primarily exposed to
credit risk, market risk, liquidity risk, operational risk and legal risk.
In early 1997, ICICI established a central Risk Management Group with a
mandate to identify, assess, monitor and manage all our principal risks in
accordance with well-defined policies and procedures. The Risk Management Group
is led by a Senior General Manager reporting directly to the Managing Director
and Chief Executive Officer. The Risk Management Group coordinates with
representatives of our business units to implement our risk methodologies. The
Risk Management Group is completely independent of all business operations and
is accountable to the Audit Committee of ICICI's board of directors. For a
discussion of the Audit Committee, see "Management".
As shown in the following chart, the Risk Management Group is organized
into four sub-groups: Credit Risk Management, Market Risk Management, Analytics
and Audit. The Analytics Unit develops proprietary quantitative techniques and
models for risk measurement.
53
<PAGE>
<TABLE>
-----------------------------------------
Managing Director Audit Committee
& CEO of the Board
-----------------------------------------
|
|
---------------------------------------------------------------------------------------------------------
Senior General Manager
(Risk Management Group)
|
|
<S> <C> <C> <C>
---------------------------------------------------------------------------------------------------------
Credit Risk Market Risk
Management Management
Department Department Analytics Unit Audit Department
-------------------- --------------------- ------------------- ----------------------------
o Formulating o Developing and o Development of o Comprehensive
firm-wide credit implementing market proprietary models coverage of
risk policies and risk measurement for risk operational risk
operational methodologies measurement inherent in all
guidelines o Approval of all areas of business
o Sectoral analysis new products o Initiation of systems
and review o Monitoring market audit in information
o Credit portfolio risk exposures technology-intensive areas
analysis o Analysis,
monitoring and
reporting of asset-
liability positions
</TABLE>
We are increasingly integrating risk management, performance measurement
and capital allocation in a comprehensive integrated framework to allow for
better understanding of these areas and efficient allocation of economic
capital.
Credit Risk
In our lending operations, we are principally exposed to 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 financial contract with us,
principally the failure to make required payments on loans due to us. We
currently measure, monitor and manage credit risk for each borrower and also at
the portfolio level. We have a structured and standardized credit approval
process which includes a well-established procedure of comprehensive credit
appraisal.
ICICI's Credit Risk Management Department formulates company-wide risk
policies and operational guidelines for the functioning and control of business
units. This department has been instrumental in re-engineering our credit
processes, specifically our risk evaluation methodologies and our control
systems. The department has also implemented an automated Credit Risk
Information System that enables sharing of information regarding the borrower
between the business units and the Credit Risk Management Department. This
system also assists in the analysis of information provided by our business
units and external sources.
Credit Approval Authority
ICICI has established three levels of credit approval authorities for its
corporate banking activities, the Credit Committee of the board of directors,
the Management Committee and the Executive
54
<PAGE>
Committee. In corporate banking activities, all corporate credit proposals must
be approved by one of these committees, and no individual officer has the
authority to approve a loan. The Credit Committee has the power to approve all
financial assistance. ICICI's board of directors has delegated the authority to
the Management Committee, consisting of ICICI's executive directors, and to the
Executive Committee, consisting of ICICI's Senior General Managers, to approve
financial assistance to any company within certain individual and group
exposure limits set by the board of directors.
The following table sets forth the composition and the approval authority
of these committees.
<TABLE>
<S> <C> <C>
Committee Members Approval Authority
------------------------------------------------------------------------------------------------------------------------------------
Credit Committee of the board Chaired by an independent director and o All approvals to companies with rating below
of directors consisting of a majority of independent investment grade.
directors. o All approvals (in practice, generally above the
prescribed authority of the Management Committee).
o Approvals to a company in which any of ICICI's
directors has an interest.
Management Committee Chaired by the Managing All approvals above the prescribed authority of the
Director and Chief Executive Officer and Executive Committee generally subject to the following
consisting of all executive directors. limits:
o Up to 15.0% of ICICI's net owned funds(1) to a
single entity; and
o Up to 30.0% of ICICI's net owned funds(1) to a
single group of companies.
Executive Committee Consisting of Senior General Approvals to existing companies subject to the
Managers. following limits:
o Up to Rs. 750 million (US$ 17 million) for each
company with an internal credit rating of AA and
above;
o Up to Rs. 500 million (US$ 11 million) for each
company with an internal credit rating of A; and
o Up to Rs. 250 million (US$ 6 million) for a
company/new project with an internal rating of A-.
In all cases, subject to adherence to limits on ICICI's
net owned funds(1) imposed on the Management Committee
as mentioned above.
______________
(1) Net owned funds consist of stockholders' equity and preferred stock of a maturity of at least 20 years under Indian GAAP.
</TABLE>
55
<PAGE>
The composition and the approval authority structure of ICICI Bank are as
follows:
<TABLE>
<S> <C> <C>
Authorized Executive and
Committees Members Approval Authority
------------------------------------------------------------------------------------------------------------------------------------
Board of directors All the members on ICICI Bank's All approvals (in practice, generally above the
board of directors. prescribed authority of the Committee of Directors).
Committee of Directors Chaired by an independent director and All approvals to companies up to Rs. 400 million
includes four other directors including, (US$ 9 million).
the Managing Director and Chief Executive
Officer.
Investment Committee Managing Director and Chief Executive All approvals for subscribing to debentures,
Officer, heads of corporate banking, retail preferred stock, bonds and commercial paper.
banking, risk management, domestic treasury
and foreign exchange treasury and the chief
financial officer.
Managing Director and Chief All approvals up to Rs. 160 million
Executive Officer (US$ 4 million).
Credit Committee of Executives Heads of corporate banking, retail banking In the absence of the Managing Director and Chief
and risk management and the chief financial Executive Officer, all approvals within the
officer prescribed authority of the Managing Director and
the Chief Executive Officer.
Head of Corporate Banking All approvals up to Rs. 100 million (US$ 2 million).
</TABLE>
Credit Risk Assessment Procedures
In order to assess the credit risk associated with any financing proposal,
we assess a variety of risks relating to the proposed borrower and risks
relating to the project and the relevant industry. Borrower risk is evaluated
by considering:
o the financial position of the borrower by analyzing its financial
condition including profitability, cash flow and balance sheet;
o the borrower's relative competitive position within its industry;
o the borrower's historical payment record to lenders;
o the financial resources of the sponsors; and
o the quality of management.
To facilitate our risk assessment, we maintain detailed information on our
clients and their industries. We have developed a proprietary database of
approximately 3,000 Indian companies, which contains current and historical
financial and operating information on borrowers to whom we have provided
financial assistance.
After conducting an analysis of a specific borrower's risk and based on
our analysis and outlook of the industry, we assign a credit rating for the
borrower. We have eleven ratings ranging from AAA to D. Credit rating is a
critical input for the credit approval process. We conduct studies on the
historical default patterns of loans in order to predict defaults in the Indian
context. We determine the desired credit risk spread over our cost of funds by
considering the borrower's credit rating and the default pattern corresponding
to the credit rating. The credit rating for every borrower is reviewed at least
annually and is
56
<PAGE>
typically reviewed on a quarterly basis for higher risk credits and large
exposures. We also review the ratings of all borrowers in a particular industry
upon the occurrence of any significant event impacting the industry.
The Credit Risk Management Department is divided into various specialized
industry sub-groups. They monitor all major sectors of the economy and
specifically follow industries in which we have credit exposure. We respond to
any stress in an industrial segment by restricting new credits, attempting
where possible to delay, deter or cancel existing commitments to that segment
and in all cases monitoring the performance of our borrowers in that segment
and taking remedial action as considered necessary. We adhere to Reserve Bank
of India guidelines for exposures to individual borrowers and sponsor groups.
See "Supervision and Regulation" for a description of these guidelines.
The prospects and outlook for various sectors and individual borrowers are
analyzed and discussed extensively by a Credit Risk Committee, which is chaired
by the head of the Risk Management Group and includes senior members of ICICI's
management team. This committee reviews the credit ratings of borrowers and
serves as the forum for developing the sectoral outlook, which is an important
input in the portfolio planning process. Every proposal for a financing
facility is prepared by the relevant business unit and reviewed by the
appropriate industry specialists in the Credit Risk Management Department
before being submitted for approval to the appropriate approval authority. The
approval process for guarantees is similar to that for fund-based facilities.
Project Finance Procedures
We have a strong framework for the appraisal and execution of project
finance transactions. We believe that this framework creates optimal risk
identification, allocation and mitigation, and helps minimize residual risk.
The project finance approval process begins with a detailed evaluation of
technical, commercial, financial, marketing and management factors and 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, we generate a risk matrix, 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. Typical key risk mitigating factors include the
commitment of stand-by funds from the sponsors to meet any cost overruns and a
conservative collateral position. 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 and 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 generally also include creation of debt
service reserves and channeling project revenues through a trust and retention
account.
Our project finance credits are generally fully secured and have full
recourse to the borrower. In most cases, we have a security interest and first
lien on all the fixed assets and a second lien on all the current assets of the
borrower. Security interests typically include property, plant and equipment as
well as other tangible assets of the borrower, both present and future.
Typically, it is our practice to lend
57
<PAGE>
between 60.0% and 80.0% of the appraised value of this type of collateral
securities. It may take several months to complete the registration of these
security interests in India. Our borrowers are required to maintain
comprehensive insurance on their assets where we are recognized as payee in the
event of loss. In some cases, we also take additional collateral in the form of
the corporate or personal guarantees from one or more sponsors of the project
and a pledge of the sponsors' equity holding in the project company. In certain
industry segments, we also take security interest in relevant project contracts
such as concession agreements, off-take agreements and construction contracts
as part of the security package. In limited cases, loans are also guaranteed by
commercial banks and, in the past, have also been guaranteed by Indian state
governments or the government of India.
Our current practice is to disburse funds after the entire project funding
is committed and all necessary 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 reports on project implementation,
including orders for machinery and equipment as well as expenses incurred.
Project completion is contingent upon satisfactory operation of the project for
a certain minimum period and, in certain cases, the establishment of debt
service reserves. We continue to monitor the credit exposure until our loans
are fully repaid.
Corporate Finance Procedures
Our corporate finance activities are usually restricted to clients with a
high investment grade credit rating. As part of the corporate loan approval
procedures, we carry out a detailed analysis of funding requirements, including
normal capital expenses, long-term working capital requirements and temporary
imbalances in liquidity. Our 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
requirements and an analysis of cash flows. Substantially all our corporate
finance loans are fully secured by appropriate assets of the borrower.
The focus of our structured corporate finance products is on cash flow
based financings. We have developed a set of distinct approval procedures to
evaluate and mitigate the risks associated with such products. These procedures
include:
o carrying out a detailed analysis of cash flows to accurately forecast
the amounts that will be paid and the timing of the payments based on
an exhaustive analysis of historical data;
o conducting due diligence on the underlying business systems,
including a detailed evaluation of the servicing and collection
procedures and the underlying contractual arrangements; and
o paying particular attention to the legal, accounting and tax issues
that may impact any structure.
Our analysis enables us to identify risks in these transactions. To
mitigate risks, we use various credit enhancement techniques, such as
over-collateralization, cash collateralization, creation of escrow accounts and
debt service reserves and performance guarantees. The residual risk is
typically managed by complete or partial recourse to the borrowing company
whose credit risk is evaluated as described above. We have also established a
strong monitoring framework to enable continuous review of the performance of
such transactions.
<PAGE>
Working Capital Finance Procedures
ICICI Bank provides working capital finance to clients across India. As
part of the working capital finance approval process, it carries out a detailed
analysis of its borrowers' working capital requirements. Credit limits are
approved either by authorized executive officers or by a committee of ICICI
Bank's board of directors or by the board of directors depending on the amount
of the loan. Once credit limits are approved, ICICI Bank calculates the amounts
that can be borrowed on the basis of monthly 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 wherever considered necessary. Any irregularity in the
conduct of the account is reported to the appropriate authority on a monthly
basis. Credit limits are reviewed on an annual basis.
Working capital facilities are fully secured by inventories and
receivables. Additionally, in certain cases, these credit facilities are secured
by personal guarantees of directors, or subordinated security interests in the
tangible assets of the borrower including plant and machinery.
Investment Banking Procedures
ICICI Securities provides investment banking services, including corporate
advisory, fixed income and equity services, to Indian corporate customers. All
investment banking mandates, including underwriting commitments, are approved by
ICICI Securities' Commitments Committee. This committee consists of the Managing
Director, the Chief Operating Officer and the Senior Vice-President of ICICI
Securities.
ICICI Securities is registered with the Securities and Exchange Board of
India as a merchant bank. In that capacity, ICICI Securities has decided not to
engage in any lending and leasing activities and conducts only activities
related to the securities markets.
Retail Loan Procedures
Our retail credit products presently include automobile loans, home loans,
loans for consumer durable products personal loans and credit cards.
The following chart sets forth the organizational structure of our retail
lending business. Each of the divisions has separate teams for each of our
retail lending products.
<TABLE>
Senior General Manager
(Retail Loans)
|
|
--------------------------------------------------------------------------------
Business head Retail risk head Functional heads
------------------------- --------------------------------------------
<S> <C> <C> <C> <C>
Sales & Credit Operations Customer Channel
Marketing Operations Service and Management
service quality
</TABLE>
59
<PAGE>
Our borrowers are typically middle and high-income, salaried or
self-employed individuals, and, in some cases, partnerships and corporations. We
require a contribution from the borrower, typically up to 15.0% of the value of
the assets purchased, and our loans are secured by the asset financed.
We have an established process for evaluating and selecting our dealers and
franchisees and there is a clear segregation between the group responsible for
originating loans and the group that approves the loans. A centralized set of
risk assessment criteria has been created for retail lending operations after
approval by the Risk Management Group. These criteria vary across product
segments but typically include factors such as borrower's income, the
loan-to-value ratio and the ratio of the borrower's fixed repayment obligations
to income. All applicants are also checked against a negative list of borrowers.
The loan approval authority is delegated to credit officers, subject to loan
amount limits, which vary across different loan products. Credit officers
approve loans in compliance with the risk assessment criteria. External agencies
are used to facilitate a comprehensive due diligence process including property
valuation prior to the approval of home loans and visits to home or office in
the case of loans to individual borrowers. Before disbursements are made, the
credit officer conducts a centralized check and review of the borrower's
profile.
In order to limit the scope of individual discretion in the loan assessment
and approval process, we have implemented a credit-scoring program for credit
cards and are in the process of implementing it in the home loan segment. The
credit-scoring program is an automated credit approval system for evaluating
loan applications by assigning a credit score to each applicant based on certain
demographic attributes like earnings stability, educational background and age.
The credit score then forms the basis of loan evaluation. We also expect to have
in place an established credit bureau along with other key lenders in the retail
business, to facilitate the credit approval process.
We have a separate credit policy team, which undertakes review and audit of
credit quality across each credit approval team. We have established centralized
operations to manage operating risk in the various back office processes of our
retail loan business. We use customized systems for home loans, automobile loans
and loans for consumer durable products, which cross-validate incoming data and
compare against the key credit policy guidelines. The systems also generate
reports on error rates in respect of information transfers from the sales team
and credit processing team at each stage of the loan process. The Risk
Management Group conducts an independent audit of processes and documents at
periodic intervals. As with our other retail loan business, we stress
conservative credit standards, including credit scoring and strict monitoring of
repayment patterns, to minimize risks associated with the credit cards business.
We have an independent collections unit to manage delinquency levels. The
collections unit operates under the guidelines of a standardized recovery
process, which has been approved by the Risk Management Group. In specific
instances, we also make use of external collection agents to aid us in our
collection efforts, including collateral repossession in accounts that are
overdue for at least 90 days.
Quantitative and Qualitative Disclosures About Market Risk
General
Market risk is the risk of loss to future earnings, to fair values, or to
future cash flows that may result from changes in the price of a financial
instrument. The value of a financial instrument may change as a result of
changes in interest rates, foreign currency exchange rates, commodity prices,
equity prices and other market changes that affect market risk sensitive
instruments. Market risk is attributed to all market risk sensitive financial
instruments, including securities, loans, deposits, borrowings and
60
<PAGE>
derivative instruments. Our exposure to market risk is a function of our asset
and liability management activities, our trading activities for our own account,
and our role as a financial intermediary in customer-related transactions. The
objective of market risk management is to avoid excessive exposure of our
earnings and equity to loss and to reduce the volatility inherent in financial
instruments. The operations of ICICI, ICICI Bank and ICICI Securities contribute
most of our exposure to market risk.
Market Risk Management Procedures
ICICI. The Resources and Treasury Committee has now been reconstituted as
the Resources, Treasury and Asset-Liability Management Committee consisting of
the three executive directors of ICICI who approve funding programs (including
interest rates and maturity profile), new products and various market exposure
limits, and review any limit breaches. This committee which generally meets
every week has been further delegated with powers for asset-liability management
by the board of directors. Its role encompasses stipulating liquidity and
interest rate risk limits, monitoring market risk levels by adherence to set
limits, articulating the organization's interest rate view and determining
business strategy, as deemed fit, in the light of current and expected business
environment. For a list of other committees, see "Management--Corporate
Governance".
The minutes of each of these committee meetings are reported periodically
to the board of directors. ICICI's Market Risk Management Group exercises
independent control over the entire process of market risk management in the
company, and recommends changes in processes and methodologies for quantifying
and assessing market risk, that it feels are necessary. All new products and
market risk policies are submitted for consideration to this group and only
thereafter presented to the Resources, Treasury and Asset Liability Management
Committee for approval. The Market Risk Management Group has also been
designated as the Asset-Liability Committee's Support Group. It is now also
responsible for reporting the asset-liability position to the Resources,
Treasury and Asset-Liability Management Committee periodically, analyzing the
same and proposing various risk limits.
ICICI also has a middle office which independently monitors treasury
activities. The middle office reports to the Head of the Market Risk Management
Group. The middle office is responsible for monitoring various exposure and
dealing limits, verifying the appropriateness and accuracy of various
transactions, processing these transactions, tracking the daily funds position
and being responsible for all treasury-related management and regulatory
reporting. Through its activities, the middle office mitigates to a large
extent, the operational risk inherent in treasury operations.
In addition, periodic reviews by ICICI's internal audit department,
regulators and independent accountants provide further evaluation of the
controls over the market risk management process.
The following chart sets forth the organizational structure of the groups
responsible for the market risk exposure that ICICI assumes, together with a
brief description of their functions.
61
<PAGE>
<TABLE>
Senior General Senior General
Manager - Treasury Manager - Risk
--------------------------------------------------------
Deputy General
Manager - market Risk
------------------------------------------------------------------------------------------------------------------------------------
Funding and Asset- Sales and Derivatives and Market Risk Middle Office
Liability Trading Group Economic Management, Asset Group, Settlements
-------------------------------------------------------------------- ----------------------------------------------------------
<S> <C> <C> <C> <C>
o Liquidity o Management of o Development of all new o Developing and o Ensure compliance with market
ICICI's trading product proposals implementing market risk limits and policies on a
portfolio risk measurement day-to-day basis
methodologies o Periodic reporting to the
o Market borrowings o Development of all o Approval of all new Resources, Treasury and Asset
o Transfer pricing market risk management products Liability Management Committee
o Implementing hedging policies and models o Stipulation of o Confirmation and settlement of
strategies for the o Performing macro-economic counterparty exposure all deals
loan portfolio analysis for development limits o Custodial functions
of views on movements on o Monitoring market
key economic parameters risk exposures
o Approval of market risk
management methodologies
and policies
o Analysis, monitoring
and reporting of asset-
liability positions
o Stipulation of risk
tolerance levels and
policies
</TABLE>
ICICI Bank. ICICI Bank's board of directors reviews and approves the
policies for the management of market risks and has delegated the responsibility
for market risk management to the Asset Liability Management Committee. ICICI
Bank's Managing Director and Chief Executive Officer chairs the Asset Liability
Management Committee. ICICI Bank's Chief Financial Officer, executives of
various business units and the Risk Management Department are the members of the
committee. The committee generally meets on a monthly basis and reviews ICICI
Bank's interest rate and liquidity gap position, formulates a view on interest
rates, sets deposit and benchmark lending rates and reviews the business profile
and its impact on asset liability management. Emergency meetings of the
committee are convened to respond to developments in the markets and economy.
The committee also sets market risk limits for trading activities. The committee
reports to the Audit and Risk Committee of ICICI Bank's board of directors on a
quarterly basis.
ICICI Bank has established a middle office independent of treasury, which
monitors the risks in our treasury operations and ensures adherence to various
risk control limits on a daily basis. The middle office at regular intervals
submits reports to the head of the Risk Management Department and the Managing
Director and Chief Executive Officer on the extent of ICICI Bank's market risk
exposure.
ICICI Securities. For ICICI Securities, the Corporate Risk Management Group
formulates all policies relating to market risk management, including setting of
limits. The middle office of ICICI Securities monitors risks and limits on a
day-to-day basis in a manner similar to the middle office of ICICI. Both the
Corporate Risk Management Group and ICICI Securities middle office report to the
Managing Director of ICICI Securities.
62
<PAGE>
Our exposures to market risk arise principally from interest rate risk,
liquidity risk, equity risk and exchange rate risk. Each of these sources of
risk and its management is discussed in the following paragraphs.
Interest Rate Risk
Since our balance sheet consists predominantly of rupee assets and
liabilities, movements in rupee interest rates are the main source of interest
rate risk. We have separate methods for managing the interest rate risk
associated with our trading activities and our asset and liability management
activities, as described below. While our portfolio of traded debt securities is
negatively impacted by an increase in interest rates, our loan portfolio
benefits from a rise in interest rates because our interest-bearing assets on an
average mature sooner than our interest-bearing liabilities.
Our primary means of measuring our exposure to fluctuations in interest
rates is gap analysis, which provides a static view of the maturity and
re-pricing characteristics of balance sheet positions. An interest rate gap
report is prepared by scheduling all assets and liabilities according to stated
or anticipated re-pricing date, or maturity date. To the extent that there is a
difference in the amount of assets and liabilities maturing or being re-priced
in a particular period, we are exposed to the risk that the margins on new or
re-priced assets and liabilities may change.
ICICI and ICICI Bank are both regulated by the Reserve Bank of India's
guidelines on asset liability management. Pursuant to these guidelines, ICICI is
required to prepare a interest rate sensitivity report on a quarterly basis from
April 1, 2000. The frequency of this report is proposed to be fortnightly from
April 1, 2001. ICICI Bank has been preparing and submitting interest rate
sensitivity reports to the Reserve Bank of India on a quarterly basis from April
1, 1999.
We are also exploring the feasibility of implementing more advanced
statistical methods (including using a Monte Carlo scenario generation process
for net interest revenue simulations and computation of the value at risk
embedded in our traded security positions) in the Indian environment. If found
feasible, these methods would allow us to more accurately assess the impact of
complex changes in interest rates on our interest income and the market value of
traded securities. These methods would also allow us to assign higher weights to
the more likely fluctuations while quantifying our exposure to interest rate
risk.
Interest Rate Risk (Loan Portfolio). Our business activities involve
lending and borrowing in rupees as well as foreign currencies. These activities
expose us to interest rate risk. As the rupee market is significantly different
from the international currency markets, our gap positions in these markets
differ significantly.
In the rupee market, most of ICICI's borrowing and lending takes place at
fixed rates of interest. ICICI usually borrows for a fixed period with a
one-time repayment on maturity. However, while ICICI's loans generally have
similar final maturity dates as ICICI's borrowings, they repay more gradually,
with principal repayments being made over the life of the loan. As a result, the
average maturity of ICICI's assets is less than that of ICICI's liabilities,
exposing ICICI to the risk of a decline in net interest revenue if interest
rates fall.
We have therefore established systems to monitor and minimize our asset and
liability mismatches. ICICI contributes most of the asset and liability
mismatches. ICICI Bank has rupee assets and liabilities that re-price much more
frequently, and it consequently has significantly lower gaps.
63
<PAGE>
However, since ICICI Bank is a much smaller proportion of our balance sheet, the
overall gap position primarily reflects ICICI's gap position.
In contrast to ICICI's rupee loans, a large proportion of ICICI's foreign
currency loans are floating rate loans. These loans are generally funded with
floating rate foreign currency funds. In addition, ICICI's fixed rate foreign
currency loans are generally funded with fixed rate foreign currency funds.
ICICI generally converts all its foreign currency borrowings into floating rate
dollar liabilities through the use of interest rate and currency swaps with
leading international banks. As a consequence of all these steps, the foreign
currency gaps are generally significantly lower than rupee gaps, representing a
considerably lower exposure to fluctuations in foreign currency interest rates.
Before August 1995, ICICI was also exposed to an additional interest rate
risk because ICICI fixed interest rates on rupee loans at the time of commitment
of the loan, while the disbursement on these loans could be several months from
the date of commitment. In order to eliminate this risk, in August 1995, ICICI
adopted a policy of fixing interest rates on rupee loans at the time of
disbursement of the loan.
Until April 1997, ICICI had only one benchmark rate of interest, which was
the long-term prime lending rate. In 1997, ICICI introduced multiple prime
rates, that is, a short-term prime rate for one-year loans or loans that
re-price at the end of one year, a medium-term prime rate for one-year to
three-year loans, and a long-term prime rate for loans with maturities longer
than three years. ICICI was the first institution in India to move to a multiple
set of prime rates.
The rupee interest rate derivatives market in India is at a nascent stage.
We intend to use these derivatives to the extent feasible to actively manage the
asset and liability positions on our balance sheet. ICICI transacted the first
set of rupee interest rate swaps in India for a notional amount of Rs. 350
million (US$ 8 million), immediately after the announcement of the interest rate
swap guidelines by the Reserve Bank of India on July 8, 1999. However, since
these markets are currently able to support only very small-sized transactions
and limited maturities, we are constrained to follow a strategy of cash flow
matching on a portfolio basis in order to contain our asset-liability
mismatches. We attempt to do this through the management of the maturity
structure of our incremental assets and liabilities. However, even using this
route, given the highly illiquid nature of the domestic debt market with
liquidity concentrated around certain maturities, it is not always possible for
us to achieve a perfect hedge. Therefore, we are left with residual risk, which
we seek to monitor through the interest rate gap analysis and sensitivity
analysis given below.
64
<PAGE>
<TABLE>
The following table sets forth, for the period indicated, our asset-liability gap position.
At March 31, 2000 (1)-(7)
-------------------------------------------------------------------------
Less than or Greater than Greater than Total
equal to one one year and up five years
year to five years
-------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C>
Loans, net................................. Rs. 247,255 Rs. 236,894 Rs. 78,271 Rs. 562,420
Securities................................. 487 2,584 16,064 19,135
Fixed assets .............................. 0 0 11,775 11,775
Other assets(8)............................ 128,228 19,229 39,897 187,354
-------------------------------------------------------------------------
Total assets............................... 375,970 258,707 146,007 780,684
Stockholders' equity....................... 0 0 70,908 70,908
Debt(8).................................... 199,453 260,436 89,607 549,496
Other liabilities(8)....................... 128,451 1,229 30,600 160,280
-------------------------------------------------------------------------
Total liabilities.......................... 327,904 261,665 191,115 780,684
Total gap before risk management positions. 48,066 (2,958) (45,108) 0
Risk management positions.................. (20,056) 10,554 9,683 181
-------------------------------------------------------------------------
Total gap after risk management positions.. Rs. 28,010 Rs. 7,597 Rs. (35,425) Rs. 181
=========================================================================
</TABLE>
________________
(1) Assets and liabilities are classified into the applicable
categories, based on residual maturity or re-pricing date whichever is
earlier.
(2) Items that neither re-price nor mature are included in the "greater than
five years" category. This includes issued equity share capital, as well as
all equity investments other than those held as part of the trading
portfolio.
(3) Non-performing loans of residual maturity less than three years are
classified in the "greater than one year and up to five years" category
and non-performing loans of residual maturity between three to five years
are classified in the "greater than five years" category.
(4) Loan funds dedicated to the trading portfolio have been classified as assets
in the "less than or equal to one year" category.
(5) Based on past trends, 85.0% of non-maturity deposit accounts are classified
in the "greater than one year and up to five years" category and 15.0% in
the "less than or equal to one year" category. Also 90.0% of
interest-bearing savings deposits are classified in the "greater than one
year and up to five years" category and 10.0% in the "less than or equal
to one year" category.
(6) Based on past trends, non-maturity loan assets are classified in the
"greater than one year and up to five years" category.
(7) The risk management positions comprise foreign currency and rupee swaps. The
risk management position has been adjusted for a sum of Rs. 644 million on
account of revaluation of swaps.
(8) The categorization for these items is different from that reported in the
financial statements.
The following table sets forth, for the period indicated, the amount of
loans with maturities greater than one year that had fixed and variable interest
rates.
<TABLE>
At March 31, 2000
------------------------------------------------------
Fixed rate Variable rate Total
loans loans
------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Loans, net................................. Rs. 291,581 Rs. 109,135 Rs. 400,716
</TABLE>
65
<PAGE>
The following tables set forth, for the periods indicated, the impact of
changes in interest rates on net interest revenue for fiscal 2001 from our loan
portfolio, assuming a parallel shift in yield curve at year-end fiscal 2000 and
1999:
<TABLE>
At March 31, 2000
------------------------------------------------------
Changes in interest rates
(in basis points)
------------------------------------------------------
(100) (50) 50 100
------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C>
Rupee portfolio............................ Rs. (289) Rs. (145) Rs. 145 Rs. 289
Foreign currency portfolio ................ (19) (9) 9 19
------------------------------------------------------
Total ..................................... Rs. (308) Rs. (154) Rs. 154 Rs. 308
======================================================
</TABLE>
<TABLE>
At March 31, 1999
------------------------------------------------------
Change in interest rates
(in basis points)
------------------------------------------------------
(100) (50) 50 100
------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C>
Rupee portfolio ........................... Rs. (501) Rs. (251) Rs. 251 Rs. 501
Foreign currency portfolio................. 1 1 (1) (1)
------------------------------------------------------
Total...................................... Rs. (500) Rs. (250) Rs. 250 Rs. 500
------------------------------------------------------
</TABLE>
Given our asset and liability position at year-end fiscal 2000, if interest
rates decreased by 100 basis points, we expect that net interest revenue for
fiscal 2001 from our loan portfolio would fall by Rs. 308 million (US$ 7
million). If interest rates increased by 100 basis points, our net interest
revenue for fiscal 2001 would rise by Rs. 308 million (US$ 7 million). The
amount of Rs. 308 million constitutes 3.3% of our net income for fiscal 2000.
For our asset and liability position at year-end fiscal 1999, if interest rates
had decreased by 100 basis points, net interest revenue for fiscal 2000 from our
loan portfolio would have fallen by Rs. 500 million (US$ 11 million). If
interest rates had increased by 100 basis points, net interest revenue for
fiscal 2000 from our loan portfolio would have risen by Rs. 500 million (US$ 11
million). The amount of Rs. 500 million (US$ 11 million) constituted 5.4% of our
net income for fiscal 2000. The reduction in sensitivity of net interest revenue
for fiscal 2001 from our loan portfolio to a 100 basis point movement in
interest rates, from a level of Rs. 500 million as measured at year-end fiscal
1999 to Rs. 308 million (US$ 7 million) as measured at year-end fiscal 2000, is
due, in large part, to the asset-liability management strategy followed during
the year, whereby we have tried to create appropriate asset-liability maturity
profiles. This sensitivity analysis is for risk management purposes and assumes
that we make no other changes in our portfolio. Actual changes in net interest
revenue will vary from the model.
Interest Rate Risk (Trading Portfolio). Trading activities are undertaken
primarily to satisfy the investment and risk management needs of our customers
and secondarily to enhance our earnings through profitable trading for our own
account. A substantial proportion of our total trading portfolio consists of
investments in government of India securities. ICICI Bank is required by law to
invest 25.0% of its net demand and time liabilities in specified securities, and
this contributes in a significant way to our total investment in government of
India securities. In addition, ICICI Securities is a primary dealer in
government of India securities, and a significant proportion of its portfolio
consists of government of India securities as well.
We revalue the securities held as a part of our trading book on a daily
basis and recognize aggregate revaluation losses and gains on our profit and
loss account. We use sensitivity analysis to measure the interest rate risk of
our trading positions. We measure the change in the market value of the
portfolio for a 100 basis points change in interest rates across all maturities.
At year-end fiscal 2000, the total value of our rupee fixed income trading
portfolio was Rs. 55.5 billion (US$ 1.3 billion). As set forth in the table
below, if interest rates rose by 100 basis points, the value of this portfolio
would fall by Rs. 1.9 billion (US$ 44 million), and if interest rates fell by
100 basis point, the value of this portfolio would rise by Rs. 2.0 billion (US$
46 million). At year-end fiscal 1999, the total value of our rupee fixed income
trading portfolio was Rs. 35.5 billion (US$ 813 million). For a 100 basis point
increase in interest rates, the value of this portfolio would have fallen by Rs.
929 million (US$ 21 million). In the case of a drop of 100 basis points in
interest rates, the value would have increased by Rs. 964 million (US$ 22
million). The increase in potential loss or gain between year-end fiscal 1999
and year-end fiscal 2000 is primarily due to the increase in the size of the
portfolio between these two dates. This sensitivity analysis is for risk
management purposes and assumes that we make no other changes in our portfolio.
Actual changes in the value of this portfolio will vary from the model.
66
<PAGE>
The following tables set forth, for the periods indicated, the impact of
changes in interest rates on the value of our rupee fixed income trading
portfolio, assuming a parallel shift in the yield curve at year-end fiscal 2000
and 1999.
<TABLE>
At March 31, 2000
----------------------------------------------------------------------------
Change in interest rates
(in basis points)
----------------------------------------------------------------------------
Portfolio (100) (50) 50 100
Size
----------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C>
Government of India securities (1)......... Rs. 46,281 Rs. 1,725 Rs. 850 Rs. (823) Rs. (1,619)
Corporate debt securities.................. 9,239 297 146 (161) (261)
----------------------------------------------------------------------------
Total ..................................... Rs. 55,520 Rs. 2,022 Rs. 996 Rs. (984) Rs. (1,880)
============================================================================
</TABLE>
<TABLE>
At March 31, 1999
----------------------------------------------------------------------------
Change in interest rates
(in basis points)
----------------------------------------------------------------------------
Portfolio (100) (50) 50 100
Size
----------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C>
Government of India securities(1).......... Rs. 30,025 Rs. 787 Rs. 389 Rs. (389) Rs. (770)
Corporate debt securities.................. 5,470 177 87 (81) (159)
----------------------------------------------------------------------------
Total...................................... Rs. 35,495 Rs. 964 Rs. 476 Rs. (470) Rs. (929)
============================================================================
</TABLE>
____________
(1) For the purpose of analysis, certain quasi-government corporate securities
are included as government of India securities.
Our total interest rate risk is a combination of our non-trading risk and
our trading risk. When interest rates decrease, our trading portfolio increases
in value while our non-trading income declines due to the decline in net
interest revenue.
As may be seen from the table below, while the interest rate sensitivity of
the trading portfolios of ICICI Bank and ICICI Securities is high relative to
the size of their net income, on a combined basis it forms a much smaller
proportion of our combined net income.
The following table sets forth, for the period indicated, the impact of
changes in interest rates on the value of our rupee fixed income trading
portfolio as a percentage of net income for fiscal 2000.
<TABLE>
Year ended March 31, 2000
----------------------------------------------------------------
ICICI ICICI ICICI Total
Bank Securities
----------------------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C> <C>
Loss due to a 100 basis point upward move in
interest rates............................. Rs. (594) Rs. (920) Rs. (366) Rs. (1,880)
Net income................................... 7,115 1,402 770 9,287
Loss as a percentage of net income........... 8.3% 65.6% 47.6% 20.2%
</TABLE>
Equity Risk
We assume equity risk both as a part of our investment book and our trading
book. The positions on our trading book are very small and are not a source of
significant risk. On our investment book, investments in equity shares,
preference shares and mutual fund units are essentially long-term in nature.
Nearly all the equity investments are driven by our project financing
activities. The decision to invest in
67
<PAGE>
equity shares during project financing activities is a conscious decision to
participate in the equity of the company with the intention of realizing capital
gains arising from expected increases in market prices, and is separate from the
lending decision.
For the purpose of valuation of our equity investments, we assess whether a
decline in the fair value below the amortized cost of our equity investments is
other than temporary. If a decline in fair value below the amortized cost is not
temporary, we provide for the decline in the profit and loss account. A
temporary decline in value is excluded from the profit and loss account, and
charged directly against stockholders' equity. To assess whether a decline in
value is other than temporary we consider factors like the quantum of decline in
fair value, the duration for which the decline has existed, specific industry
and company conditions, financial conditions of the company and dividend record.
At year-end fiscal 2000, the fair value of our equity securities investment
portfolio was Rs. 13.9 billion (US$ 318 million). At year-end fiscal 1999, the
fair value of our equity securities investment portfolio was Rs. 11.2 billion
(US$ 256 million).
Exchange Rate Risk
We seek to minimize our exposure to fluctuations in exchange rates in
respect of our foreign currency loan business. We make foreign currency loans on
terms that are similar to our foreign currency borrowings, thereby transferring
the foreign exchange risk to the borrower. In the case of certain of our foreign
currency borrowings that are on-lent in rupees, the government of India bears
foreign exchange risk on these borrowings subject to certain agreements between
ICICI and the government of India. Our foreign currency cash balances are
generally maintained abroad in currencies matching with the underlying
borrowings. We also actively use cross-currency swaps and forwards to match the
currencies of our assets and liabilities and thereby hedge ourselves against
exchange rate risk.
Liquidity Risk
Liquidity risk arises in the funding of lending, trading and investment
activities and in the management of trading positions. It includes both the risk
of unexpected increases in the cost of funding our 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 for us
to be able, even under adverse conditions, to meet all our liability repayments
on time and fund all investment opportunities.
Most of ICICI's liabilities are fixed maturity liabilities where the
investors do not have the option of early withdrawal. Therefore, ICICI does not
face significant liquidity risk on account of unforeseen withdrawals. ICICI
Bank's demand and time liabilities are generally withdrawable on demand.
However, ICICI Bank is required to maintain a certain percentage of demand and
time liabilities, excluding inter-bank deposits, in cash reserves with the
Reserve Bank of India, 8.5% currently and as investments in government of India
securities, 25.0% currently, which provide it a satisfactory reserve against
most unforeseen withdrawals. ICICI Bank and ICICI Securities, in its capacity as
a primary dealer, have recourse to the liquidity adjustment facility and
refinance window, which are short-term funding arrangements, provided by the
Reserve Bank of India. See "Supervision and Regulation". In order to contain
the liquidity risk relating to requirements of funds for our lending operations,
we seek to establish a continuous information flow and an active dialogue
between the funding and borrowing divisions of our organization. In addition,
the fact that ICICI's assets on average mature before its liabilities provides
an additional liquidity comfort every year. For a further discussion, see also
"-Funding".
68
<PAGE>
Liquidity may also be provided by the sale of liquid assets. ICICI
maintains liquid assets such as government of India securities and
short-maturity corporate paper. To ensure that sufficient liquid funds are
available to meet all the available investment needs, ICICI also maintains
liquid balances in the form of overnight and term bank deposits both in rupees
as well as in various foreign currencies. Unlike ICICI, ICICI Bank and ICICI
Securities rely, for a certain proportion of their funding, on the inter-bank
market for overnight money. While generally this market provides an adequate
amount of liquidity, the interest rates at which funds are made available can
sometimes be volatile.
The Reserve Bank of India adopted a directive on asset liability management
in December 1999 for ICICI. Starting from April 1, 2000, ICICI is required to
prepare and submit liquidity gap analysis reports on a quarterly basis. ICICI's
liquidity gap (if negative) must not exceed 10.0% of outflows in the 1-14 day
time category and must not exceed 15.0% of outflows in the 14-28 day time
category. Similar guidelines were issued for banks in February 1999. Starting
from April 1, 1999, ICICI Bank has been required to submit gap analysis reports
on a quarterly basis to the Reserve Bank of India. Effective April 1, 2000,
ICICI Bank's liquidity gap (if negative) must not exceed 20.0% of the outflows
in the 0-28 day time category.
Operational Risk
As a financial institution, we are exposed to many types of operational
risk. 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.
The Audit Department, which is a part of the Risk Management Group, is
dedicated to mitigating and managing operational risks in accordance with a
risk-based audit plan. This plan allocates audit resources based on their
assessment of the operational risks in the various businesses. The Audit
Department conceptualizes and implements improved systems of internal controls
to minimize operational risk.
Legal Risk
The uncertainty of the enforceability of the obligations of our customers
and counter-parties, including the foreclosure on collateral, creates legal
risk. Changes in law and regulation 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 stringent legal documentation, employing
procedures designed to ensure that transactions are properly authorized and
consulting internal and external legal advisors.
Derivative Instruments Risk
We engage in limited trading of derivative instruments on our own account
and generally enter into interest rate and currency derivative transactions
primarily for the purpose of hedging interest rate and foreign exchange
mismatches. We provide limited derivative services to selected major corporate
customers and other domestic and international financial institutions, including
foreign currency forward transactions and foreign currency and interest rate
swaps. Our derivative transactions are subject to counter-party risk to the
extent particular obligors are unable to make payment on contracts when due.
69
<PAGE>
Loan Portfolio
Our gross loan portfolio, which includes loans structured as debentures, at
year-end fiscal 2000 was Rs. 596.5 billion (US$ 13.7 billion), an increase of
18.1% from Rs. 504.9 billion (US$ 11.6 billion), at March 31, 1999.
Approximately 84.3% of our total loans were rupee loans at year-end fiscal 2000.
All of our loans are to Indian borrowers, and we have no loans outstanding to
entities outside India. In accordance with our diversification strategy, growth
in the portfolio primarily reflects an increase in corporate finance and
structured project finance loans to the infrastructure and oil, gas and
petrochemicals sectors, which we believe have lower risk than loans to other
sectors.
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. We limit our exposure to any particular
industry to 15.0% of our loan portfolio.
70
<PAGE>
The following table sets forth, for the periods indicated, our gross loans
outstanding, including loans structured as debentures, by the borrower's
industry or economic activity.
<TABLE>
At March 31,
----------------------------------------------------------------------------------------------------
1997 1998 1999 2000
----------------------------------------------------------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Power ....................... Rs. 19,460 6.3% Rs. 34,079 8.5% Rs. 40,154 8.0% Rs. 55,306 US$ 1,267 9.3%
Telecom ..................... 4,011 1.3 8,235 2.2 9,867 1.9 15,980 366 2.7
Transportation .............. 2,416 0.8 11,260 2.8 17,795 3.5 18,195 417 3.0
Mining ...................... 380 0.1 2,566 0.6 7,918 1.6 8,637 198 1.4
Crude petroleum and petroleum
refining.................. 5,535 1.8 22,158 5.5 44,492 8.8 51,259 1,174 8.6
Basic chemicals ............. 13,080 4.2 15,589 3.9 18,864 3.7 21,884 501 3.7
Drugs ....................... 4,446 1.4 5,677 1.4 6,616 1.3 7,197 165 1.2
Petrochemicals .............. 5,924 1.9 5,311 1.3 8,128 1.6 7,542 173 1.3
Plastics .................... 6,758 2.2 8,185 2.1 9,022 1.8 10,140 232 1.7
Other chemicals ............. 833 0.3 311 0.1 774 0.2 344 8 0.1
Man-made fibers ............. 11,908 3.9 11,261 2.8 11,832 2.3 11,509 264 1.9
Fertilizers and pesticides .. 10,844 3.5 16,798 4.2 18,493 3.7 21,172 485 3.5
Sugar ....................... 6,368 2.1 7,788 2.0 7,872 1.6 9,317 213 1.6
Food products ............... 7,950 2.6 7,793 1.9 6,293 1.3 7,123 163 1.2
Textiles .................... 37,162 12.0 32,587 8.2 35,979 7.1 40,762 934 6.8
Paper and paper products .... 7,020 2.3 11,397 2.9 12,655 2.5 16,440 377 2.8
Rubber and rubber products .. 3,514 1.1 3,036 0.8 3,321 0.7 4,075 93 0.7
Cement ...................... 12,983 4.2 17,592 4.4 17,069 3.4 18,011 413 3.0
Iron and steel .............. 30,071 9.7 34,469 8.6 48,908 9.7 58,483 1,340 9.8
Non-ferrous metals .......... 2,689 0.9 3,362 0.8 5,453 1.1 4,681 107 0.8
Metal products .............. 6,595 2.1 7,621 1.9 7,847 1.6 9,345 214 1.6
Machinery ................... 12,109 3.9 15,355 3.8 19,562 3.9 18,628 427 3.1
Electrical equipment ........ 9,525 3.1 10,707 2.7 12,738 2.5 18,904 433 3.2
Electronics ................. 7,431 2.4 9,461 2.4 11,275 2.2 12,035 276 2.0
Transport equipment ......... 12,568 4.1 17,692 4.4 18,226 3.6 22,814 523 3.8
Services .................... 24,294 7.8 28,047 7.0 40,500 8.0 68,101 1,560 11.4
Other(1) .................... 43,155 14.0 51,304 12.8 63,223 12.4 58,621 1,343 9.8
----------------------------------------------------------------------------------------------------
Gross loans ................. Rs. 309,029 100.0% Rs.399,641 100.0% Rs.504,876 100.0% Rs.596,505 US$ 13,666 100.0%
---------------=====-----------------=====------------------=====-----------------------------======
Allowance for credit losses . (17,689) (22,457) (28,524) (34,085) (781)
Net loans ................... Rs. 291,340 Rs.377,184 Rs.476,352 Rs.562,420 US$ 12,885
=========== ========== ========== ======================
</TABLE>
______________
(1) Other principally includes shipping, printing, mineral products, glass and
glass products, watches, healthcare, leather and wood products industries
and retail finance assets.
The sectoral assets outstanding in fiscal 1996 displayed similar trends as
in fiscal 1997, 1998, 1999 and 2000. There has been an increase in the assets in
the infrastructure, petroleum and services sectors, while there has been a
decrease in the proportion of assets in the man-made fibers, textiles and basic
chemicals sectors.
At year-end fiscal 2000, our 20 largest borrowers accounted for
approximately 24.6% of our total loan portfolio, with the largest borrower
accounting for approximately 2.9% of our total loan portfolio. The largest group
of companies under the same management control accounted for approximately 5.4%
71
<PAGE>
of our total loan portfolio. At year-end fiscal 2000, none of our 20 largest
borrowers was classified as non-performing.
An increasing proportion of our long-term lending particularly in
infrastructure financing is being provided in the form of debentures since we
expect that in the future these debentures can be sold in secondary debt markets
in India. This structure is intended to facilitate a transfer of the assets and
provide flexibility in managing the exposure and liquidity of the balance sheet.
At year-end fiscal 2000, about 13.7% of our total loan assets outstanding were
in the form of debentures.
Geographic Diversity
Our portfolio is geographically diversified throughout India, primarily
reflecting the location of our corporate borrowers. The states of Maharashtra
and Gujarat, the two most industrialized states in India, account for the
largest proportion of the total loan portfolio with 24.8% and 16.3%,
respectively, at year-end fiscal 2000.
Loan Portfolio by Categories
The following table sets forth, for the periods indicated, our gross rupee
and foreign currency loans by business category.
<TABLE>
At March 31,
------------------------------------------------------------------------------
1997 1998 1999 2000 2000
------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C>
Wholesale banking(1)
Rupee.................................... Rs. 190,495 Rs. 256,992 Rs. 336,289 Rs. 415,548 US$ 9,520
Foreign currency......................... 79,058 92,055 88,557 89,905 2,060
Working capital finance
Rupee.................................... 7,018 10,205 22,202 29,308 671
Foreign currency......................... 248 505 494 2,268 52
Leasing and related activities (2)
Rupee.................................... 17,688 30,302 49,942 45,299 1,038
Foreign currency......................... 500 349 1,530 1,467 34
Other(3)
Rupee.................................... 14,022 9,233 5,862 12,710 291
Foreign currency......................... __ __ __ __ __
Gross loans
Rupee.................................... 229,223 306,732 414,295 502,865 11,520
Foreign currency......................... 79,806 92,909 90,581 93,640 2,146
Total gross loans.......................... 309,029 399,641 504,876 596,505 13,666
------------------------------------------------------------------------------
Allowances for credit losses............. (17,689) (22,457) (28,524) (34,085) (781)
------------------------------------------------------------------------------
Net loans.................................. Rs. 291,340 Rs. 377,184 Rs. 476,352 Rs. 562,420 US$ 12,885
==============================================================================
</TABLE>
___________
(1) Wholesale banking includes project finance and corporate finance but
excludes leasing and related activities.
(2) Leasing and related activities includes leasing, hire purchase and
receivable financing.
(3) Other includes bills discounted, inter-corporate deposits, lines of credit
and retail finance assets.
The proportion of foreign currency loans to our total loans was higher at
year-end fiscal 1996. The proportion of foreign currency loans to our total
gross loans has reduced steadily from 23.2% at year-end fiscal 1998 to 15.7% at
year-end fiscal 2000 due to a decrease in demand for these loans.
72
<PAGE>
Loans to New Companies
In addition to normal business risks, loans to new companies for projects
under implementation carry the additional risk of not being completed in time
and may result in delays in the ability of the project to generate revenues.
The following table sets forth, for the periods indicated, our gross
performing loans to new companies for projects under implementation in the
infrastructure, oil, gas and petrochemicals and manufacturing sectors and the
proportion of these loans to the total loans outstanding (including project
finance, corporate finance and working capital finance loans) in the respective
sectors.
<TABLE>
At March 31,
-----------------------------------------------------------------------------------------------
1997 1998 1999 2000
-----------------------------------------------------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Infrastructure ..................... Rs. 6,299 24.0% Rs. 22,309 39.7% Rs. 19,075 25.2% Rs. 28,493 US$ 653 29.0%
Oil, gas and petrochemicals......... 6,410 10.8 15,547 18.2 15,144 12.8 18,934 434 14.4
Manufacturing sector................ 16,324 7.3 17,542 6.8 10,273 3.3 15,626 358 4.3
---------- ---------- ---------- ----------------------
Total .............................. Rs. 29,033 Rs. 55,398 Rs. 44,492 Rs. 63,053 US$ 1,445
========== ========== ========== ======================
</TABLE>
There was a significant increase in our gross performing loans to new
companies for projects under implementation in fiscal 2000 in the infrastructure
sector as we increased our exposure to this sector by selectively providing
structured finance to large projects in power and telecom sectors. The exposure
to projects under implementation has increased in oil, gas and petrochemicals
sector in fiscal 2000 as we increased our funding to one of the largest oil
refineries in the world which came on-stream last year.
Non-Performing Loans
The following discussion of non-performing loans is based on US GAAP. For
classification of non-performing loans under Indian regulatory requirements, see
"Supervision and Regulation".
Impact of Economic Environment on the Industrial Sector
The Indian economy has been impacted by the negative trends in the global
marketplace, particularly in the commodities markets, which impaired the
operating environment of the industrial sector, particularly in fiscal 1999. The
manufacturing sector has also been adversely impacted by several other factors,
including a slowdown in industrial growth from 1997 to 1999, the restructuring
of certain Indian companies in sectors such as iron and steel and man-made
fibers, and increased competition arising from economic liberalization in India.
The adverse impact of these factors continued in fiscal 2000 as certain
corporates have had to restructure their operations to deal with the financial
stress they had encountered. Certain Indian corporations are gradually coming to
terms with this new competitive reality through a process of restructuring and
repositioning. This restructuring process is taking place in several industries,
primarily in sectors where many small, uneconomic manufacturing facilities were
established. This has led to stress on the operating performance of Indian
corporations and the impairment of some loan assets in the financial system,
including some of our assets.
73
<PAGE>
The following table sets forth, for the periods indicated, our gross
non-performing rupee and foreign currency loan portfolio by business category.
<TABLE>
At March 31,
------------------------------------------------------------------------------
1997 1998 1999 2000 2000
------------------------------------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C> <C> <C>
Wholesale banking(1)....................... Rs. 28,389 Rs. 41,298 Rs. 53,491 Rs. 64,456 US$ 1,477
Rupee.................................... 21,255 27,718 34,024 44,470 1,019
Foreign currency......................... 7,134 13,580 19,467 19,986 458
Working capital finance.................... 187 604 1,291 1,127 26
Rupee.................................... 187 604 1,291 1,110 25
Foreign currency......................... -- -- -- 17 1
Leasing and related activities(2).......... 97 1,855 2,360 2,965 68
Rupee.................................... 97 1,855 2,360 2,965 68
Foreign currency......................... -- -- -- -- --
Other(3)................................... 98 1,366 1,345 572 13
Rupee.................................... 98 1,366 1,345 572 13
Foreign currency......................... -- -- -- -- --
Total non-performing loans
Rupee.................................... 21,637 31,543 39,020 49,117 1,125
Foreign currency......................... 7,134 13,580 19,467 20,003 459
------------------------------------------------------------------------------
Gross non-performing loans................. 28,771 45,123 58,487 69,120 1,584
Allowance for credit losses................ (17,689) (22,457) (28,524) (34,085) (781)
------------------------------------------------------------------------------
Net non-performing loans................... Rs. 11,082 Rs. 22,666 Rs. 29,963 Rs. 35,035 US$ 803
==============================================================================
Gross loan assets.......................... Rs.309,029 Rs.399,641 Rs.504,876 Rs.596,505 US$ 13,666
Net loan assets............................ 291,340 377,184 476,352 562,420 12,885
Gross non-performing loans as a
percentage of gross loan assets.......... 9.31% 11.29% 11.58% 11.59%
Net non-performing loans as a
percentage of net loan assets............ 3.80 6.01 6.29 6.23
</TABLE>
___________________
(1) Includes project finance and corporate finance excluding leasing and
related activities.
(2) Includes leasing, hire purchase and receivable financing.
(3) Includes bills discounted, inter-corporate deposits, lines of credit and
retail finance assets.
Recognition of Non-Performing Loans
ICICI identifies loans as non-performing and places them on a non-accrual
basis once it determines that interest or principal is past due beyond specific
periods or that the payment of interest or principal is doubtful. Regarding
interest or principal that is past due beyond specified periods, ICICI
classifies loans as non-performing when interest is past due for 180 days
(typically two interest payments) or principal is past due for 365 days
(typically four principal repayments). Payments on most loans are on a quarterly
basis. "Past due" means any amount that is outstanding for one month beyond
the due date. ICICI Bank classifies loans as non-performing when interest or
principal is overdue for 180 days (typically two payment periods). In addition,
under US GAAP, we provide for loan losses based on our internal subjective
assessment of the possibility of recovery of such loans based principally on the
realizable value of collateral.
74
<PAGE>
We do not recognize interest on non-performing loans or credit interest to
our income account unless it is collected. Any interest accrued and not received
on non-performing loans is reversed and charged against current earnings. We
return non-performing loans to accrual status when all contractual principal and
interest amounts are reasonably assured of repayment and there is a sustained
period of repayment performance in accordance with the contractual terms for at
least one year.
Our non-performing loans net of allowances for credit losses increased by
Rs. 5.1 billion (US$ 116 million) in fiscal 2000 to Rs. 35.0 billion (US$ 803
million) at March 31, 2000. Net non-performing loans were 6.23% of our total net
loan assets at year-end fiscal 2000 compared to 6.29% at year-end fiscal 1999.
Sectoral Analysis of Non-Performing Loans
The following table sets forth, for the periods indicated, our gross
non-performing loans by borrowers' industry or economic activity and as a
percentage of our gross non-performing loans.
<TABLE>
At March 31,
-------------------------------------------------------------------------------------------------
1997 1998 1999 2000
-------------------------------------------------------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic chemicals .............. Rs. 1,459 5.1% Rs. 1,931 4.3% Rs. 3,711 6.3% Rs. 4,405 US$ 101 6.4%
Drugs ........................ 305 1.1 2,161 4.8 2,447 4.2 2,481 57 3.6
Petrochemicals ............... 775 2.7 791 1.8 701 1.2 879 20 1.3
Plastics ..................... 972 3.4 1,231 2.7 3,710 6.3 3,837 88 5.6
Other chemicals .............. 31 0.1 52 0.1 6 -- 48 1 0.1
Man-made fibers .............. 3,512 12.2 6,443 14.3 6,599 11.3 7,548 173 10.9
Fertilizers and pesticides ... 499 1.7 552 1.2 549 0.9 519 12 0.8
Sugar ........................ 594 2.1 702 1.6 499 0.9 1,609 37 2.3
Food products ................ 2,287 7.9 2,942 6.5 3,111 5.3 3,318 76 4.8
Textiles ..................... 1,882 6.5 4,228 9.4 5,044 8.6 8,254 189 11.9
Rubber and rubber products ... 373 1.3 490 1.1 612 1.0 629 14 0.9
Paper and paper products ..... 832 2.9 960 2.1 1,263 2.2 3,485 80 5.0
Cement ....................... 1,660 5.8 2,070 4.6 2,013 3.4 1,671 38 2.4
Iron and steel ............... 2,691 9.4 4,324 9.6 5,695 9.7 6,403 147 9.3
Non-ferrous metals ........... 471 1.6 628 1.4 757 1.3 853 19 1.2
Metal products ............... 938 3.3 882 2.0 2,957 5.1 3,455 79 5.0
Machinery .................... 653 2.3 1,317 2.9 1,943 3.3 2,085 48 3.0
Electrical equipment ......... 756 2.6 1,114 2.4 1,453 2.5 2,312 53 3.3
Electronics .................. 2,143 7.4 3,657 8.1 3,674 6.3 3,470 80 5.0
Transport equipment .......... 455 1.6 861 1.9 869 1.5 865 20 1.3
Services ..................... 1,324 4.6 1,742 3.8 2,456 4.2 3,135 72 4.5
Other(1) ..................... 4,159 14.4 6,045 13.4 8,418 14.5 7,859 180 11.4
-------------------------------------------------------------------------------------------------
Gross non-performing
loans(2) ................... Rs.28,771 100.0% Rs. 45,123 100.0% Rs. 58,487 100.0% Rs. 69,120 US$ 1,584 100.0%
-------------------------------------------------------------------------------------------------
Aggregate allowance
for credit losses (17,689) (22,457) (28,524) (34,085) (781)
-------- -------- -------- ---------------------
Net non-performing loans Rs. 11,082 Rs. 22,666 Rs. 29,963 Rs. 35,035 US$ 803
======== ========= ======== =====================
</TABLE>
______________
(1) Other principally includes shipping, renewable sources of energy,
lubricants, printing, mineral products, glass and glass products, watches,
healthcare, leather and wood products industries and retail finance assets.
75
<PAGE>
(2) At these dates, we had no non-performing loans in the power,
telecommunications, transportation, mining, crude petroleum and petroleum
refining sectors.
Under Indian GAAP, gross principal of non-performing loans outstanding
(determined in accordance with RB1 guidelines applicable at that time) for ICICI
on an unconsolidated basis increased from Rs. 19.1 billion at year-end fiscal
1996, to Rs. 28.2 billion at year-end fiscal 1997, to Rs. 42.1 billion at
year-end fiscal 1998, to Rs. 54.9 billion at year-end fiscal 1999 and to Rs.
60.2 billion at year-end fiscal 2000. For a description of the differences
between Indian GAAP and US GAAP, see "Significant Differences Between Indian
GAAP and US GAAP".
The largest proportion of our non-performing loans is to the textiles,
man-made fibers and iron and steel sectors. There is a risk that non-performing
loans in each of these sectors and in other sectors including basic chemicals,
plastics, paper and paper products, electronics and metal products sectors could
increase if Indian economic conditions deteriorate or there is a negative trend
in global commodity prices.
Textiles. The textile industry has been affected adversely over the past
three years by the south-east Asian economic crisis. This resulted in Indian
textile exports being less competitive. Though these economies show signs of
recovery now and improved offtake from the region has led to an increase in
textile exports in fiscal 2000, the industry is yet to realize the financial
benefits fully. The majority of our loans to small entities in these sectors
have been classified as non-performing, and the balance of our exposure is
primarily to large economically-sized plants with established raw material
procurement systems and extensive distribution networks. At year-end fiscal
2000, we had classified 20.2% of total loans to the textiles sector as
non-performing.
Man-Made Fibers. Between 1994 and 1997, the Indian man-made fibers industry
faced a situation of over-supply. This has been corrected to a certain extent
during the last three years because of healthy demand growth and a slowdown in
fresh capacity creation. The main challenge to the industry is the fragmented,
uneconomically sized plants. The medium-term outlook for the domestic industry
is improving with restructuring and consolidation occurring in the form of
mergers and acquisitions. Further, worldwide demand is expected to improve with
postponement of capacity additions in south-east Asia. Almost all of our loans
to companies with uneconomically sized plants have already been classified as
non-performing loans, and the balance of loans to this sector is primarily to
large economically sized plants. At year-end fiscal 2000, we had classified
65.6% of our loans to the man-made fibers industry as non-performing. We have
added no significant exposure in this sector during the past three years, and
consequently the proportion of our man-made fibers portfolio to our total loan
portfolio has reduced from 3.9% at year-end fiscal 1997 to 1.9% at year-end
fiscal 2000.
Iron and Steel. Over the last few years, a sharp reduction in international
steel prices to historic lows has had a significant impact on the companies in
the sector. In addition, a significant reduction in import tariffs over the last
three years led to price competition from certain countries, significantly
reducing domestic prices. Our outlook for the medium-term for the sector is
positive owing to the anticipated increase in prices from the historic lows
reached in fiscal 1999 and an increase in domestic consumption. In the last two
years, the increase in assets in this sector has been primarily due to phased
disbursements to projects that were approved earlier. A part of these loans is
to projects still under implementation, which we expect to become fully
operational within 12 months. The majority of our loans to fragmented capacities
and small steel plants have already been classified as non-performing, and the
balance of loans in this sector is primarily to economically sized plants with
advanced technology. At year-end fiscal 2000, we had classified 10.9% of our
assets in this sector as non-performing.
76
<PAGE>
Top Ten Non-Performing Loans
At year-end fiscal 2000, our 10 largest non-performing loans accounted for
20.0% of our gross non-performing loan portfolio and 21.5% of our net
non-performing loan portfolio.
The following table sets forth, for the period indicated, certain
information regarding our 10 largest non-performing loans. These loans are
project finance assistances.
<TABLE>
At March 31, 2000
----------------------------------------------------------------------------------------------------
Principal
Gross outstanding, Collateral
principal net of allowance dependent
Industry outstanding for credit losses(1) Collateral(2) companies(3)
----------------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C>
Borrower A....Plastics Rs. 2,258 Rs. 1,671 Rs. 2,142 N.A.
Borrower B....Basic chemicals 1,842 606 2,499 Rs. 606
Borrower C....Paper 1,806 1,806 2,693 N.A.
Borrower D....Drugs 1,733 878 1,823 878
Borrower E....Man-made fibers 1,497 437 1,206 N.A.
Borrower F....Metal products 1,110 296 1,556 N.A.
Borrower G....Textiles 1,061 501 813 N.A.
Borrower H....Textiles 912 729 1,328 N.A.
Borrower I....Man-made fibers 842 353 925 N.A.
Borrower J....Man-made fibers 778 263 2,122 N.A.
--------------------------------------------------------
Total ........ Rs. 13,839 Rs. 7,540 Rs. 17,107
========================================================
</TABLE>
______________
N.A.: Not applicable.
(1) The net realizable value of these loans on a present value basis is
determined by discounting the estimated cash flow over the expected period
of repayment by the rate implicit in the loan. Under US GAAP, the net
present value of a non-performing loan includes the net present value, to
the extent realizable, of the underlying collateral, if any.
(2) Collateral value is that reflected on the borrower's books, net of
depreciation, or that determined by third party appraisers to be
realizable.
(3) Out of the above 10 cases, collection in the cases of borrower "B" and
"D" are collateral dependent. In all other cases, ICICI is primarily
dependent on recovery through cash flows, collateral being of secondary
importance.
Non-Performing Loans Which Have Been Restructured
Our non-performing loans are restructured on a case-by-case basis after our
management has determined that restructuring is the best means of realizing
repayment of the loan. These loans continue to be on a non-accrual status and
will be reclassified as performing loans only after sustained performance under
the loan's renegotiated terms for at least a period of one year.
77
<PAGE>
The following table sets forth, for the periods indicated, our
non-performing loans that have been restructured through the rescheduling of
principal repayments and deferral or waiver of interest.
<TABLE>
At March 31,
-----------------------------------------------------------------------
1997 1998 1999 2000 2000
-----------------------------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C> <C> <C>
Gross restructured loans .................... Rs. 5,916 Rs. 9,556 Rs. 13,171 Rs. 18,546 US$ 425
Allowance for credit losses.................. (2,481) (4,346) (6,422) (7,751) (178)
-----------------------------------------------------------------------
Net restructured loans....................... Rs. 3,435 Rs. 5,210 Rs. 6,749 Rs. 10,795 US$ 247
=======================================================================
Gross restructured loans as a percentage
of gross non-performing loans.............. 20.6% 21.2% 22.5% 26.8%
Net restructured loans as a percentage
of net non-performing loans................ 31.0% 23.0% 22.5% 30.8%
</TABLE>
Our increased focus on resolving non-performing loans has resulted in a
consistent increase in gross restructured non-performing loans over the past few
years.
Interest Foregone
Interest foregone is the interest due on non-performing loans that has not
been accrued in our books of accounts. Interest foregone for loans that were on
non-accrual status at year-end fiscal 2000 was Rs. 12.4 billion (US$ 283
million) in fiscal 2000, for loans that were on non-accrual status at year-end
fiscal 1999, was Rs. 10.4 billion in fiscal 1999, for loans that were on
non-accrual status at year-end fiscal 1998, was Rs. 8.7 billion in fiscal 1998
and for loans that were on non-accrual status at year-end fiscal 1997 was Rs.
5.7 billion in fiscal 1997.
Non-Performing Loans Strategy
In fiscal 1999, we established the Special Asset Management Group to find
early solutions for large and complex non-performing loans. This group works
closely with other banks and financial institutions and uses outside experts and
specialized agencies for due diligence, valuation and legal advice to expedite
early resolution. The group also seeks to leverage our corporate relationships
to facilitate quicker resolution of non-performing loans. It consists of
professionals with significant experience in credit management supported by a
team of dedicated legal professionals. The balance of non-performing loans
continues to be handled by the respective business groups.
We place great emphasis on recovery and settlements of stressed asset
portfolio and non-performing loans, and this focus has been institutionalized
across our organization. Asset quality targets are a key parameter for employee
performance evaluation.
Methods for resolving non-performing loans include:
o early enforcement of collateral through judicial means;
o encouraging the consolidation of troubled borrowers in fragmented
industries with stronger industry participants;
o encouraging the financial restructuring of troubled borrowers; and
o encouraging modernization of existing plants through technology
upgrades.
Further, we have taken concrete measures to enhance the security structures
in accounts that may be under stress, including through:
78
<PAGE>
o the pledge of sponsor's shareholding;
o the right to convert debt into equity at par so as to facilitate
transfer of control to us;
o ensuring majority control in the board of directors of these
companies;
o continuous monitoring of the physical performance of the company's
operations through independent technical consultants; and
o escrow mechanisms to capture cash flows.
Allowance for Credit Losses
The following table sets forth, for the periods indicated, movements in our
allowance for credit losses.
<TABLE>
Year ended March 31,
-----------------------------------------------------------------------
1997 1998 1999 2000 2000
-----------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C>
Aggregate allowance for credit losses
at the beginning of the year............... Rs. 13,423 Rs. 17,689 Rs. 22,457 Rs. 28,524 US$ 653
Add: Provisions for credit losses
Wholesale banking(1) .................... 3,590 3,497 5,129 5,092 117
Working capital finance.................. 222 152 419 152 3
Leasing and related activities(2)....... 151 813 434 813 19
Others (3).............................. 303 306 85 306 7
-----------------------------------------------------------------------
Total provisions for credit losses......... Rs. 4,266 Rs. 4,768 Rs. 6,067 Rs. 6,363 US$ 146
Write offs ................................ -- -- -- (802) (18)
Aggregate allowance for credit losses
at the end of the year.................. -----------------------------------------------------------------------
Rs. 17,689 Rs. 22,457 Rs. 28,524 Rs. 34,085 US$ 781
=======================================================================
</TABLE>
____________
(1) Includes project finance and corporate finance excluding leasing and
related activities.
(2) Includes leasing, hire purchase and receivable financing.
(3) Includes bills discounted, inter-corporate deposits, lines of credit and
retail finance assets.
We conduct a comprehensive analysis of our entire loan portfolio on a
periodic basis (currently done on a quarterly basis). The analysis considers
both qualitative and quantitative criteria including the account conduct, future
prospects, repayment history, financial performance amongst others. This
comprehensive analysis includes an account by account analysis of our entire
corporate loan portfolio, and an allowance is made for any probable loss on each
account. In estimating the allowance, we consider the net realizable value on a
present value basis by discounting the future cash flows over the expected
period of recovery. Further, we also consider our past history of credit losses
and value of underlying collateral. For further discussion of our allowance for
credit losses, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Results of Operations--Provisions for Credit
Losses".
Under our US GAAP analysis of the provisions for non-performing loans, we
are required to take account of the time delay in our ability to foreclose upon
and sell collateral. Under US GAAP, the net present value of a non-performing
loan includes the net present value of the underlying collateral, if any. We
have assumed delays of between five and eight years in assessing the net present
value of our collateral. As a result, even though we are over-collateralized,
allowances are required under US GAAP
79
<PAGE>
that would not be required under Reserve Bank of India regulations or the
regulations of many other countries because US GAAP takes into account the time
value of money.
When we have an equity investment for which the corresponding loan asset is
impaired, an adjustment is made to record an impairment of the related equity
security.
For non-performing loans in excess of Rs. 100 million, which were 57.6% of
the gross non-performing loan portfolio at year-end fiscal 2000, we follow a
detailed process for each loan as outlined above to determine the allowance for
credit losses to be provided. For the balance of smaller loans in the
non-performing loan portfolio, we follow the classification detailed below for
determining the allowance for credit losses.
Settlement Cases
Settlement cases include cases in which we are in the process of entering
into a "one-time settlement" because we believe that the potential to recover
the entire amount due (the gross principal plus outstanding interest, including
penalty interest) in these cases is limited. Based on our experience, we expect
to recover almost 100.0% of gross principal outstanding over a period of time
and about 85.0% on a present value basis, as a result of negotiated settlements.
Enforcement Cases
Enforcement cases are those cases (excluding cases referred to the Board
for Industrial and Financial Reconstruction or BIFR) in which we have commenced
litigation. Our experience has been that only the secured portion of these loans
is recoverable, on average six years from the date the loan is recalled. The
realizable value of these loans on a present value basis is determined by
discounting the estimated cash flow at the end of six years from the date of the
recall by the average interest implicit in these loans.
Non-Enforcement BIFR Cases
Non-enforcement BIFR cases include cases which have been referred to the
Board for Industrial and Financial Reconstruction, which are further categorized
into accounts where the plant is under operation and accounts where the plant is
closed. We expect that in accounts where the plant is operational, the gross
principal outstanding is recoverable over seven annual payments. In respect of
those accounts where the plant is closed, we expect that only the secured
portion of the loan will be recoverable at the end of eight years based upon
historical experience.
Non-Enforcement Non-BIFR Cases
Non-enforcement non-BIFR cases include cases, which are neither under
litigation nor referred to the Board for Industrial and Financial
Reconstruction. This category is also divided into accounts where the plant is
under operation and accounts where the plant is closed. We expect that in those
accounts where the plant is operational, the gross principal outstanding is
recoverable over five annual payments together with a 14.0% recovery in interest
due. In respect of those loans where the plant is closed, we expect that the
gross principal outstanding will be recoverable over seven annual payments.
80
<PAGE>
The following table sets forth, for the period indicated, the results of
our non-performing loan classification scheme.
<TABLE>
At March 31, 2000
----------------------------------------------------------
Percentage Non-
expected to be Performing
Gross non- realized on a net loans, net of
performing present value allowance for
loans basis credit losses
----------------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C>
Gross principal greater than Rs. 100 million Rs. 39,791 54.4% Rs. 21,634
Settlement cases 1,325 85.0 1,126
Enforcement cases 9,934 42.9 4,257
Non-enforcement BIFR cases 6,269 36.0 2,256
Non-enforcement non-BIFR cases 3,647 86.1 3,141
Other loans 8,154 32.1 2,621
----------------------------------------------------------
Total Rs. 69,120 50.7% Rs. 35,035
==========================================================
</TABLE>
Funding
General
For regulatory reasons, each legal entity within the ICICI group has a
separate group to manage its funding operations. The objective of each group is
to ensure the stability of the funding base of its respective legal entity and
to effectively manage its liquidity. These groups access funds from a wide range
of financing sources, manage cash surpluses, set interest rates and hedge
exposures to market risks.
We meet our financing requirements primarily through:
o internally generated funds from loan repayments and interest payments;
o borrowings and deposits; and
o debt, equity, equity-linked and preferred capital offerings in the
domestic and international markets.
We adjust our funding strategy with a view to minimizing funding costs,
matching currencies and maturities with our lending portfolio and developing a
broader investor base.
Under the regulations of the Reserve Bank of India, of all our group
companies, only ICICI Bank can accept demand deposits. ICICI can accept only
term deposits and has no access to demand deposits. Pursuant to a 1998 Reserve
Bank of India regulation, ICICI Securities can accept public deposits; however,
in order to receive certain exemptions from other Reserve Bank of India
regulations regarding reporting requirements and liquidity, the board of
directors of ICICI Securities passed a resolution at its meeting held on April
21, 1999 not to accept any public deposits during fiscal 2000. Therefore, ICICI
Securities does not hold any public deposits. All the other entities must
necessarily obtain funds from other sources.
Rupee Funds
At year-end fiscal 2000, 84.3% of our gross loan assets were denominated in
rupees. In recent years, our rupee fund raising activities have grown in line
with the rapid growth in our lending operations. Until fiscal 1992, ICICI raised
funds by issuing bonds guaranteed by the government of India known as statutory
liquidity ratio (SLR) bonds. These bonds qualified as permitted investments for
commercial
81
<PAGE>
banks to meet statutory reserve requirements and carried a lower rate of
interest than the market rates prevailing at the time of their issue. These SLR
bonds were 56.7% of ICICI's total outstanding rupee debt at year-end fiscal
1992. Due to changes in regulations, we ceased issuing SLR bonds after fiscal
1992, and SLR bonds were only 5.8% of ICICI's total outstanding rupee debt at
year-end fiscal 2000.
The following table sets forth, for the periods indicated, our average
outstanding rupee borrowings based on quarterly balance sheets by category of
borrowing and the percentage composition by category of borrowing. The average
cost (interest expense divided by average of quarterly balances) for each
category of borrowings is provided in the footnotes.
<TABLE>
Year ended March 31, (table
--------------------------------------------------------------------------------- continues)
1997 1998 1999
---------------------------------------------------------------------------------
(in millions, except percentages)
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Amount % to total Amount % to total Amount % to total
---------------------------------------------------------------------------------
SLR bonds(1)......................... Rs. 29,151 15.8% Rs. 29,949 12.4% Rs. 27,936 8.3%
Borrowings from Indian government(2). 9,461 5.1 10,431 4.3 9,995 3.0
Convertible debentures(3)............ 518 0.3 518 0.2 518 0.2
Other borrowings(4)(5)............... 145,376 78.8 200,960 83.1 296,628 88.5
---------------------------------------------------------------------------------
Total(6)............................. Rs. 184,506 100.0% s. 241,858 100.0% Rs. 335,077 100.0%
=================================================================================
(table continued)
Year ended March 31,
----------------------------------------
2000
----------------------------------------
<S> <C> <C> <C>
Amount Amount % to total
----------------------------------------
SLR bonds(1)......................... Rs. 26,507 US $ 607 6.5%
Borrowings from Indian government(2). 9,194 211 2.2
Convertible debentures(3)............ 130 3 0.1
Other borrowings(4)(5)............... 374,210 8573 91.2
----------------------------------------
Total(6)............................. Rs. 410,041 US $ 9394 100.0%
========================================
</TABLE>
________________
(1) With an average cost of 10.09% in fiscal 1997, 10.29% in fiscal 1998,
10.39% in fiscal 1999 and 10.33% in fiscal 2000.
(2) With an average cost of 10.79% in fiscal 1997, 10.94% in fiscal 1998,
11.11% in fiscal 1999 and 10.85% in fiscal 2000.
(3) With an average cost of 12.50% in fiscal 1997, 1998 and 1999 and 14.38% in
fiscal 2000. The convertible debentures were redeemed on July 17, 1999.
(4) With an average cost of 15.75% in fiscal 1997, 15.06% in fiscal 1998,
14.57% in fiscal 1999 and 13.72% in fiscal 2000.
(5) Includes publicly and privately placed bonds, borrowings from institutions
and wholesale deposits such as inter-corporate deposits and certificate of
deposits.
Our funding strategy is to diversify our sources of funds to cover a
broader spectrum of investors. The rapid growth in our lending portfolio and
related disbursements has required us to greatly expand our investor base and
reduce our dependence on any particular sector. As a result, we raise funds from
a range of investors, including:
o banks;
o insurance companies;
o mutual funds;
o public sector units;
o pension funds (including employee trusts);
o charitable trusts and quasi-governmental bodies; and
o retail investors.
We have built a large investor base on account of our ability to access a
wide variety of institutional investors, as well as our strong and growing
franchise with retail investors.
82
<PAGE>
The following table sets forth, for the periods indicated, our outstanding
rupee borrowings by type of investor and as a percentage of our total rupee
borrowings.
<TABLE>
At March 31,
----------------------------------------------------------------------------------------
1998 1999 2000
----------------------------------------------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C>
Banks................................. Rs. 53,740 19.3% Rs. 81,205 20.9% Rs. 79,849 US$ 1,829 18.5%
Retail investors ..................... 37,568 13.5 59,352 15.3 69,756 1,598 16.1
Pension funds and employee trusts ... 46,446 16.7 76,248 19.6 81,579 1,869 18.8
Investment institutions .............. 44,959 16.2 47,073 12.1 62,483 1,431 14.4
SLR bonds ............................ 29,170 10.5 26,625 6.9 24,072 551 5.6
Indian government .................... 10,385 3.7 9,715 2.5 8,569 196 2.0
Others ............................... 56,042 20.1 88,595 22.8 99,913 2,289 23.1
Application money pending
allotment (1) ...................... -- -- -- -- 6,429 147 1.5
----------------------------------------------------------------------------------------
Total ................................ Rs.278,310 100.0% Rs.388,813 100.0% Rs. 432,650 US$ 9,910 100.0%
========================================================================================
</TABLE>
_____________
1 Represents application money received pending allotment of bonds issued in
March 2000.
Banks, investment institutions such as state-owned insurance companies and
mutual funds have traditionally been our largest providers of funds. Over the
past few years, we have increasingly diversified away from these wholesale
sources of funding. As the table above indicates, while banks and investment
institutions as a group continue to be our single largest source of funds, their
share as a percentage of the total funding over the last few years has declined.
Pension funds, employee trusts, co-operative banks, non-profit societies and
educational institutions are our semi-wholesale sources of funds. We began to
access these funding sources starting in fiscal 1996, and today they constitute
a significant and stable share of our resources.
Since 1993, ICICI has regularly issued unsecured redeemable medium-term and
long-term bonds marketed under the brand name "ICICI Safety Bonds" in India's
domestic capital markets. Currently, there are about 3.7 million individual
holders of these bonds, principally retail investors. We believe that it is
imperative to retain a presence in this market and hence have shifted to a
strategy of smaller and more frequent public issues of these bonds. Aggregate
funds raised through the issuance of these bonds has grown from Rs. 17.4 billion
during fiscal 1998 to Rs. 25.7 billion (US$ 589 million) during fiscal 2000.
The following table sets forth, for the periods indicated, certain
information related to our short-term rupee borrowings, which consist of
certificates of deposits, inter-corporate deposits and borrowings from
government-owned companies, known commonly as public sector units.
<TABLE>
At March 31, (1)
----------------------------------------------------------------------------
1997 1998 1999 2000
----------------------------------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C> <C> <C>
Year-end balance .......................... Rs. 28,822 Rs. 32,306 Rs. 50,585 Rs. 86,992 US$ 1,993
Average balance during the year (2)........ 19,879 27,410 51,124 81,962 1,878
Maximum quarter-end balance................ 31,643 39,501 68,858 88,906 2,037
Average interest rate during the year (3).. 10.79% 10.00% 10.42% 11.19%
Average interest rate at year-end (4)...... 14.80 12.40 12.10 10.80
</TABLE>
________________
(1) Short-term borrowings include trading liabilities, such as borrowings in
the call market and repurchase agreements.
(2) Average of quarterly balances outstanding.
(3) Represents the ratio of interest expense on short-term borrowings to the
average of quarterly balances of short-term borrowings.
(4) Represents the average of document rate of the short-term borrowings
outstanding at fiscal year-end.
83
<PAGE>
Foreign Currency Borrowings
We attempt to minimize the total effective cost of our foreign currency
borrowings by diversifying our sources of funds from abroad. We have raised
foreign currency resources from a variety of multilateral institutions,
bilateral sources (including export credits) and from commercial sources. We
have correspondent banking relationships with over 20 banks principally in the
United States, Europe and Japan.
Traditionally, our major foreign currency borrowings have been from
multilateral institutions and guaranteed by the government of India. We have
lines of credit from the World Bank and the Asian Development Bank directly or
through the government of India with maturities ranging from 10 to 20 years.
Under our principal bilateral borrowings, we have lines of credit from
Kreditanstalt fur Wiederaufbau, Export-Import Bank of Japan, Commonwealth
Development Corporation of the United Kingdom, several export credit agencies,
Overseas Development Administration of the United Kingdom through the government
of India, and from Overseas Economic Co-operation Fund in Japan. The funds
raised from multilateral and bilateral sources typically have requirements as to
the use of funds raised such as infrastructure funding, pollution prevention and
other uses. These sources enable us to raise fairly long maturity funds at
competitive costs, which supplement the funds available from commercial sources
by widening the maturity spectrum of liabilities.
We first began commercial foreign currency borrowings in 1973 with the
establishment of a syndicated loan facility. Since then, we have borrowed funds
in the international commercial markets in the form of Euro credits and loans,
fixed and floating rate bond issues, private placements and a Euro-commercial
paper program backed by a note issuance facility. To allow a more rapid access
to funds we established a global medium-term note program, under which we have
issued two series of bonds totaling US$ 250 million, one of which was a
subordinated bond issue.
The following table sets forth, for the periods indicated, our average
outstanding volume of foreign currency borrowings based on quarterly balance
sheets by source and the percentage composition by source.
The average cost (interest expense divided by average of quarterly
balances) for each source of borrowings is provided in the footnotes.
<TABLE>
At March 31,
-----------------------------------------------------------------------------------------------------
1997 1998 1999 2000
-----------------------------------------------------------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial borrowings (1)..... Rs. 66, 183 76.3% Rs. 77,437 79.7% Rs. 81,141 79.1% Rs. 74,509 US$ 1,707 77.4%
Multilateral borrowings (2)... 20,570 23.7 19,716 20.3 21,483 20.9 21,748 498 22.6
-----------------------------------------------------------------------------------------------------
Total......................... Rs. 86,753 100.0% Rs. 97,153 100.0% Rs. 102,624 100.0% Rs. 96,257 US$ 2,205 100.0%
=====================================================================================================
</TABLE>
_________________
(1) With an average cost of 6.14% in fiscal 1997, 6.60% in fiscal 1998, 6.15%
in fiscal 1999 and 5.72% in fiscal 2000.
(2) With an average cost of 6.02% in fiscal 1997, 5.71% in fiscal 1998, 5.79%
in fiscal 1999 and 5.53% in fiscal 2000.
We have diversified our commercial borrowings by borrowing in various
markets in US dollars, Deutsche Marks, Swiss Francs, Japanese Yen, Pounds
Sterling and Euros. We review developments in the international markets with a
view to raising funds in the most cost-efficient manner.
Deposits
At March 31, 2000, ICICI Bank's total deposits were Rs 98.7 billion (US$
2.3 billion), of which 31.0% were deposits placed by retail customers. At March
31, 2000, deposits at ICICI Bank represented approximately 14.0% of our total
liabilities. Deposits at ICICI Bank are subject to reserve requirements
84
<PAGE>
applicable to all Indian banks. Reserve requirements are discussed in detail in
the section on "Supervision and Regulation".
ICICI is allowed to raise deposits from the public only with a maturity
greater than one year. Due to this limitation, ICICI's time deposits made up
only a negligible proportion of our total deposits. Deposits at ICICI are not
subject to reserve requirements, although the Reserve Bank of India may, in its
discretion, impose reserve requirements in the future.
Retail Deposits
We began raising retail deposits in 1994 after we established ICICI Bank.
Retail deposits have grown from Rs. 3.3 billion (US$ 76 million) at March 31,
1995 to Rs. 30.6 billion (US$ 701 million) at March 31, 2000. Retail deposits
are expected to increase significantly as ICICI Bank further expands its reach.
Corporate Deposits
ICICI Bank takes deposits from its corporate clients, which are generally
with maturities of 15 days to one year. ICICI Bank quotes rates for deposits in
excess of Rs. 10 million on a daily basis, with rates varying depending upon
changes in the inter-bank term money market as well as changes in the rates of
other money market instruments such as treasury bills and commercial papers.
Corporate deposits also include funds obtained by ICICI Bank from large public
sector bodies, government and quasi-government organizations and larger private
sector companies.
Deposit Types and Costs
The following table sets forth, for the periods indicated, the average volume
and average cost of our deposits by type of deposit.
<TABLE>
Year ended March 31,
--------------------------------------------------------------------------------------------------
1997 1998 1999 2000
--------------------------------------------------------------------------------------------------
Amount Cost(1) Amount Cost(1) Amount Cost(1) Amount Amount Cost(1)
--------------------------------------------------------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits:
Savings deposits ......... Rs. 317 3.15% Rs. 832 3.37% Rs. 1,633 3.25% Rs. 3,530 US$ 81 3.34%
Time deposits. ........... 6,920 12.95 15,335 9.65 37,345 9.72 64,309 1,473 8.63
Non-interest-bearing deposits:
Demand deposits .......... 1,448 -- 4,203 -- 4,430 -- 7,443 171 --
---------- ------------ ---------- ----------------------
Total deposits ................. Rs. 8,685 10.43% Rs. 20,370 7.40% Rs. 43,408 8.48% Rs. 75,282 US$1,725 7.53%
========== ============ ========== ======================
</TABLE>
_________________
(1) Represents interest expense divided by the average of quarterly balances.
Maturity Profile of Deposits
The following table sets forth, for the period indicated, the maturity
profile of our deposits by type of deposit.
85
<PAGE>
<TABLE>
At March 31, 2000
-------------------------------------------------------------------------------------------
After one month After six
and within six months and After one year
Within one months within 12 and within After three
month months three years years Total
-------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits:
Savings account ........... Rs. 5,332 Rs. -- Rs. -- Rs. -- Rs. -- Rs. 5,332
Time deposits ............. 21,970 35,312 14,037 5,699 477 77,495
Non-interest-bearing Deposits:
Demand deposits............ 13,855 -- -- -- -- 13,855
-------------------------------------------------------------------------------------------
Total deposits .................. Rs. 41,157 Rs. 35,312 Rs. 14,037 Rs. 5,699 Rs. 477 Rs. 96,682
===========================================================================================
</TABLE>
Properties
ICICI's registered office and corporate headquarters are located at ICICI
Towers, Bandra-Kurla Complex, Mumbai 400 051, Maharashtra, India. This office
building owned by ICICI, has an area of approximately 650,000 square feet and
the construction was completed by ICICI in 1999.
ICICI's principal office network consists of 21 facilities, which are
situated in Mumbai, New Delhi, Calcutta, Chennai, Coimbatore, Bangalore,
Hyderabad, Pune, Ahmedabad and Vadodara. Ten of these facilities are located on
properties owned by ICICI and 12 are located on leased properties. These
facilities are located throughout India. At year-end fiscal 2000, ICICI has set
up 75 ICICI centers, each of which on an average measures 300 to 450 square feet
in area, located in cities across India. All these facilities are located on
leased properties other than in cities where we have our own office premises.
ICICI Bank has a country-wide network of 81 branches, 16 extension counters
and 76 off-site automatic teller machine counters at year-end fiscal 2000. Of
these facilities 17 are on properties owned by ICICI Bank, while the remaining
facilities are on leased properties.
ICICI Infotech, ICICI Venture and ICICI Securities own properties totaling
approximately 4,420 square feet and also have three properties on lease. The
other group companies operate from facilities owned by ICICI. We also provide
residential and holiday home facilities to our employees at subsidized rates.
The net book value of all the properties owned by us at March 31, 2000 was
Rs. 11.8 billion (US$ 270 million).
Legal and Regulatory Proceedings
We are involved in a number of legal proceedings in the ordinary course of
our business. Excluding the legal proceedings discussed below, ICICI and its
subsidiaries are not a party to any proceedings and no proceedings are known by
any of ICICI or its subsidiaries to be contemplated by governmental authorities
or third parties, which, if adversely determined, may have a material adverse
effect on our consolidated financial condition or results of operations.
We have been assessed an aggregate of Rs. 7.6 billion (US$ 174 million) in
income tax, interest tax and sales tax demands by the government of India's tax
authorities for past years. We have appealed each of these tax demands.
Management believes that the tax authorities are not likely to be able to
substantiate their income tax and sales tax assessment for the following
reasons.
o We received favorable decisions from the appellate authorities with
respect to Rs. 665 million of the current income tax assessment. The
income tax authorities have appealed these decisions to higher
appellate authorities and we are awaiting the decisions.
86
<PAGE>
o We received a favorable decision of the Supreme Court of India in
respect of writ petitions filed by us relating to the sales tax issues
that are currently being appealed by us with respect to Rs. 271
million of the current sales tax assessment.
o We received favorable appellate decisions in earlier years related to
the income tax issues currently being appealed by us with respect to
Rs. 191 million of the current income tax assessment, and other Indian
companies received favorable appellate decisions in earlier years
related to other income tax issues that are currently being appealed
by us with respect to Rs. 6.3 billion of the current income tax and
interest tax assessment.
Of the Rs. 7.6 billion aggregate tax assessments, Rs. 4.8 billion
represents income or sales tax demands relating to lease agreements between
various lessees and us, under which we may recover any taxes payable by us from
the lessee. Based on these favorable precedents and the recoverability of the
substantial majority of this assessment from lessees of ICICI, we have not
provided for contingent liabilities related to these proceedings.
Employees
At year-end fiscal 2000, we had approximately 3,500 employees, an increase
from 2,495 employees at year-end fiscal 1999 and 2,155 employees at year-end
fiscal. Of these, 1,009 at year-end fiscal 2000, 1,265 at year-end fiscal 1999
and 1,159 at year-end fiscal 1998 were employed by ICICI. Of the 1,009 employees
of ICICI, 576 are professionals, holding degrees in management, accountancy,
engineering, law, computer science and economics. The increase in number of
employees in fiscal 2000 was primarily in our subsidiaries ICICI Bank, ICICI
Infotech and ICICI Personal Financial Services which have been rapidly growing
their business and distribution infrastructure.
We consider our relations with our employees to be good. We have distinct
personnel policies for each of our group companies, which are designed
specifically to address the needs of the individual business.
We structure compensation packages and provide incentives to individuals to
better their performance. For example, the compensation structure of ICICI
Capital Services, which is in the business of retail distribution of financial
products, is significantly different from that of our other businesses, with a
significant part of the salary package comprising performance incentives.
Similarly, ICICI Venture's compensation scheme links an employee's compensation
to the performance of the venture fund the employee manages.
Effective fiscal 1994, ICICI established a performance based bonus scheme
under which permanent employees can significantly increase their pay. The
compensation structures are based on clear performance criteria. To encourage
commitment to results and productivity, we have also instituted an employee
stock option scheme. For the details of the stock option scheme, see
"Management--Compensation and Benefits to Directors and Officers--Employee
Stock Option Scheme".
In addition to basic compensation, employees of some companies of the group
are eligible to receive loans from us at subsidized rates and to participate in
our provident fund and other employee welfare plans. The provident fund, to
which both we and our employees contribute defined amounts, is a savings scheme,
required by government regulation, under which we must pay to employees a
minimum 11.0% annual return. If such return is not generated internally by the
fund, we are liable for the difference. Our provident fund has always generated
sufficient funds internally to meet the minimum annual return requirement. We
have also set up a superannuation fund to which we contribute defined amounts.
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In addition, we also contribute defined amounts to a gratuity fund set up
pursuant to Indian statutory requirements.
We have a training center at Pune, near Mumbai, which conducts a series of
training programs designed to meet the changing skill requirements of our
employees. These training programs include orientation sessions for new
employees and management development programs for mid-level and senior
executives. We have also introduced a two-year graduate management training
program for selected officers in junior management as a measure of career
progression. The training center regularly offers courses conducted by faculty,
both national and international, drawn from industry, academia and our own
organization. Training programs are also conducted for developing functional as
well as managerial skills.
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SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected financial and other data for and at year-end fiscal 1997,
1998, 1999 and 2000 have been derived from our consolidated financial
statements, prepared in accordance with US GAAP. Our consolidated financial
statements have been audited by KPMG Peat Marwick, India, independent
accountants. Capital adequacy ratios have been calculated both from the
unconsolidated financial statements prepared in accordance with Indian GAAP and
the consolidated financial statements prepared in accordance with US GAAP.
You should read the following data with the more detailed information
contained in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our consolidated financial statements. Historical
results do not necessarily predict the results in the future.
For a meaningful comparison of our results of operations for fiscal 1997,
1998, 1999 and 2000, we believe it is necessary to analyze certain specific
items separately. These Specific Items relate to profit on the sale of a 25.8%
equity interest in ICICI Bank, profit on the sale of certain premises,
amortization of goodwill required as a result of certain acquisitions,
extraordinary items and the effect of a change in the method of accounting for
depreciation on property and equipment. These items increased our net income
for fiscal 1997 by Rs. 207 million (US$ 5 million), for fiscal 1998 by Rs. 1.7
billion (US$ 38 million), for fiscal 1999 by Rs. 349 million (US$ 8 million)
and for fiscal 2000 by Rs. 476 million (US$ 11 million).
As agreed with the Securities and Exchange Commission before ICICI's
public offering of ADSs in September 1999, selected consolidated financial data
for fiscal 1996 under US GAAP has been omitted because it cannot be provided
without unreasonable effort or expense. ICICI has provided selected
unconsolidated financial data for fiscal 1996 under Indian GAAP under "Selected
Financial Information for ICICI under Indian GAAP".
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<TABLE>
Year ended March 31,
-------------------------------------------------------------------
1997 1998 1999 2000 2000(1)
-------------------------------------------------------------------
(in millions, except per common share data)
Selected income statement data:
<S> <C> <C> <C> <C> <C>
Interest revenue ..............................................Rs. 41,564 Rs. 54,387 Rs. 70,414 Rs. 79,325 US$ 1,817
Interest expense .............................................. (33,238) (42,431) (57,983) (67,393) (1,544)
-------------------------------------------------------------------
Net interest revenue .......................................... 8,326 11,956 12,431 11,932 273
Dividends ..................................................... 800 553 676 1,502 34
-------------------------------------------------------------------
Net interest revenue, including dividends ..................... 9,126 12,509 13,107 13,434 308
Provisions for credit losses .................................. (4,266) (4,768) (6,067) (6,363) (146)
-------------------------------------------------------------------
Net interest revenue, including dividends after
provisions for credit losses ................................ 4,860 7,741 7,040 7,071 162
Non-interest revenue, net:
Revenue from the Specific Items:
Profit on sale of a 25.8% equity interest
In ICICI Bank(2) ........................................ -- 920 -- -- --
Profit on sale of certain premises(3) ..................... -- 532 -- 212 5
Effect of business combination (4) ........................ 253 495 253 253 6
-------------------------------------------------------------------
Total revenue from the Specific Items ....................... 253 1,947 253 465 11
Other revenue ............................................... 2,262 3,378 5,126 9,222 211
-------------------------------------------------------------------
Total non-interest revenue, net ............................... 2,515 5,325 5,379 9,687 222
-------------------------------------------------------------------
Net revenue(5) ................................................ 7,375 13,066 12,419 16,758 384
Non-interest expense :
Expense due to the Specific Items:
Amortization of goodwill(6) ................................. -- -- (187) (187) (4)
-------------------------------------------------------------------
Total expense due to the Specific Items ..................... -- -- (187) (187) (4)
Other expense ............................................... (2,019) (2,686) (3,608) (5,115) (117)
-------------------------------------------------------------------
Total non-interest expense .................................... (2,019) (2,686) (3,795) (5,302) (121)
Equity in earnings of affiliate ............................... -- (9) (34) 20 0
Minority interest ............................................. 135 (135) (170) (361) (8)
-------------------------------------------------------------------
Income before taxes ........................................... 5,491 10,236 8,420 11,115 255
Income tax expense ............................................ (994) (1,446) (1,194) (2,033) (47)
-------------------------------------------------------------------
Net income before extraordinary items and effect of change
in accounting principle, net of tax ......................... 4,497 8,790 7,226 9,082 208
Extraordinary items, net of tax(7) ............................ -- -- 292 -- --
Cumulative effect of change in accounting principle, net
of tax (8) .................................................. -- -- -- 249 6
-------------------------------------------------------------------
Net income ....................................................Rs. 4,497 Rs. 8,790 Rs. 7,518 Rs. 9,331 US$ 214
===================================================================
Net income, excluding the Specific Items(9) ...................Rs. 4,290 Rs. 7,118 Rs. 7,169 Rs. 8,855 US$ 203
===================================================================
Net income from operations (net income excluding the
Specific Items and minority interest)........................Rs. 4,155 Rs. 7,253 Rs. 7,339 Rs. 9,216 US$ 211
===================================================================
Per common share:
Net income--basic(10) .........................................Rs. 10.34 Rs. 18.39 Rs. 15.66 Rs. 14.45 US$ 0.33
Net income--diluted(11) ....................................... 8.85 15.74 13.52 13.77 0.32
Net income, excluding the Specific Items-- basic(10) .......... 9.86 14.89 14.94 13.72 0.31
Net income, excluding the Specific Items-- diluted(11) ........ 8.46 12.83 12.90 13.00 0.30
Net income from operations-- basic ............................ 9.55 15.17 15.29 14.27 0.33
Net income from operations-- diluted .......................... 8.21 13.07 13.20 13.52 0.31
Dividends(12) ................................................. 4.50 5.50 5.50 5.50 0.13
Book value .................................................... 56.28 68.78 76.06 90.29 2.07
Common shares outstanding at end of period
(in millions of common shares) .............................. 476 478 480 785
Weighted average common shares outstanding
--basic (in millions of common shares) ...................... 435 478 480 646
Weighted average common shares outstanding
--diluted (in millions of common shares) .................... 532 575 577 687
</TABLE>
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<PAGE>
(1) Rupee amounts for fiscal 2000 have been translated into US dollars using
the noon buying rate in effect on March 31, 2000 of Rs. 43.65 = US$ 1.00.
(2) Pursuant to the condition stipulated by the Reserve Bank of India, ICICI
sold a 25.8% equity interest in ICICI Bank in August 1997 resulting in a
profit of Rs. 920 million (US$ 21 million) equivalent to post-tax profit
of Rs. 790 million (US$ 18 million) using the effective tax rate.
(3) We realized a profit of Rs. 532 million (US$ 12 million) equivalent to
post-tax profit of Rs. 457 million (US$ 10 million) in fiscal 1998 and of
Rs. 212 million (US$ 5 million) equivalent to post-tax profit of Rs. 173
million (US$ 4 million) in fiscal 2000, using the effective tax rate, from
the sale of certain of our office premises.
(4) In fiscal 1997, ICICI acquired SCICI Limited. The business combination was
accounted for by the purchase method resulting in negative goodwill of Rs.
3.1 billion (US$ 71 million), of which Rs. 0.6 billion (US$ 13 million)
was adjusted against certain fixed assets and Rs. 2.5 billion (US$ 58
million) is being accrued to income over a period of 10 years. This
resulted in a profit of Rs. 253 million (US$ 6 million) in each of fiscal
years 1997, 1998, 1999 and 2000, equivalent to a post-tax profit of Rs.
207 million (US$ 5 million) in fiscal 1997, Rs. 217 million (US$ 5
million) in fiscal 1998, Rs. 215 million (US$ 5 million) in fiscal 1999
and Rs. 207 million (US$ 5 million) in fiscal 2000, using the effective
tax rate for each period. In addition, in fiscal 1998, we realized a
profit of Rs. 242 million (US$ 6 million) equivalent to a post-tax profit
of Rs. 208 million (US$ 5 million), using the effective tax rate, from the
sale of certain of SCICI's properties.
(5) Operating revenue (net revenue less total revenue from the Specific Items)
was Rs. 7.1 billion (US$ 163 million) in fiscal 1997, Rs. 11.1 billion
(US$ 255 million) in fiscal 1998, Rs. 12.2 billion (US$ 279 million) in
fiscal 1999 and Rs. 16.3 billion (US$ 373 million) in fiscal 2000.
(6) In fiscal 1999, ICICI acquired Anagram Finance Limited, a non-banking
finance company. The business combination was accounted for by the
purchase method resulting in goodwill of Rs. 934 million (US$ 21 million).
The goodwill is being amortized over a period of five years. This resulted
in an expense of Rs. 187 million (US$ 4 million) in each of fiscal years
1999 and 2000, equivalent to a post-tax expense of Rs. 160 million (US$ 4
million) in fiscal 1999 and of Rs. 153 million (US$ 4 million) in fiscal
2000, using the effective tax rate.
(7) Represents gains from extinguishment of debt, net of tax. In fiscal 1999,
we realized a post-tax gain of Rs. 292 million (US$ 7 million) through
repurchase of certain of our outstanding foreign currency bonds which
resulted in extinguishment of debt.
(8) Effective April 1, 1999, ICICI changed the method of providing
depreciation on property and equipment from the written down value method
to the straight line method. The cumulative effect of the change
aggregating Rs. 405 million (US$ 9 million), net of the related income tax
effect of Rs. 156 million (US$ 4 million) has been included in the
statement of income for fiscal 2000. See note 13 to our consolidated
financial statements.
(9) Represents net income ignoring effect of the Specific Items.
(10) Represents net income before dilutive impact.
(11) Represents net income adjusted for full dilution. All convertible
instruments are assumed to be converted to common shares at the beginning
of the year, at prices that are most advantageous to the holders of
instruments. All series of convertible instruments are dilutive. At March
31, 2000, ICICI had outstanding convertible debt instruments which are
convertible to equity shares at conversion prices significantly higher
than the current market price. See notes 2.2.35 and 14 to our consolidated
financial statements.
(12) In US dollars, dividends were US$ 0.10 per equity share in fiscal 1997 and
US$ 0.13 per equity share in each of fiscal 1998, 1999 and 2000.
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The following table sets forth, for the periods indicated, selected income
statement data expressed as a percentage of our average total assets for the
respective period.
<TABLE>
Year ended March 31,
-----------------------------------
1997 1998 1999 2000
-----------------------------------
<S> <C> <C> <C> <C>
Selected income statement data:
Interest revenue ...................................... 12.10% 12.51% 12.25% 11.20%
Interest expense ...................................... (9.67) (9.76) (10.09) (9.51)
-----------------------------------
Net interest revenue .................................. 2.43 2.75 2.16 1.69
Dividends ............................................. 0.23 0.13 0.12 0.21
-----------------------------------
Net interest revenue, including dividends ............. 2.66 2.88 2.28 1.90
Provisions for credit losses .......................... (1.24) (1.10) (1.05) (0.90)
-----------------------------------
Net interest revenue, including dividends
after provisions for credit losses .................. 1.42 1.78 1.23 1.00
Non-interest revenue, net ............................. 0.73 1.22 0.94 1.37
-----------------------------------
Net revenue ........................................... 2.15 3.00 2.17 2.37
Non-interest expense .................................. (0.59) (0.62) (0.66) (0.75)
Equity in earnings of affiliate ....................... -- -- (0.01) --
Minority interest ..................................... 0.04 (0.03) (0.03) (0.05)
-----------------------------------
Income before taxes ................................... 1.60 2.35 1.47 1.57
Income tax expense .................................... (0.29) (0.33) (0.21) (0.29)
-----------------------------------
Net income before extraordinary items, net of tax ..... 1.31 2.02 1.26 1.28
Extraordinary items and cumulative effect of change
in accounting principle, net of tax ................. -- -- 0.05 0.04
-----------------------------------
Net income ............................................ 1.31% 2.02% 1.31% 1.32%
===================================
Net income, excluding the Specific Items .............. 1.25% 1.64% 1.25% 1.25%
===================================
</TABLE>
<TABLE>
At March 31,
------------------------------------------------------------------------------
1997 1998 1999 2000 2000(1)
------------------------------------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C> <C> <C>
Selected balance sheet data:
Total assets ........................... Rs. 380,200 Rs. 489,799 Rs. 653,345 Rs. 780,684 US$ 17,885
Loans, net(2) .......................... 291,340 377,184 476,352 562,420 12,885
Securities ............................. 17,118 14,582 15,041 18,871 432
Non-performing loans, net ............. 11,082 22,666 29,963 35,035 803
Total liabilities ...................... 352,595 455,476 616,061 705,478 16,162
Long-term debt ......................... 274,015 347,956 438,440 439,162 10,061
Deposits ............................... 10,740 29,295 60,605 96,682 2,215
Redeemable preferred stock(3) .......... 750 3,366 10,897 10,207 234
Stockholders' equity ................... 26,787 32,876 36,511 70,908 1,624
Common stock ........................... 4,755 4,781 4,801 7,832 179
Period average(4):
Total assets ........................... 343,635 434,870 574,735 708,627 16,234
Interest-earning assets ................ 274,481 367,646 500,443 612,895 14,041
Loans, net(2) .......................... 249,473 334,465 430,770 513,865 11,772
Total liabilities(5) ................... 318,119 403,168 538,750 653,355 14,968
Interest-bearing liabilities ........... 279,366 356,489 483,662 584,564 13,392
Long-term debt ......................... 251,380 311,601 386,577 437,871 10,031
Stockholders' equity ................... 25,516 31,702 35,985 55,272 1,266
</TABLE>
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<PAGE>
<TABLE>
At or for the year ended March 31,
--------------------------------------
1997 1998 1999 2000
--------------------------------------
(in percentages)
<S> <C> <C> <C> <C>
Profitability:
Net income as a percentage of:
Average total assets ............................................ 1.31% 2.02% 1.31% 1.32%
Average stockholders' equity .................................... 17.62 27.73 20.89 16.88
Average stockholders' equity (including redeemable preferred
stock)(6)...................................................... 17.47 27.06 19.26 15.95
Net income, excluding the Specific Items, as a percentage of:
Average total assets ............................................ 1.25 1.64 1.25 1.25
Average stockholders' equity .................................... 16.81 22.45 19.92 16.02
Average stockholders' equity (including redeemable preferred
stock)(6)........................................................ 16.69 21.99 18.45 15.23
Dividend payout ratio(7) ........................................... 47.92 33.33 38.99 42.44
Spread(8) .......................................................... 3.24 2.89 2.08 1.41
Net interest margin(9) ............................................. 3.03 3.25 2.48 1.95
Cost-to-income ratio(10) ........................................... 17.73 16.92 19.79 22.58
Cost-to-average assets ratio(11) ................................... 0.59 0.62 0.63 0.72
Capital:
Total capital adequacy ratio for ICICI(12) ......................... 13.28 13.02 12.46 17.22
Tier 1 capital adequacy ratio for ICICI(12) ........................ 10.51 8.78 8.25 11.48
Tier 2 capital adequacy ratio for ICICI(12) ........................ 2.77 4.24 4.21 5.74
Average stockholders' equity as a percentage of average total
assets ........................................................... 7.43 7.29 6.26 7.80
Average stockholders' equity (including redeemable preferred
stock) as a percentage of average total assets ................... 7.68 7.59 7.48 9.27
Asset quality:
Net non-performing loans as a percentage of net loans .............. 3.80 6.01 6.29 6.23
Net non-performing loans as a percentage of total assets ........... 2.91 4.63 4.59 4.49
Allowance for credit losses as a percentage of gross non-
performing loans ................................................. 61.48 49.77 48.77 49.31
Allowance for credit losses as a percentage of gross total loans ... 5.72 5.62 5.65 5.71
</TABLE>
---------
(1) Rupee amounts for fiscal 2000 have been translated into US dollars using
the noon buying rate in effect on March 31, 2000 of Rs. 43.65 = US$ 1.00.
(2) Net of allowance for credit losses in respect of non-performing loans.
(3) In line with the existing regulatory requirements in India, preferred
stock issued by us needs to be compulsorily redeemed within a specified
time period.
(4) For fiscal 1997, 1998, 1999 and 2000, the average balances are the average
of quarterly balances outstanding.
(5) Represents the average of the quarterly balance of total liabilities and
minority interest.
(6) Represents the ratio of net income plus dividend on redeemable preferred
stock to the sum of average stockholders' equity and average redeemable
preferred stock. Under Indian tax laws, dividend on preferred stock is not
tax deductible.
(7) Represents the ratio of total dividends paid on common stock, including
the dividend distribution tax, as a percentage of net income.
(8) Represents the difference between yield on average interest-earning assets
and cost of average interest-bearing liabilities. Yield on average
interest-earning assets is the ratio of interest revenue to average
interest-earning assets. Cost of average interest-bearing liabilities is
the ratio of interest expense to average interest-bearing liabilities.
(9) Represents the ratio of net interest revenue to average interest-earning
assets. The difference in net interest margin and spread arises due to the
difference in the amount of average interest-earning assets and average
interest-bearing liabilities. If average interest-earning assets exceed
average interest-bearing liabilities, net interest margin is greater than
spread, and if average interest-bearing liabilities exceed average
interest-earning assets, net interest margin is less than spread.
(10) Represents the ratio of non-interest expense to the sum of net interest
revenue, dividends and non-interest revenue, excluding effect of the
Specific Items.
(11) Represents the ratio of non-interest expense, excluding effect of the
Specific Items, to average total assets.
(12) ICICI's capital adequacy is computed in accordance with the Reserve Bank
of India guidelines. The computation is based on ICICI's unconsolidated
financial statements prepared in accordance with Indian GAAP. Our total
capital adequacy ratio
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computed under the applicable Reserve Bank of India guidelines and based
on our consolidated financial statements prepared in accordance with US
GAAP was 15.80% at year-end fiscal 2000. Using the same basis of
computation, our Tier 1 capital adequacy ratio was 10.53% and our Tier 2
capital adequacy ratio was 5.27% at year-end fiscal 2000. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Financial Condition--Capital".
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial
condition and results of operations together with our consolidated financial
statements which have been prepared in accordance with US GAAP.
Introduction
Several factors relating to the macroeconomic environment and developments
in the Indian financial sector had an impact on our results of operations and
financial condition for fiscal 1997, 1998, 1999 and 2000. In addition, for a
meaningful comparison of our results of operations for these years, we believe
it is necessary to analyze certain specific items separately. For ease of
understanding of the discussion of our results of operations that follows, you
should consider the introductory discussion of these macroeconomic factors and
the Specific Items.
Indian Economy
Our loan portfolio, financial condition and results of operations have
been, and in the future are expected to be, influenced by economic conditions
in India and certain global developments, particularly those relating to
specific commodity prices.
In fiscal 2000, the global economy recovered from the slowdown it
experienced between 1997 and 1999 stemming form the economic crisis in Asia,
Russia and elsewhere. Global commodity prices also showed an uptrend in fiscal
2000. Despite the global slowdown between 1997 and 1999, the GDP growth rate
for the Indian economy was 6.8% in fiscal 1999, 5.0% in fiscal 1998 and 7.5% in
fiscal 1997. In fiscal 2000, Indian economy registered a GDP growth rate of
6.4%. The GDP growth in fiscal 2000 was lower compared to fiscal 1999 due to a
slowdown in the agricultural sector. Growth in industrial production, which had
slowed to 3.8% in fiscal 1999 from 6.6% in fiscal 1998 and 6.1% in fiscal 1997,
recovered to 8.1% in fiscal 2000. Average inflation, as measured by the
wholesale price index, remained below 7.0% in each of fiscal 1998, 1999 and
2000. After the Asian crisis, unlike certain south-east Asian currencies, the
rupee did not experience a precipitous fall due to a cautious approach towards
opening the capital account and effective exchange rate management by the
Reserve Bank of India. However, the rupee has come under some pressure in the
recent months, particularly from the second week of May 2000 onwards, due to
increased demand for dollars arising out of increased oil imports and slowing
down of capital inflows.
Given the large amount of investment required in the infrastructure
sector, the government of India has issued policy guidelines, over the past few
years aimed at encouraging the involvement of the private sector, including the
foreign private sector. This created an opportunity for us to increase our
approvals of infrastructure loans in each of fiscal 1998, 1999 and 2000.
The rapid reduction in trade barriers and integration with global markets,
and the downtrend in global commodity markets in fiscal 1999, has caused
difficulty in the Indian economy for those commercial enterprises with cost
inefficiencies, poor technology and fragmented capacities. As a result, while
the Indian economy has continued to grow, although at a slower rate than in
past periods, certain corporate and commercial enterprises have had to
restructure their operations to deal with the financial stress they have
encountered. In certain cases, while continuing to generate revenue and net
profits, some of our borrowers made significant changes in their operations,
selling unproductive assets, merging with other market participants, reducing
costs and refocusing their business objectives. This has resulted in the
95
<PAGE>
need to restructure and renegotiate credit and related facilities with
financial institutions including, in some cases, us. This restructuring process
across industry sectors has resulted in a decline in asset quality across the
Indian financial system over the past few years.
Fiscal 1999, in particular, was a difficult year for the Indian financial
sector. There was an overall decline in asset quality principally due to an
increase in non-performing loans to certain borrowers in the manufacturing
sectors, particularly in the textiles, man-made fibers, iron and steel,
plastics and basic chemicals industries.
Specific Items
Effect of Acquisitions
Effective April 1, 1998, ICICI acquired Anagram Finance Limited, a
non-bank finance company, principally to support its entry into the retail
asset financing market. The assets of Anagram Finance amounted to Rs. 9.6
billion (US$ 220 million), approximately 2.0% of our total assets at year-end
fiscal 1998. The business combination was accounted for by the purchase method
and accordingly the consolidated financial statements for fiscal 1999 and 2000
include the results of operations of Anagram Finance. The business combination
resulted in a goodwill of Rs. 934 million (US$ 21 million), which is being
amortized over a period of five years. This resulted in an expense of Rs. 187
million (US$ 4 million) due to amortization of goodwill in fiscal 1999 and
2000. This acquisition also resulted in an increase in employee and
administration expenses in fiscal 1999 because we were required to record
various non-interest expenses and costs of Anagram Finance from the effective
date of acquisition.
Effective April 1, 1997, ICICI acquired ITC Classic Finance Limited, a
non-bank finance company, principally to support its efforts in diversifying
its retail funding base. The assets of ITC Classic Finance amounted to Rs. 14.0
billion (US$ 321 million), approximately 3.7% of our total assets at year-end
fiscal 1997. The business combination was accounted for by the purchase method
and accordingly the consolidated financial statements for fiscal 1998, 1999 and
2000 include the results of operations of ITC Classic Finance. The business
combination resulted in negative goodwill of Rs. 10 million (US$ 229,095) as
the purchase price was less than the fair value of the net assets acquired. The
negative goodwill was set-off against certain non-current, non-monetary assets.
The acquisition also resulted in an increase in employee and administration
expenses in fiscal 1998 because we were required to record various non-interest
expenses and costs of ITC Classic Finance from the effective date of
acquisition.
Effective April 1, 1996, ICICI acquired SCICI Limited, a diversified
financial institution in which ICICI had an existing 19.9% equity interest.
ICICI acquired SCICI principally to benefit from the scale efficiencies of
being a larger entity. The assets of SCICI amounted to Rs. 50.4 billion (US$
1.2 billion), approximately 16.8% of our total assets at year-end fiscal 1996.
The business combination was accounted for by the purchase method and
accordingly the consolidated financial statements for fiscal 1997, 1998, 1999
and 2000 include the results of operations of SCICI. The business combination
resulted in negative goodwill of Rs. 3.1 billion (US$ 71 million) as the
purchase price was less than the fair value of the net assets acquired. Of this
amount, Rs. 0.6 billion (US$ 13 million) was set-off against certain property
and equipment and Rs. 2.5 billion (US$ 58 million) is being accrued to income
over a period of 10 years. This acquisition resulted in a Rs. 253 million (US$
6 million) increase in income for fiscal 1997, 1998, 1999 and 2000. In
addition, in fiscal 1998, income of Rs. 242 million (US$ 6 million) was accrued
from the sale of SCICI's headquarters building in Mumbai.
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<PAGE>
Effect of Other Specific Items
In addition to the effect of the acquisitions described above, income for
fiscal 1998 included an income before tax of Rs. 1.4 billion (US$ 32 million)
comprising Rs. 0.9 billion (US$ 21 million) on the sale of a 25.8% equity
interest in ICICI Bank and Rs. 0.5 billion (US$ 11 million) on the sale of
certain premises for rationalization of premises. ICICI sold 25.8% of its
equity interest in ICICI Bank in August 1997 because of a condition imposed by
the Reserve Bank of India in 1994 when ICICI Bank was established. The Reserve
Bank of India imposed similar conditions on sponsors of all new private sector
banks. In fiscal 1999, there was also an extraordinary gain of Rs. 292 million
(US$ 7 million), net of tax, from the extinguishment of debt as we repurchased
some of our outstanding foreign currency bonds. The substantial widening of
spreads on debt securities of corporations from emerging markets due to
turbulence in international foreign currency markets created a suitable
opportunity for us to use our surplus cash balances to repurchase our foreign
currency bonds at significant discounts. Income for fiscal 2000 includes income
before tax of Rs. 212 million (US$ 5 million) on the sale of certain premises
and Rs. 249 million (US$ 6 million), net of tax, on account of the cumulative
effect of a change in the method of accounting for depreciation on property and
equipment.
Total Effect of Specific Items
In aggregate, the Specific Items increased net income for fiscal 1997 by
Rs. 207 million (US$ 5 million), net income for fiscal 1998 by Rs. 1.7 billion
(US$ 38 million), net income for fiscal 1999 by Rs. 349 million (US$ 8 million)
and net income for fiscal 2000 by Rs. 476 million (US$ 11 million).
Results of Operations
Summary Fiscal 2000 to Fiscal 1999
Net income was Rs. 9.3 billion (US$ 214 million) in fiscal 2000,
representing an increase of 24.1% from Rs. 7.5 billion (US$ 172 million) in
fiscal 1999. Excluding the Specific Items, net income was Rs. 8.9 billion (US$
203 million) in fiscal 2000, representing an increase of 23.5% from Rs. 7.2
billion (US$ 164 million) in fiscal 1999. The return on average assets for
fiscal 2000 was 1.32% compared to 1.31% in fiscal 1999. The return on average
stockholders' equity declined to 16.88% in fiscal 2000 compared to 20.89% in
fiscal 1999, primarily due to new capital being raised during the year which
was available only for a part of the year and hence could not be fully
leveraged. Excluding the effect of the Specific Items, the return on average
assets in fiscal 2000 would have been the same at 1.25% as in fiscal 1999 and
the return on average stockholders' equity would have been 16.02% in fiscal
2000 compared to 19.92% in fiscal 1999.
o Net interest revenue decreased 4.0% to Rs. 11.9 billion (US$ 273
million) in fiscal 2000 from Rs. 12.4 billion (US$ 285 million) in
fiscal 1999 reflecting mainly the following factors:
- a 29.5% increase in the average volume of interest-earning rupee
assets to Rs. 497.4 billion (US$ 11.4 billion);
- a 0.8 % decrease in the average volume of interest-earning
foreign currency assets to Rs. 115.5 billion (US$ 2.6 billion);
- a 64 basis point decrease in our rupee spread to 1.46%; and
- a 65 basis point decrease in our foreign currency spread to
1.91%.
97
<PAGE>
o The spread decreased 67 basis points to 1.41% in fiscal 2000 from
2.08% in fiscal 1999 and net interest margin decreased to 1.95% in
fiscal 2000 from 2.48% in fiscal 1999. This was primarily due to our
continued focus on lower risk loans to highly-rated clients that
resulted in lower credit spreads and an increase in cash and cash
equivalent balances which earn lower yields. Further, an increase in
non-performing loans also lowered our spread.
o Gross non-performing loans increased by 18.2% to Rs. 69.1 billion
(US$ 1.6 billion) at year end fiscal 2000 over the level at year end
fiscal 1999, primarily due to an increase in the gross non-performing
loans in the textiles, paper and paper products, man-made fibers,
electrical equipment, basic chemicals and iron and steel industries.
As a percentage of net loans, net non-performing loans were 6.23% at
year-end fiscal 2000 compared to 6.29% at year-end fiscal 1999.
o Non-interest revenue increased by 80.1% in fiscal 2000 to Rs. 9.7
billion (US$ 222 million), from Rs.5.4 billion (US$ 123 million)
primarily due to an increase in trading account revenue and income
from securities transactions.
o As a result of the increase in non-performing loans, the provisions
for credit losses during fiscal 2000 increased 4.9% to Rs. 6.4
billion (US$ 146 million) from Rs. 6.1 billion (US$ 139 million) in
fiscal 1999.
o Excluding the effect of the Specific Items:
- Income before taxes and provisions for credit losses would have
increased 19.3% to Rs. 17.2 billion (US$ 394 billion) in fiscal
2000 from Rs. 14.4 billion (US$ 330 million) in fiscal 1999.
- Non-interest revenue would have increased 79.9% to Rs. 9.2
billion (US$ 211 million) in fiscal 2000 from Rs. 5.1 billion
(US$ 117 million) in fiscal 1999, primarily due to increases in
trading account revenue and income from securities transactions.
- Non-interest expense would have increased 41.8 % to Rs. 5.1
billion (US$ 117 million) in fiscal 2000 from Rs. 3.6 billion
(US$ 83 million) in fiscal 1999, primarily due to increases in
employee expenses, administration and other expense and premises
and equipment expense.
o Total assets increased 19.5% to Rs. 780.7 billion (US$ 17.9 billion)
at year-end fiscal 2000 from Rs. 653.3 billion (US$ 15.0 billion) at
year-end fiscal 1999.
o ICICI's total capital adequacy ratio, computed in accordance with the
Reserve Bank of India guidelines and based on ICICI's unconsolidated
financial statements prepared in accordance with Indian GAAP, was
17.22% at year-end fiscal 2000. The Tier 1 capital adequacy ratio was
11.48% and the Tier 2 capital adequacy ratio was 5.74% at year-end
fiscal 2000. Our total capital adequacy ratio, computed under the
applicable Reserve Bank of India guidelines and based on our
consolidated financial statements prepared in accordance with US
GAAP, was 15.80% at year-end fiscal 2000. Using the same basis for
calculation, the Tier 1 capital adequacy ratio was 10.53% and the
Tier 2 capital adequacy ratio was 5.27% at year-end fiscal 2000.
98
<PAGE>
Summary Fiscal 1999 compared to Fiscal 1998
Net income was Rs. 7.5 billion (US$ 172 million) in fiscal 1999,
representing a decrease of 14.5% from Rs. 8.8 billion (US$ 201 million) in
fiscal 1998. Excluding the Specific Items, net income was Rs. 7.2 billion (US$
164 million) in fiscal 1999, virtually at the same level as in fiscal 1998. The
return on average assets was 1.31% in fiscal 1999 compared to 2.02% in fiscal
1998 and the return on average stockholders' equity was 20.89% in fiscal 1999
compared to 27.73% in fiscal 1998. Excluding the effect of the Specific Items,
the return on average assets would have been 1.25% in fiscal 1999 compared to
1.64% in fiscal 1998 and the return on average stockholders' equity would have
been 19.92% in fiscal 1999 compared to 22.45% in fiscal 1998.
o Net interest revenue increased 4.0% to Rs. 12.4 billion (US$ 285
million) in fiscal 1999 from Rs. 12.0 billion (US$ 274 million) in
fiscal 1998 reflecting mainly the following factors:
- a 41.1% increase in the average volume of interest-earning rupee
assets to Rs. 384.0 billion (US$ 8.8 billion);
- a 22.0% increase in the average volume of interest-earning
foreign currency assets to Rs. 116.4 billion (US$ 2.7 billion);
- a 66 basis point decrease in our rupee spread to 2.10%; and
- a 25 basis point decrease in our foreign currency spread to
2.56%.
o The spread decreased 81 basis points to 2.08% in fiscal 1999 from
2.89% in fiscal 1998 and net interest margin decreased to 2.48% in
fiscal 1999 from 3.25% in fiscal 1998. This was primarily due to our
continued focus on lower risk loans to highly-rated clients that
resulted in lower credit spreads and an increase in cash and cash
equivalent balances which earn lower yields. Further, an increase in
non-performing loans also lowered our spread.
o Gross non-performing loans increased 29.6% to Rs. 58.5 billion (US$
1.3 million) in fiscal 1999 over the level in fiscal 1998, primarily
due to an increase in the gross non-performing loans in the plastics,
metal products, basic chemicals and iron and steel industries. As a
percentage of net loans, net non-performing loans increased to 6.29%
at year-end fiscal 1999 from 6.01% at year-end fiscal 1998.
o As a result of the increase in non-performing loans, the provisions
for credit losses during fiscal 1999 increased 27.2% to Rs. 6.1
billion (US$ 139 million) from Rs. 4.8 billion (US$ 109 million) in
fiscal 1998.
o Excluding the effect of the Specific Items:
- Income before taxes and provisions for credit losses would have
increased 10.4% to Rs. 14.4 billion (US$ 330 million) in fiscal
1999 from Rs. 13.1 billion (US$ 299 million) in fiscal 1998.
- Non-interest revenue would have increased 51.7% to Rs. 5.1
billion (US$ 117 million) in fiscal 1999 from Rs. 3.4 billion
(US$ 77 million) in fiscal 1998, primarily due to increases in
income from fees, commission and brokerage and income from
foreign exchange transactions.
99
<PAGE>
- Non-interest expense would have increased 34.3% to Rs. 3.6
billion (US$ 83 million) from Rs. 2.7 billion (US$ 62 million)
in fiscal 1998, primarily due to increases in administration and
other expense and premises and equipment expense.
o Total assets increased 33.4% to Rs. 653.3 billion (US$ 15.0 billion)
at year-end fiscal 1999 from Rs. 489.8 billion (US$ 11.2 billion) at
year-end fiscal 1998.
o ICICI's total capital adequacy ratio, computed in accordance with the
Reserve Bank of India guidelines and based on ICICI's unconsolidated
financial statements prepared in accordance with Indian GAAP, was
12.46% at year-end fiscal 1999. The Tier 1 capital adequacy ratio was
8.25% and the Tier 2 capital adequacy ratio was 4.21% at year-end
fiscal 1999. Our total capital adequacy ratio, computed under the
applicable Reserve Bank of India guidelines and based on our
consolidated financial statements prepared in accordance with US
GAAP, was 9.38% at year-end fiscal 1999. Using the same basis for
calculation, the Tier 1 capital adequacy ratio was 6.20% and the Tier
2 capital adequacy ratio was 3.18% at year-end fiscal 1999.
Average Balance Sheet
The average balance is the average of quarterly balances outstanding. The
amortized portion of loan origination fees (net of loan origination costs) is
included in interest revenue on loans, representing an adjustment to the yield.
The average yield on average interest-earning assets is the ratio of interest
revenue to average interest-earning assets. The average cost on average
interest-bearing liabilities is the ratio of interest expense to average
interest-bearing liabilities. The average balances of loans include
non-performing loans and are net of allowance for credit losses that have been
allocated on a pro-rata basis to rupee loans and foreign currency loans, based
on the proportion of non-performing rupee loans and non-performing foreign
currency loans. We have not recalculated tax-exempt income on a tax-equivalent
basis because we believe that the effect of doing so would not be significant.
Total interest revenue also includes other interest revenue which is primarily
interest on refund of income tax.
The following table sets forth, for the periods indicated, the average
balances of our assets and liabilities outstanding, which are major components
of interest revenue, interest expense and net interest margin.
100
<PAGE>
<TABLE>
Year ended March 31,
--------------------------------------------------------------------------------------
1997 1998
--------------------------------------------------------------------------------------
Interest Average Interest Average
Average revenue/ yield/ Average revenue/ yield/
balance expense cost balance expense cost
--------------------------------------------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash, cash equivalents and
trading assets:
Rupee ............................ Rs. 9,378 Rs. 1,206 12.86% Rs. 15,587 Rs. 2,227 14.29%
Foreign currency ................. 12,438 621 4.99 15,858 903 5.69
--------------------------- ---------------------------
Total cash, cash equivalents and
trading assets ................... 21,816 1,827 8.37 31,445 3,130 9.95
Securities--debt:
Rupee ............................ 3,192 424 13.28 1,736 182 10.48
Foreign currency ................. -- -- -- -- -- --
--------------------------- ---------------------------
Total securities--debt ............. 3,192 424 13.28 1,736 182 10.48
Loans, net:
Rupee ............................ 183,648 32,688 17.80 254,907 42,905 16.83
Foreign currency ................. 65,825 6,472 9.83 79,558 7,908 9.94
--------------------------- ---------------------------
Total loans, net ................... 249,473 39,160 15.70 334,465 50,813 15.19
Other interest income 153 262
Interest-earning assets:
Rupee ............................ 196,218 34,471 17.57 272,230 45,576 16.74
Foreign currency ................. 78,263 7,093 9.06 95,416 8,811 9.23
--------------------------- ---------------------------
Total interest-earning assets ...... 274,481 41,564 15.14 367,646 54,387 14.79
Securities--equity:
Rupee ............................ 18,768 800 4.26 13,532 553 4.09
Foreign currency ................. -- -- -- -- -- --
--------------------------- ---------------------------
Total securities--equity ........... 18,768 800 4.26 13,532 553 4.09
Earning assets:
Rupee ............................ 214,986 35,271 16.41 285,762 46,129 16.14
Foreign currency ................. 78,263 7,093 9.06 95,416 8,811 9.23
--------------------------- ---------------------------
Total earning assets ............... 293,249 42,364 14.45 381,178 54,940 14.41
Cash and cash equivalents .......... 2,494 4,402
Acceptances ........................ 7,908 7,694
Property and equipment ............. 4,658 7,168
Other assets ....................... 35,326 34,428
----------- -----------
Total non-earning assets ........... 50,386 53,692
--------------------------- ---------------------------
Total assets ....................... Rs. 343,635 Rs. 42,364 Rs. 434,870 Rs. 54,940
=========================== ===========================
</TABLE>
101
<PAGE>
<TABLE>
Year ended March 31,
--------------------------------------------------------------------------------------
1999 2000
--------------------------------------------------------------------------------------
Interest Average Interest Average
Average revenue/ yield/ Average revenue/ yield/
balance expense cost balance expense cost
--------------------------------------------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash, cash equivalents and
trading assets:
Rupee ........................... Rs. 36,600 Rs. 4,891 13.36% Rs. 61,375 Rs. 7,530 12.27%
Foreign currency ................ 30,505 1,635 5.36 33,360 1,418 4.25
--------------------------- ---------------------------
Total cash, cash equivalents and 9.45
trading assets .................. 67,105 6,526 9.73 94,735 8,948
Securities--debt:
Rupee ........................... 2,568 245 9.54 4,295 388 9.03
Foreign currency ................ -- -- -- -- -- --
--------------------------- ---------------------------
Total securities--debt ............ 2,568 245 9.54 4,295 388 9.03
Loans, net:
Rupee ........................... 344,862 54,906 15.92 431,757 62,510 14.48
Foreign currency ................ 85,908 8,409 9.79 82,108 7,321 8.92
--------------------------- ---------------------------
Total loans, net .................. 430,770 63,315 14.70 513,865 69,831 13.59
Other interest income 328 158
Interest-earning assets:
Rupee ........................... 384,030 60,370 15.72 497,427 70,586 14.19
Foreign currency ................ 116,413 10,044 8.63 115,468 8,739 7.57
--------------------------- ---------------------------
Total interest-earning assets ..... 500,443 70,414 14.07 612,895 79,325 12.94
Securities--equity:
Rupee ........................... 12,809 676 5.28 14,420 1,502 10.42
Foreign currency ................ -- -- -- -- -- --
--------------------------- ---------------------------
Total securities--equity .......... 12,809 676 5.28 14,420 1,502 10.42
Earning assets:
Rupee ........................... 396,839 61,046 15.38 511,847 72,088 14.08
Foreign currency ................ 116,413 10,044 8.63 115,468 8,739 7.57
--------------------------- ---------------------------
Total earning assets .............. 513,252 71,090 13.85 627,315 80,827 12.88
Cash and cash equivalents ......... 8,712 16,646
Acceptances ....................... 6,715 11,224
Property and equipment ............ 7,097 9,354
Other assets ...................... 38,959 44,088
----------- ----------
Total non-earning assets .......... 61,483 81,312
--------------------------- ---------------------------
Total assets ...................... Rs. 574,735 Rs. 71,090 Rs. 708,627 Rs. 80,827
=========================== ===========================
</TABLE>
102
<PAGE>
<TABLE>
Year ended March 31,
--------------------------------------------------------------------------------------
1997 1998
--------------------------------------------------------------------------------------
Interest Average Interest Average
Average revenue/ yield/ Average revenue/ yield/
balance expense cost balance expense cost
--------------------------------------------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Liabilities:
Savings account deposits:
Rupee ............................ Rs. 317 Rs. 10 3.15% Rs. 832 Rs. 28 3.37%
Foreign currency ................. -- -- -- -- -- --
--------------------------- ---------------------------
Total savings account
deposits ......................... 317 10 3.15 832 28 3.37
Time deposits:
Rupee ............................ 6,640 879 13.24 14,607 1,436 9.83
Foreign currency ................. 280 17 6.07 728 44 6.04
--------------------------- ---------------------------
Total time deposits ................ 6,920 896 12.95 15,335 1,480 9.65
Long-term debt:
Rupee ............................ 164,627 24,774 15.05 214,448 31,801 14.83
Foreign currency ................. 86,753 5,301 6.11 97,153 6,238 6.42
--------------------------- ---------------------------
Total long-term debt ............... 251,380 30,075 11.96 311,601 38,039 12.21
Redeemable preferred
stock ............................ 870 113 12.99 1,311 142 10.83
Trading account and other
Liabilities:
Rupee ............................ 19,879 2,144 10.79 27,410 2,742 10.00
Foreign currency ................. -- -- -- -- -- --
--------------------------- ---------------------------
Total trading account and
other liabilities. ............... 19,879 2,144 10.79 27,410 2,742 10.00
Interest-bearing liabilities:
Rupee ............................ 192,333 27,920 14.52 258,608 36,149 13.98
Foreign currency ................. 87,033 5,318 6.11 97,881 6,282 6.42
--------------------------- ---------------------------
Total interest-bearing
liabilities ...................... 279,366 33,238 11.90 356,489 42,431 11.90
Non-interest-bearing
Deposits:
Rupee ............................ 1,414 4,164
Foreign currency ................. 34 39
----------- ------------
Total non-interest-bearing
deposits ......................... 1,448 4,203
Other liabilities .................. 37,305 42,476
----------- ------------
Total non-interest-bearing
liabilities ...................... 38,753 46,679
--------------------------- ----------------------------
Total liabilities .................. Rs. 318,119 Rs. 33,238 Rs. 403,168 Rs. 42,431
=========================== ============================
Stockholders' equity ............... Rs. 25,516 Rs. 31,702
----------- ------------
Total liabilities and
stockholders' equity ............. Rs. 343,635 Rs. 434,870
=========== ============
</TABLE>
103
<PAGE>
<TABLE>
Year ended March 31,
--------------------------------------------------------------------------------------
1999 2000
--------------------------------------------------------------------------------------
Interest Average Interest Average
Average revenue/ yield/ Average revenue/ yield/
balance expense cost balance expense cost
--------------------------------------------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Liabilities:
Savings account deposits:
Rupee ............................ Rs. 1,633 Rs. 53 3.25% Rs. 3,530 Rs. 118 3.34%
Foreign currency ................. -- -- -- -- -- --
--------------------------- ----------------------------
Total savings account
Deposits ......................... 1,633 53 3.25 3,530 118 3.34
Time deposits:
Rupee ............................ 35,151 3,499 9.95 61,253 5,390 8.80
Foreign currency ................. 2,194 130 5.93 3,056 157 5.15
--------------------------- ----------------------------
Total time deposits ................ 37,345 3,629 9.72 64,309 5,547 8.63
Long-term debt:
Rupee ............................ 283,953 41,982 14.78 341,614 46,914 13.73
Foreign currency ................. 102,624 6,236 6.08 96,257 5,467 5.68
--------------------------- ----------------------------
Total long-term debt ............... 386,577 48,218 12.47 437,871 52,381 11.96
Redeemable preferred
stock ............................ 6,983 757 10.84 10,427 1,150 11.02
Trading account and other
liabilities:
Rupee ............................ 51,124 5,326 10.42 68,427 8,197 11.98
Foreign currency ................. -- -- -- -- -- --
--------------------------- ----------------------------
Total trading account and 68,427 11.98
other liabilities ................ 51,124 5,326 10.42 8,197
Interest-bearing liabilities:
Rupee ............................ 378,844 51,617 13.62 485,251 61,769 12.73
Foreign currency ................. 104,818 6,366 6.07 99,313 5,624 5.66
--------------------------- ----------------------------
Total interest-bearing
liabilities ...................... 483,662 57,983 11.99 584,564 67,393 11.53
Non-interest-bearing
deposits:
Rupee ............................ 4,287 7,180
Foreign currency ................. 143 263
----------- ------------
Total non-interest-bearing
deposits ......................... 4,430 7,443
Other liabilities .................. 50,658 61,348
----------- ------------
Total non-interest-bearing
liabilities ...................... 55,088 68,791
-------------------------- ----------------------------
Total liabilities .................. Rs. 538,750 Rs. 57,983 Rs. 653,355 Rs. 67,393
========================== ============================
Stockholders' equity ............... Rs. 35,985 Rs. 55,272
----------- ------------
Total liabilities and
stockholders' equity ............. Rs. 574,735 Rs. 708,627
=========== ============
</TABLE>
104
<PAGE>
Analysis of Changes in Interest Revenue and Interest Expense Volume and
Rate Analysis
The following table sets forth, for the periods indicated, the changes in
the components of our net interest revenue. The changes in net interest revenue
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.
<TABLE>
Fiscal 1998 vs. Fiscal 1997 Fiscal 1999 vs. Fiscal 1998
------------------------------------------------------------------------------
Increase (decrease) due to Increase (decrease) due to
------------------------------------------------------------------------------
Net Change in Change in Net Change in Change in
change average average change average average
volume rate volume rate
------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Interest revenue:
Cash, cash equivalents and trading assets:
Rupee ...................................... Rs. 1,021 Rs. 887 Rs. 134 Rs. 2,664 Rs. 2,808 Rs. (144)
Foreign currency ........................... 282 195 87 732 785 (53)
------------------------------------------------------------------------------
Total cash, cash equivalents and trading
assets ..................................... 1,303 1,082 221 3,396 3,593 (197)
Securities:
Rupee ...................................... (242) (153) (89) 63 79 (16)
Foreign currency ........................... -- -- -- -- -- --
------------------------------------------------------------------------------
Total securities ............................. (242) (153) (89) 63 79 (16)
Loans:
Rupee ...................................... 10,216 11,994 (1,778) 12,002 14,322 (2,320)
Foreign currency ........................... 1,436 1,365 71 501 622 (121)
------------------------------------------------------------------------------
Total loans .................................. 11,652 13,359 (1,707) 12,503 14,944 (2,441)
Other interest revenue ....................... 110 -- -- 65 -- --
------------------------------------------------------------------------------
Total interest revenue:
Rupee ...................................... 11,105 12,838 (1,733) 14,794 17,274 (2,480)
Foreign currency ........................... 1,718 1,560 158 1,233 1,407 (174)
------------------------------------------------------------------------------
Total interest revenue ....................... Rs. 12,823 Rs. 14,398 Rs. (1,575) Rs. 16,027 Rs. 18,681 Rs. (2,654)
==============================================================================
Interest expense:
Savings account deposits:
Rupee ...................................... Rs. 18 Rs. 17 Rs. 1 Rs. 26 Rs. 27 Rs. (1)
Foreign currency ........................... -- -- -- -- -- --
------------------------------------------------------------------------------
Total savings account deposits ............... 18 17 1 26 27 (1)
Time deposits:
Rupee ...................................... 557 783 (226) 2,063 2,045 18
Foreign currency ........................... 27 27 -- 86 87 (1)
------------------------------------------------------------------------------
Total time deposits .......................... 584 810 (226) 2,149 2,132 17
Long-term debt:
Rupee ...................................... 7,027 7,388 (361) 10,180 10,276 (96)
Foreign currency ........................... 937 668 269 (2) 332 (334)
------------------------------------------------------------------------------
Total long-term debt ......................... 7,964 8,056 (92) 10,178 10,608 (430)
Redeemable preferred stock(1) ................ 29 48 (19) 615 615 --
Trading account and other liabilities:
Rupee ...................................... 598 753 (155) 2,584 2,470 114
Foreign currency ........................... -- -- -- -- -- --
------------------------------------------------------------------------------
Total trading account and other liabilities .. 598 753 (155) 2,584 2,470 114
Total interest expense:
Rupee ...................................... 8,229 8,989 (760) 15,468 15,433 35
Foreign currency ........................... 964 695 269 84 419 (335)
------------------------------------------------------------------------------
Total interest expense ....................... Rs. 9,193 Rs. 9,684 Rs. (491) Rs. 15,552 Rs. 15,852 Rs. (300)
==============================================================================
Net interest revenue:
Rupee ...................................... Rs. 2,876 Rs. 3,849 Rs. (973) Rs. (674) Rs. 1,841 Rs. (2,515)
Foreign currency ........................... 754 865 (111) 1,149 988 161
------------------------------------------------------------------------------
Total net interest revenue ................... Rs. 3,630 Rs. 4,714 Rs. (1,084) Rs. 475 Rs. 2,829 Rs. (2,354)
==============================================================================
</TABLE>
105
<PAGE>
<TABLE>
Fiscal 2000 vs. Fiscal 1999
---------------------------------------
Increase (decrease) due to
---------------------------------------
Change in Change in
Net average average
change volume rate
---------------------------------------
(in millions)
<S> <C> <C> <C>
Interest revenue:
Cash, cash equivalents and trading
assets:
Rupee .................................... Rs. 2,639 Rs. 3,040 Rs. (401)
Foreign currency ......................... (217) 121 (338)
---------------------------------------
Total cash, cash equivalents and trading
assets ................................... 2,422 3,161 (739)
Securities:
Rupee .................................... 143 156 (13)
Foreign currency ......................... -- -- --
---------------------------------------
Total securities ........................... 143 156 (13)
Loans:
Rupee .................................... 7,604 12,581 (4,977)
Foreign currency ......................... (1,088) (339) (749)
---------------------------------------
Total loans ................................ 6,516 12,242 (5,726)
Other interest revenue ..................... (170) -- --
---------------------------------------
Total interest revenue:
Rupee .................................... 10,216 15,607 (5,391)
Foreign currency ......................... (1,305) (218) (1,087)
---------------------------------------
Total interest revenue ..................... Rs. 8,911 Rs. 15,389 Rs. (6,478)
=======================================
Interest expense:
Savings account deposits:
Rupee .................................... Rs. 65 Rs. 64 Rs. 1
Foreign currency ......................... -- -- --
---------------------------------------
Total savings account deposits ............. 65 64 1
Time deposits:
Rupee .................................... 1,891 2,297 (406)
Foreign currency ......................... 27 44 (17)
---------------------------------------
Total time deposits ........................ 1,918 2,341 (423)
Long-term debt:
Rupee .................................... 4,932 7,918 (2,986)
Foreign currency ......................... (769) (361) (408)
---------------------------------------
Total long-term debt ....................... 4,163 7,557 (3,394)
Redeemable preferred stock(1) .............. 393 380 13
Trading account and other liabilities:
Rupee .................................... 2,871 2,073 798
Foreign currency ......................... -- -- --
---------------------------------------
Total trading account and other liabilities. 2,871 2,073 798
Total interest expense:
Rupee .................................... 10,152 12,732 (2,580)
Foreign currency ......................... (742) (317) (425)
---------------------------------------
Total interest expense ..................... Rs. 9,410 Rs. 12,415 Rs. (3,005)
=======================================
Net interest revenue:
Rupee .................................... 64 2,875 (2,811)
Foreign currency ......................... (563) 99 (662)
---------------------------------------
Total net interest revenue ................. Rs. (499) Rs. 2,974 Rs. (3,473)
=======================================
</TABLE>
---------
(1) In line with the existing regulatory requirements in India, preferred
stock issued by us needs to be compulsorily redeemed within a specified
time period. Accordingly, all series of preferred issued by us are
redeemable in accordance with the terms of the issue.
106
<PAGE>
Yields, Spreads and Margins
The following table sets forth, for the periods indicated, the yields,
spreads and net interest margins on our interest-earning assets.
<TABLE>
Year ended March 31,
-----------------------------------------------------
1997 1998 1999 2000
-----------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C> <C>
Interest revenue .................................. Rs. 41,564 Rs. 54,387 Rs. 70,414 Rs. 79,325
Average interest-earning assets ................... 274,481 367,646 500,443 612,895
Interest expense .................................. 33,238 42,431 57,983 67,393
Average interest-bearing liabilities .............. 279,366 356,489 483,662 584,564
Average total assets .............................. 343,635 434,870 574,735 708,627
Average interest-earning assets as a percentage
of average total assets ......................... 79.9% 84.5% 87.1% 86.5%
Average interest-bearing liabilities as a
percentage of average total assets .............. 81.3 82.0 84.2 82.5
Average interest-earning assets as a percentage
of average interest-bearing liabilities ......... 98.3 103.1 103.5 104.8
Yield ............................................. 15.14 14.79 14.07 12.94
Rupee ........................................... 17.57 16.74 15.72 14.19
Foreign currency ................................ 9.06 9.23 8.63 7.57
Cost of funds ..................................... 11.90 11.90 11.99 11.53
Rupee ........................................... 14.52 13.98 13.62 12.73
Foreign currency ................................ 6.11 6.42 6.07 5.66
Spread(1) ......................................... 3.24 2.89 2.08 1.41
Rupee ........................................... 3.05 2.76 2.10 1.46
Foreign currency ................................ 2.95 2.81 2.56 1.91
Net interest margin(2) ............................ 3.03 3.25 2.48 1.95
Rupee ........................................... 3.34 3.46 2.28 1.77
Foreign currency ................................ 2.27 2.65 3.16 2.70
</TABLE>
---------
(1) 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 revenue to average
interest-earning assets. Cost of average interest-bearing liabilities is
the ratio of interest expense to average interest-bearing liabilities.
(2) Net interest margin is the ratio of net interest revenue 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 Revenue
The following table sets forth, for the periods indicated, the principal
components of our net interest revenue, excluding income from dividends.
<TABLE>
Year ended March 31,
-------------------------------------------------------------------------
1999/1998 2000/1999
1998 1999 % change 2000 % change
-------------------------------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Interest revenue ............ Rs. 54,387 Rs. 70,414 29.5% Rs. 79,325 US$ 1,817 12.7%
Interest expense ............ (42,431) (57,983) 36.7 (67,393) (1,544) 16.2
-------------------------- -------------------------
Net interest revenue ........ Rs. 11,956 Rs. 12,431 4.0 Rs. 11,932 US$ 273 (4.0)
========================== =========================
</TABLE>
107
<PAGE>
Fiscal 2000 compared to Fiscal 1999
Net interest revenue decreased 4.0% in fiscal 2000 compared to fiscal 1999
reflecting mainly the following:
o an increase of Rs. 113.4 billion (US$ 2.6 billion) or 29.5% in the
average volume of interest-earning rupee assets;
o a decrease of Rs. 0.9 billion (US$ 22 million) or 0.8% in the average
volume of interest-earning foreign currency assets;
o a decrease in our rupee spread to 1.46% in fiscal 2000 from 2.10% in
fiscal 1999; and
o a decrease in our foreign currency spread to 1.91% in fiscal 2000
from 2.56% in fiscal 1999.
The average volume of rupee loans increased by Rs. 86.9 billion (US$ 2.0
billion) or 25.2% to Rs. 431.8 billion (US$ 9.9 billion) in fiscal 2000 from
Rs. 344.9 billion (US$ 7.9 billion) in fiscal 1999. This was principally due to
increased disbursements of corporate finance loans and loans to the oil, gas
and petrochemicals sector in fiscal 2000. During fiscal 2000, we increased our
corporate finance loans through our increased offerings of customized products
to our clients. Disbursements of corporate finance increased as a percentage of
total disbursements to 70.2% in fiscal 2000 from 59.1% in fiscal 1999.
Disbursements of project loans to the manufacturing sector decreased as a
percentage of total disbursements to 14.5% in fiscal 2000 from 24.9% in fiscal
1999. The decrease in the average volume of foreign currency loans to Rs. 82.1
billion (US$ 1.9 billion) in fiscal 2000 from Rs. 85.9 billion (US$ 2.0
billion) in fiscal 1999 was primarily due to reduced demand from our customers.
The average volume of cash, cash equivalents and trading assets increased
41.2% in fiscal 2000 to Rs. 94.7 billion (US$ 2.2 billion) compared to fiscal
1999 primarily due to the 19.5% increase in our balance sheet size, higher cash
balances at ICICI Bank to meet reserve requirements resulting from a 62.5%
increase in deposits during fiscal 2000 and a higher level of trading assets
maintained to capitalize on the attractive market opportunities in fiscal 2000
on account of the decline in interest rates.
The spread decreased by 67 basis points to 1.41% in fiscal 2000 from 2.08%
in fiscal 1999 as our rupee spread decreased by 64 basis points and foreign
currency spread decreased by 65 basis points. Net interest revenue as a
percentage of average total assets declined less sharply by 47 basis points to
1.69% in fiscal 2000 from 2.16% in fiscal 1999. This was primarily due to the
increase in the average interest-earning assets as a percentage of average
interest bearing liabilities to 104.8% in fiscal 2000 from 103.5% in fiscal
1999.
The yield on interest-earning rupee assets decreased 153 basis points to
14.19% in fiscal 2000 from 15.72% in fiscal 1999 principally due to our
continued focus on lower risk corporate finance loans to highly-rated clients
resulting in lower credit spreads, a decrease in the average cost of our rupee
liabilities, an increase in cash balances which earn lower yields and an
increase in our non-performing rupee loans. The increase in non-performing
loans lowers our yield because interest on these loans does not continue to
accrue. The average cost of our rupee liabilities decreased 89 basis points to
12.73% in fiscal 2000 from 13.62% in fiscal 1999, primarily due to the lower
interest rates prevalent during fiscal 2000 and the increased proportion of
lower cost deposits of ICICI Bank in total interest-bearing rupee liabilities.
The average deposits as a percentage of average total liabilities and
stockholders' equity increased to 10.6% in fiscal 2000 from 7.6% in fiscal
1999. As a result of the foregoing, the rupee spread decreased 64 basis points
to 1.46% in fiscal 2000 from 2.10% in fiscal 1999.
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<PAGE>
Our foreign currency loans are primarily floating rate US dollar
LIBOR-linked loans. Yield on our interest-earning foreign currency assets
decreased 106 basis points to 7.57% in fiscal 2000 from 8.63% in fiscal 1999
principally due to our continued focus on lending to highly rated clients
resulting in lower credit spreads, a decrease in the cost of foreign currency
borrowings and an increase in our non-performing foreign currency loans. The
average cost of our foreign currency liabilities decreased 41 basis points to
5.66% in fiscal 2000 from 6.07% in fiscal 1999 mainly due to a decrease in the
cost of certain multilateral and bilateral borrowings and the benefit of
swapping foreign currency liabilities. The foreign currency spread decreased 65
basis points to 1.91% in fiscal 2000 from 2.56% in fiscal 1999.
Our net interest revenue is still primarily attributable to our industrial
financing activities. Commercial banking and investment banking, while growing
rapidly, still represent a very small proportion of total revenue. See note
16.1.7 to the consolidated financial statements. As a result, these segments do
not have a material impact on spreads and we do not expect this situation to
change in the near term.
Fiscal 1999 compared to Fiscal 1998
Net interest revenue increased 4.0% in fiscal 1999 compared to fiscal 1998
reflecting mainly the following:
o an increase of Rs. 111.8 billion (US$ 2.6 billion) or 41.1% in the
average volume of interest-earning rupee assets;
o an increase of Rs. 21.0 billion (US$ 0.5 billion) or 22.0% in the
average volume of interest-earning foreign currency assets;
o a decrease in our rupee spread to 2.10% in fiscal 1999 from 2.76% in
fiscal 1998; and
o a decrease in our foreign currency spread to 2.56% in fiscal 1999
from 2.81% in fiscal 1998.
The average volume of rupee loans increased by Rs. 90.0 billion (US$ 2.1
billion) or 35.3% to Rs. 344.9 billion (US$ 7.9 billion) in fiscal 1999 from
Rs. 254.9 billion (US$ 5.8 billion) in fiscal 1998. This was principally due to
increased disbursements of corporate finance loans in fiscal 1999.
Disbursements of project loans to the manufacturing sector decreased as a
percentage of total disbursements to 24.9% in fiscal 1999 from 33.1% in fiscal
1998. During fiscal 1999, we increased our funding to corporations primarily in
the oil exploration and production and oil distribution and marketing sectors.
We also increased our corporate finance loans through our increased offerings
of customized products to our clients. The increase of only 8.0% in the average
volume of foreign currency loans to Rs. 85.9 billion (US$ 2.0 billion) in
fiscal 1999 from Rs. 79.6 billion (US$ 1.8 billion) in fiscal 1998 was
primarily due to reduced demand from our customers due to uncertainty regarding
exchange rates.
The average volume of cash, cash equivalents and trading assets increased
113.4% in fiscal 1999 to Rs. 67.1 billion (US$ 1.5 billion) compared to fiscal
1998 primarily due to the 33.4% increase in our balance sheet size, higher cash
balances at ICICI Bank to meet reserve requirements resulting from a 144.6%
increase in deposits during fiscal 1999 and maintenance of higher cash balances
due to increased loan volumes. The increase in the volume of cash, cash
equivalents and trading assets also reflected an increase in foreign currency
cash balances arising from the fact that our assets on average had maturities
shorter than our liabilities. Thus, the increased cash balances reflect
principal and interest collections of foreign currency loans pending repayment
of our matched foreign currency liabilities. Increased foreign
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<PAGE>
currency cash balances resulted in a 22.0% growth in the average volume of
interest-earning foreign currency assets.
The spread decreased 81 basis points to 2.08% in fiscal 1999 from 2.89% in
fiscal 1998 primarily due to the decrease in our rupee spread. However, net
interest revenue as a percentage of average total assets declined less sharply
by 59 basis points to 2.16% in fiscal 1999 from 2.75% in fiscal 1998. This was
primarily due to the increase in average interest-earning assets as a
proportion of average total assets to 87.1% in fiscal 1999 from 84.5% in fiscal
1998 as we continued our focus on growing interest-earning assets and limiting
the growth in non-earning assets. However, this increase in average
interest-earning assets as a proportion of average total assets was not as
marked as in fiscal 1998 and was offset in large part by a corresponding
increase in the proportion of average interest-bearing liabilities.
The yield on interest-earning rupee assets decreased 102 basis points to
15.72% in fiscal 1999 from 16.74% in fiscal 1998 principally due to our
continued focus on lower risk corporate finance loans to highly-rated clients
resulting in lower credit spreads, a decrease in the average cost of our rupee
liabilities, an increase in cash balances which earn lower yields and an
increase in our non-performing rupee loans. The increase in non-performing
loans lowers our yield because interest on these loans does not continue to
accrue. The average cost of our rupee liabilities decreased 36 basis points to
13.62% in fiscal 1999 from 13.98% in fiscal 1998, primarily due to the
increased proportion of lower cost deposits of ICICI Bank in total
interest-bearing rupee liabilities. As a result of the foregoing, the rupee
spread decreased 66 basis points to 2.10% in fiscal 1999 from 2.76% in fiscal
1998.
Yield on our interest-earning foreign currency assets decreased 60 basis
points to 8.63% in fiscal 1999 from 9.23% in fiscal 1998 principally due to the
decrease in US dollar LIBOR rates during fiscal 1999 compared to fiscal 1998,
an increase in cash balances which earn lower yields and an increase in our
non-performing foreign currency loans. The average cost of our foreign currency
liabilities decreased 35 basis points to 6.07% in fiscal 1999 from 6.42% in
fiscal 1998. The foreign currency spread decreased 25 basis points to 2.56% in
fiscal 1999 from 2.81% in fiscal 1998.
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<PAGE>
Provisions for Credit Losses
The following table sets forth, for the periods indicated, certain
information regarding our non-performing loans.
<TABLE>
At March 31,
------------------------------------------------------------------------
1999/1998 2000/1999
1998 1999 % change 2000 % change
------------------------------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Gross non-performing loans ............ Rs. 45,123 Rs. 58,487 29.6% Rs. 69,120 US$ 1,584 18.2%
Allowance for credit losses ........... 22,457 28,524 27.0 34,085 781 19.5
Net non-performing loans .............. 22,666 29,963 37.2 35,035 803 16.9
Gross non-performing loans as a
percentage of gross loans ........... 11.29% 11.58% 11.59%
Net non-performing loans as a
percentage of net loans ............. 6.01 6.29 6.23
Allowance for credit losses as a
percentage of gross non-
performing loans .................... 49.77 48.77 49.31
Allowance for credit losses as a
percentage of gross loans ....... 5.62 5.65 5.71
</TABLE>
The following table sets forth, for the periods indicated, certain
information regarding our provisions for credit losses.
<TABLE>
At March 31,
------------------------------------------------------------------------
1999/1998 2000/1999
1998 1999 % change 2000 % change
------------------------------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Provisions for credit losses .......... Rs. 4,768 Rs. 6,067 27.2% Rs. 6,363 US$ 146 4.9%
Provisions for credit losses as
a percentage of net loans ........... 1.26% 1.27% 1.13%
Provisions for credit losses as a
percentage of average total assets .. 1.10 1.06 0.90
</TABLE>
For information on changes in the allowance for credit losses, see
"Business--Loan Portfolio--Allowance for Credit Losses".
Changes in our provisions reflect trends in the key sector in which we
operate. The manufacturing sector has been adversely impacted by several
factors, including a sharp decline in commodity prices until the end of fiscal
1999, which reduced profitability for certain of our borrowers, a slowdown in
industrial growth from 1997 to 1999, the restructuring of certain Indian
companies in sectors such as iron and steel and man-made fibers, and increased
competition arising from economic liberalization in India. The adverse impact
of these factors continued in fiscal 2000 as certain corporates have had to
restructure their operations to deal with the financial stress they had
encountered. However, in fiscal 2000, the global commodity markets showed an
uptrend and the Indian economy also improved compared to fiscal 1999. Against
this backdrop, we continued to follow an aggressive policy towards tackling
non-performing loans, including focused recovery efforts and a proactive
approach to problem cases. As a result, our non-performing loans increased at a
lower rate in fiscal 2000 compared to past years.
Gross non-performing loans increased 18.2% during fiscal 2000 to Rs. 69.1
billion (US$ 1.6 billion) at year-end fiscal 2000, primarily due to an increase
in non-performing loans in the textiles, paper and paper products, man-made
fibers, electrical equipment, basic chemicals and iron and steel industries.
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<PAGE>
As a percentage of net loans, net non-performing loans declined marginally to
6.23% at year-end fiscal 2000 from 6.29% at year-end fiscal 1999. Provisions
for credit losses in fiscal 2000 was Rs. 6.4 billion (US$ 146 million), an
increase of 4.9% over fiscal 1999. Our income before taxes and provisions,
excluding the effect of the Specific Items increased 19.3% to Rs. 17.2 billion
(US$ 394 million) in fiscal 2000 from Rs. 14.4 billion (US$ 330 million) in
fiscal 1999.
Gross non-performing loans increased 29.6% during fiscal 1999 to Rs. 58.5
billion (US$ 1.3 billion) at year-end fiscal 1999, primarily due to an increase
in non-performing loans in the plastics, metal products, basic chemicals and
iron and steel industries. As a percentage of net loans, net non-performing
loans increased to 6.29% at year-end fiscal 1999 from 6.01% at year-end fiscal
1998. Provisions for credit losses in fiscal 1999 was Rs. 6.1 billion (US$ 139
million), an increase of 27.2% over fiscal 1998. Our income before taxes and
provisions, excluding the effect of the Specific Items increased 10.4% to Rs.
14.4 billion (US$ 330 million) in fiscal 1999 from Rs. 13.1 billion (US$ 299
million) in fiscal 1998.
Management believes that several loans which became non-performing in
fiscal 1998, 1999 and 2000 are essentially to inherently viable projects. These
loans were classified as non-performing, following defaults in scheduled
payments or because interest or principal was doubtful of collection, primarily
due to stress on account of the global downtrend in the commodity prices
coupled with the rapid reduction in domestic trade barriers over the past few
years. Management expects credit losses in these loans to be lower due to the
viability of these projects. As a result, the coverage ratio decreased to
49.31% at year-end fiscal 2000 from 61.48% at year-end fiscal 1997. The
coverage ratio increased marginally to 49.31% at year-end fiscal 2000 from
48.77% at year-end fiscal 1999. The provisions for credit losses as a
percentage of average total assets declined to 0.90% in fiscal 2000 from 1.06%
in fiscal 1999 and 1.10% in fiscal 1998.
We conduct a comprehensive analysis of our entire loan portfolio on a
periodic basis (currently done on a quarterly basis). The analysis considers
both qualitative and quantitative criteria including the account conduct,
future prospects, repayment history, financial performance amongst others. This
comprehensive analysis includes an account by account analysis of our entire
corporate loan portfolio, and an allowance is made for any probable loss on
each account. For non-performing loans in excess of Rs. 100 million, which were
57.6% of the gross non-performing loan portfolio at year-end fiscal 2000, we
follow a detailed process for each loan as outlined in the prior sentence to
determine the allowance for credit losses to be provided. For the balance of
smaller loans in the non-performing loan portfolio, we follow the
classification detailed under "Business--Non-Performing Loans--Allowance for
Credit Losses" for determining the allowance for credit losses. Our loan
portfolio is composed largely of project finance loans where we have a security
interest and first lien on all the fixed assets and a second lien on all the
current assets of the borrower. We typically lend between 60.0% and 80.0% of
the appraised value of collateral. Hence, all our loans have historically been
sufficiently over-collateralized so that once collateral is realized, we
typically recover the full principal along with a small portion of interest
claims. However, the recoveries are subject to delays, that can be several
years, due to the long legal collection process in India. As a result, we make
an allowance for the loans based on the time value of money or the present
value of expected realizations of collateral, which takes into account the
delay we will experience before recovering our principal. The time to recovery,
expected future cash flows and realizable value for collateral value are
periodically reviewed in estimating the allowance.
Loans are identified as non-performing and placed on a non-accrual basis
when it is determined that either interest or principal is past due beyond
specific periods or that payment of interest or principal is doubtful of
collection. Any interest accrued (and not received) on impaired loans is
reversed and charged against current earnings. Interest is thereafter included
in earnings only to the extent actually
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<PAGE>
received in cash. Allowance for non-performing loans is calculated by comparing
the net present value of the expected cashflows discounted at the effective
interest rate of the loan and the carrying value of the loan. See
"Business--Non-Performing Loans--Allowance for Credit Losses" for a description
of our analysis of our loan portfolio.
We believe that the process for ascertaining allowance described above
adequately captures the expected losses on our entire loan portfolio and that
our current allowance for credit losses is sufficient to cover all currently
known credit losses in our existing portfolio. There can, however, be no
guarantee that non-performing loans will not increase and that the current
allowance for credit losses will be sufficient.
We do not expect changes in our business to change the nature of our
allowance in the near term. In the medium-term, as retail lending becomes a
significant proportion of our business, we will probably change the way we
calculate our allowance to incorporate the statistical methods for loan
impairment that are used by banks in developed countries in their retail
portfolios, including credit scoring and other methods designed to evaluate
consumer credit risk. See note 16.1.7 to our consolidated financial statements.
Non-Interest Revenue, Net
The following table sets forth, for the periods indicated, the principal
components of our non-interest revenue, net.
<TABLE>
Year ended March 31,
-------------------------------------------------------------------------
1999/1998 2000/1999
1998 1999 % change 2000 % change
-------------------------------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Fees, commission and brokerage .......... Rs. 2,156 Rs. 3,464 60.7% Rs. 4,263 US$ 98 23.1%
Trading account revenue(1) .............. 673 476 (29.3) 2,029 46 326.3
Securities transactions(2) .............. (69) 275 -- 2,363 54 759.3
Foreign exchange transactions(3) ........ 265 829 212.8 428 10 (48.4)
Specific Items:
Profit on the sale of a 25.8%
equity interest in ICICI Bank ....... 920 -- -- -- -- --
Profit on the sale of certain premises. 532 -- -- 212 5 --
Effect of business combinations ....... 495 253 (48.9) 253 6 --
Other revenue ........................... 353 82 (76.8) 139 3 69.5
----------------------- ----------------------
Total non-interest revenue, net ......... Rs. 5,325 Rs. 5,379 1.0 Rs. 9,687 US$ 222 80.1
======================= ======================
</TABLE>
---------
(1) Primarily reflects income from trading in government of India securities
and corporate debt securities.
(2) Primarily reflects capital gains realized on the sale of ICICI's long-term
equity securities and revenues from our investment banking subsidiary less
permanent diminution.
(3) Arises primarily from purchases and sales of foreign exchange on behalf of
our corporate clients.
Fiscal 2000 compared to Fiscal 1999
Non-interest revenue increased by 80.1% in fiscal 2000 to Rs. 9.7 billion
(US$ 222 million), primarily due to an increase in trading account revenue and
income from securities transactions. Excluding the effect of the Specific
Items, non-interest revenue as a percentage of average total assets increased
to 1.30% in fiscal 2000 from 0.89% in fiscal 1999.
The increase in fees, commission and brokerage income in fiscal 2000 was
primarily due to the increase in fees from loan syndication and fee income of
our commercial banking subsidiary and our
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<PAGE>
investment banking subsidiary. Increased marketing efforts through our Growth
Clients Group and Major Clients Group also helped us in increasing this income.
Trading account revenue primarily consists of income from trading in
government of India securities and corporate debt securities. Trading account
revenue in fiscal 2000 was significantly higher compared to fiscal 1999
primarily due to the increased revenues resulting from short-term market
opportunities created by the decrease in interest rates during fiscal 2000
together with a higher average volume of trading account assets (primarily
government of India securities and corporate debt securities). These type of
short-term market opportunities may not be available every year.
Income from securities transactions primarily reflects capital gains
realized on the sale of ICICI's long-term equity securities and revenues from
our investment banking subsidiary less other than temporary diminution. Income
from securities transactions increased significantly to Rs. 2.4 billion (US$ 54
million) in fiscal 2000 from Rs. 275 million (US$ 6 million) in fiscal 1999.
This was largely due to the buoyant capital market conditions in fiscal 2000
compared to the depressed capital market in fiscal 1999. ICICI was able to book
significant capital gains on its private equity portfolio because the market
price of capital stock, including those of certain companies whose project
implementation was completed, increased substantially during fiscal 2000. ICICI
also capitalized on the market opportunities to book capital gains by investing
in select initial public offerings of companies and mutual fund units.
Income from foreign exchange transactions principally reflects our
purchases and sales of foreign currency, primarily US dollars, on behalf of our
corporate clients. Our income from this activity decreased in fiscal 2000
primarily as a result of an absence of gains of Rs. 488 million (US$ 11
million) that were realized in fiscal 1999 by swapping rupee funds into US
dollars. A change in the Reserve Bank of India's regulation prohibited these
swaps in fiscal 2000.
Fiscal 1999 compared to Fiscal 1998
Non-interest revenue increased by only 1.0% in fiscal 1999 to Rs. 5.4
billion (US$ 123 million), primarily due to the inclusion of the Specific Items
in fiscal 1998. Excluding the effect of the Specific Items, non-interest
revenue in fiscal 1999 would have increased 51.7% to Rs. 5.1 billion (US$ 117
million) from Rs. 3.4 billion (US$ 77 million) in fiscal 1998, primarily due to
the 60.7% increase in income from fees, commission and brokerage and increase
in income from foreign exchange transactions. Excluding the effect of the
Specific Items, non-interest revenue as a percentage of average total assets
increased to 0.89% in fiscal 1999 from 0.78% in fiscal 1998 as we continued to
focus on increasing non-interest revenues to improve our profitability.
The increase in fees, commission and brokerage income in fiscal 1999 was
primarily due to the increase in project appraisal and loan processing fees.
Project appraisal and loan processing fees increased significantly to Rs. 1.7
billion (US$ 39 million) in fiscal 1999 from Rs. 345 million (US$ 8 million) in
fiscal 1998, principally due to our increased focus on developing fee-based
revenue through leveraging our project appraisal and structuring skills.
Commissions on guarantees increased 8.1% to Rs. 1,018 million (US$ 23 million)
in fiscal 1999 from Rs. 940 million (US$ 22 million) in fiscal 1998 due to a
5.2% increase in the volume of guarantees outstanding.
Trading account revenue, decreased 29.3% in fiscal 1999 compared to fiscal
1998. Trading account revenue in fiscal 1998 was significantly higher as we
were able to capitalize on the available market opportunities to earn greater
levels of profits in an environment where interest rates moved sharply during
short periods in the year. Further, trading account revenue in fiscal 1999
decreased due to
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<PAGE>
the effects of increased competition in the primary dealership business, where
our investment-banking subsidiary is a primary dealer for Indian government
securities.
Income from securities transactions primarily reflects capital gains
realized on the sale of ICICI's long-term equity securities and revenues from
our investment banking subsidiary less other than temporary diminution. Income
from securities transactions was Rs. 275 million (US$ 6 million) in fiscal 1999
compared to a loss of Rs. 69 million (US$ 2 million) in fiscal 1998 primarily
because our investment banking subsidiary, which had made a loss in fiscal
1998, made profits in fiscal 1999 and due to the higher level of other than
temporary diminution in our securities portfolio in fiscal 1998.
Income from foreign exchange transactions increased significantly in
fiscal 1999 as we realized gains of Rs. 488 million (US$ 11 million) by
capitalizing on opportunities in the US dollar forward markets. In order to
increase the yield on our cash balances, we swapped rupee funds into US dollars
at attractive rates and placed them in US dollar-denominated deposits for short
periods.
Non-Interest Expense
The following table sets forth, for the periods indicated, the principal
components of our non-interest expense.
<TABLE>
Year ended March 31,
-------------------------------------------------------------------------
1999/1998 2000/1999
1998 1999 % change 2000 % change
-------------------------------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Employee expense:
Salaries ......................... Rs. 682 Rs. 796 16.7% Rs. 1,386 US$ 32 74.1%
Employee benefits ................ 146 147 0.7 232 5 57.8
------------------------- ------------------------
Total employee expense ............. 828 943 13.9 1,618 37 71.6
Premises and equipment expense ..... 424 777 83.3 1,055 24 35.8
Amortization of goodwill ........... 0 187 -- 187 4 --
Administration and other expense ... 1,434 1,888 31.7 2,442 56 29.3
------------------------- ------------------------
Total non-interest expense ......... Rs. 2,686 Rs. 3,795 41.3 Rs. 5,302 US$ 121 39.7
========================= ========================
</TABLE>
Fiscal 2000 compared to Fiscal 1999
Non-interest expense increased 39.7% in fiscal 2000 to Rs. 5.3 billion
(US$ 121 million) from Rs. 3.8 billion (US$ 87 million) in fiscal 1999.
Excluding the effect of the Specific Items, non-interest expense as a
percentage of average total assets increased to 0.72% in fiscal 2000 from 0.63%
in fiscal 1999. Employee expenses increased 71.6% in fiscal 2000 principally
due to a 40.3% increase in number of employees and the cost of employee
termination under the Voluntary Retirement Scheme in fiscal 2000. The number of
employees increased 40.3% from 2,495 employees at year-end fiscal 1999 to 3,500
employees at year-end fiscal 2000 primarily due to our retail and technology
initiatives which made it vital for some of our subsidiaries to employ people
with requisite skills. ICICI successfully completed a Voluntary Retirement
Scheme in fiscal 2000 which was availed by 223 employees. The cost of employee
termination under this scheme was Rs. 299 million (US $ 7 million).
Premises and equipment expense increased 35.8% in fiscal 2000 compared to
fiscal 1999, primarily due to increased depreciation expenses for ICICI centers
and computer and computer software, higher expenses of ICICI Bank as a result
of the expansion of its branch network and increased expenses associated with
the acquisition of equipment for technology systems for ICICI Bank and ICICI
Infotech.
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<PAGE>
Administrative and other expenses increased 29.3% in fiscal 2000 compared
to fiscal 1999 primarily due to additional expenses resulting from payments to
consultants for strategic advisory services, an increase in registrar and
transfer agency fees, an increase in communication and computer expenses and
additional advertising expenses associated with building the ICICI brand name
and marketing our retail bonds.
Fiscal 1999 compared to Fiscal 1998
Non-interest expense increased 41.3% in fiscal 1999 to Rs. 3.8 billion
(US$ 87 million) from Rs. 2.7 billion (US$ 62 million) in fiscal 1998.
Excluding the effect of the Specific Items, non-interest expense would have
increased 34.3% to Rs. 3.6 billion (US$ 83 million) in fiscal 1999 from Rs. 2.7
billion (US$ 62 million) in fiscal 1998. Excluding the effect of the Specific
Items, non-interest expense as a percentage of average total assets increased
marginally to 0.63% in fiscal 1999 from 0.62% in fiscal 1998. Employee expenses
increased 13.9% in fiscal 1999 principally due to a 15.8% increase in the
number of employees to 2,495 at year-end fiscal 1999 from 2,155 at year-end
fiscal 1998 resulting from entry into new businesses, such as retail lending,
and the increase due to employee costs of Anagram Finance.
Premises and equipment expense increased 83.3% in fiscal 1999 compared to
fiscal 1998, primarily due to increased depreciation expenses for our new
headquarter building, higher expenses of ICICI Bank as a result of the
expansion of its branch network and increased expenses associated with the
acquisition of equipment for technology systems.
Administrative and other expenses increased 31.7% in fiscal 1999 compared
to fiscal 1998 primarily due to additional expenses resulting from the
acquisition of Anagram Finance, payments to consultants for strategic advisory
services, an increase in communication and computer expenses and additional
advertising expenses associated with building the ICICI brand name and
marketing our retail bonds. The increase in communication and computer expense
was a direct outcome of our strategy to enhance our competitive edge in the
Indian financial sector by seeking to acquire and install sophisticated
information technology systems.
Income Tax Expense
Income tax expense increased 70.3% in fiscal 2000 to Rs. 2.0 billion (US$
47 million) compared to Rs. 1.2 billion (US$ 27 million) in fiscal 1999 which
in turn decreased 17.4% from Rs. 1.4 billion (US$ 33 million) in fiscal 1998.
The effective tax rate was 18.3% in fiscal 2000 compared to 14.2% in fiscal
1999 and 14.1% in fiscal 1998. The higher effective tax rate in fiscal 2000 was
due to increased income of our commercial and investment banking subsidiaries
where the effective tax rate is higher than that of the parent company since
these entities do not enjoy the special tax benefits granted to the parent
company which is a long-term lending institution. The marginal rate of tax was
higher by 10.0% in fiscal 2000 compared to fiscal 1999 due to an additional
10.0% surcharge imposed on income tax.
Our effective tax rate was lower than the marginal tax rate of 35.0% in
fiscal 1998 and 1999 and 38.5% in fiscal 2000 generally applicable to companies
in India. Our effective tax rate was lower due to the special benefits granted
to ICICI as a long-term lending institution under the Indian Income-Tax Act,
1961 and the tax-free status of the profits from infrastructure financing. As a
long-term lending institution, ICICI is allowed a deduction of up to 40.0% of
its taxable income derived from the business of long-term financing. This
benefit is available on ICICI's income derived from loans of a maturity greater
than five years. However, prior to fiscal 1997, this benefit was available on
ICICI's income
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derived from long-term financing with no restriction of minimum maturity. We
cannot be sure that these tax benefits will not be changed further in the
future.
Financial Condition
Assets
The following table sets forth, for the periods indicated, the principal
components of our assets.
<TABLE>
At March 31,
-------------------------------------------------------------------------
1999/1998 2000/1999
1998 1999 % change 2000 % change
-------------------------------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents ......... Rs. 36,575 Rs. 62,123 69.9% Rs. 71,097 US$ 1,629 14.4%
Trading account assets(1) ......... 11,723 35,926 206.5 57,396 1,315 59.8
Securities(2) ..................... 14,582 15,041 3.1 18,871 432 25.5
Investments in affiliates ......... 278 244 (12.2) 264 6 8.2
Loans, net:
Rupee ........................... 306,732 414,295 35.1 502,865 11,520 21.4
Foreign currency ................ 92,909 90,581 (2.5) 93,640 2,145 3.4
Less: Allowances ................ (22,457) (28,524) 27.0 (34,085) (781) 19.5
Total loans, net .................. 377,184 476,352 26.3 562,420 12,885 18.1
Acceptances ....................... 8,314 8,773 5.5 12,333 283 40.6
Property and equipment ............ 6,457 7,950 23.1 11,775 270 48.1
Other assets ...................... 34,686 46,936 35.3 46,528 1,066 (0.9)
------------------------- -------------------------
Total assets ...................... Rs. 489,799 Rs. 653,345 33.4 Rs. 780,684 US$ 17,885 19.5
========================= =========================
</TABLE>
---------
(1) Primarily includes government of India securities and corporate debt
securities.
(2) Primarily includes equity securities.
Our assets increased 19.5% to Rs. 780.7 billion (US$ 17.9 billion) at
year-end fiscal 2000 from Rs. 653.4 billion (US$ 15.0 billion) at year-end
fiscal 1999. Net loans increased 18.1% in fiscal 2000 reflecting a 21.4%
increase in rupee loans and a 3.4% increase in foreign currency loans. The
increase in rupee loans was principally due to increased disbursements of
corporate finance loans, loans to the oil, gas and petrochemicals sector and
working capital finance in fiscal 2000. Disbursements to the manufacturing
sector remained high but decreased as a percentage of our total disbursements
to 14.5% in fiscal 2000 from 24.9% in fiscal 1999.The growth in cash, cash
equivalents and trading account assets was principally due to a 19.5% increase
in our balance sheet size, higher cash balances of ICICI Bank to meet increased
reserve requirements as a result of a 62.5% increase in deposits during fiscal
2000 and a higher level of trading account assets maintained to capitalize on
the attractive market opportunities resulting from a decrease in interest rates
in fiscal 2000.
Total assets increased 33.4% to Rs. 653.3 billion (US$ 15.0 billion) at
year-end fiscal 1999 from Rs. 489.8 billion (US$ 11.2 billion) at year-end
fiscal 1998 primarily due to a 26.3% increase in loans. The increase in loans
reflected increased disbursements of corporate finance loans and loans to the
oil, gas and petrochemicals sector in fiscal 1999, resulting in a 35.1%
increase in rupee loans. Disbursements to the manufacturing sector remained
high but decreased as a percentage of our total disbursements to 24.9% in
fiscal 1999 from 33.1% in fiscal 1998.The low demand from customers for foreign
currency funding due to uncertainty regarding foreign exchange rates was
reflected in the decline in our foreign currency loan balance. The high growth
in cash, cash equivalents and trading account assets was principally due to a
33.4% increase in our balance sheet size, a higher cash balance of ICICI Bank
to meet increased reserve requirements as a result of a 144.6% increase in
deposits during fiscal 1999 and
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<PAGE>
maintenance of higher cash balances due to increased loan volumes. Securities
increased only 3.1% during fiscal 1999 primarily due to our policy of
restricting our exposure to equity securities as we continued to focus on
credit products.
Liabilities and Stockholders' Equity
The following table sets forth, for the periods indicated, the principal
components of our liabilities and stockholders' equity.
<TABLE>
At March 31,
-------------------------------------------------------------------------
1999/1998 2000/1999
1998 1999 % change 2000 % change
-------------------------------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Deposits .......................... Rs. 29,295 Rs. 60,605 106.9% Rs. 96,682 US$ 2,215 59.5%
Trading account liabilities ....... 3,526 14,791 319.5 20,684 474 39.8
Acceptances ....................... 8,314 8,773 5.5 12,333 283 40.6
Long-term debt:
Rupee ........................... 246,005 338,228 37.5 345,658 7,919 2.2
Foreign currency ................ 101,951 100,212 (1.7) 93,504 2,142 (6.7)
------------------------- -------------------------
Total long-term debt .............. 347,956 438,440 26.0 439,162 10,061 0.2
Other liabilities ................. 53,091 72,589 36.7 114,779 2,630 58.1
Taxes and dividends payable ....... 9,928 9,966 0.4 11,631 266 16.7
Redeemable preferred stock(1) ..... 3,366 10,897 223.7 10,207 234 (6.3)
------------------------- -------------------------
Total liabilities ................. 455,476 616,061 35.3 705,478 16,162 14.5
Minority interest ................. 1,447 773 (46.6) 4,298 98 456.0
Stockholders' equity .............. 32,876 36,511 11.1 70,908 1,624 94.2
------------------------- -------------------------
Total liabilities and
stockholders' equity ............ Rs. 489,799 Rs. 653,345 33.4 Rs. 780,684 US$ 17,885 19.5
========================= =========================
</TABLE>
---------
(1) In line with the existing regulatory requirements in India, preferred
stock issued by us needs to be compulsorily redeemed within a specified
time period. Accordingly, all series of preferred issued by us are
redeemable in accordance with the terms of the issue.
Our long-term debt increased marginally by 0.2% to Rs. 439.2 billion (US$
10.1 billion) at year-end fiscal 2000 from Rs. 438.4 billion (US$ 10.0 billion)
at year-end fiscal 1999, reflecting a 2.2% increase in long-term rupee debt and
a decrease of 6.7% in long-term foreign currency debt. Deposits increased 59.5%
to Rs. 96.7 billion (US$ 2.2 billion) at year-end fiscal 2000 reflecting ICICI
Bank's success in raising funds through its expanded branch network. Deposits
as a percentage of our total liabilities increased to 13.7% at year-end fiscal
2000 from 9.8% at year-end fiscal 1999. Other liabilities increased 58.1%
during fiscal 2000 primarily due to an increase in short-term borrowings and a
higher amount of interest accrued but not due. Redeemable preferred stock
decreased 6.3% during fiscal 2000 to Rs.10.2 billion (US$ 234 million) as we
redeemed some preferred stock during fiscal 2000. Stockholders' equity
increased 94.2% during fiscal 2000 to Rs. 70.9 billion (US$ 1.6 billion) as we
raised fresh equity capital from existing Indian institutional shareholders,
other Indian shareholders and overseas investors through our ADS offering.
The increase of 26.0% in long-term debt to Rs. 438.4 billion (US$ 10.1
billion) at year-end fiscal 1999 from Rs. 347.9 billion (US$ 8.0 billion) at
year-end fiscal 1998 reflected a 37.5% increase in long-term rupee debt and a
marginal decrease of 1.7% in long-term foreign currency debt. Deposits
increased 106.9% to Rs. 60.6 billion (US$ 1.4 billion) at year-end fiscal 1999
as ICICI Bank expanded its branch network to increase its market share in total
deposits. Deposits as a percentage of our total liabilities increased to 9.8%
at year-end fiscal 1999 from 6.4% at year-end fiscal 1998. Other liabilities
increased 36.7% during fiscal 1999 primarily due to a higher amount of interest
accrued but not due and an increase
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in short-term borrowings. Redeemable preferred stock increased 223.7% during
fiscal 1998 to Rs. 10.9 billion (US$ 256 million) as we raised preferred stock
primarily of a maturity greater than five years to improve our Tier 2 capital
adequacy ratio.
Contingent Liabilities
As a part of our financing activities, we issue guarantees to enhance the
credit standing of our customers. The guarantees are generally for a period not
exceeding 10 years. The credit risk associated with these products, as well as
the operating risks, are similar to those in other loan products. We have the
same appraisal process, pricing methodology and collateral requirement for
guarantees as that for any other loan product. Guarantees increased 19.7% at
year-end fiscal 2000 compared to year-end fiscal 1999, which in turn increased
5.2% compared to year-end fiscal 1998. The increase in guarantees outstanding
in fiscal 2000 was primarily due to guarantees issued to projects in the
infrastructure sector and increase in guarantees issued by our commercial
banking subsidiary.
The following table sets forth, for the periods indicated, our guarantees
outstanding.
<TABLE>
At March 31,
-------------------------------------------------------------------------
1999/1998 2000/1999
1998 1999 % change 2000 % change
-------------------------------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Financial guarantees(1) ........... Rs. 36,393 Rs. 39,455 8.4% Rs. 46,253 US$ 1,060 17.2%
Performance guarantees(2) ......... 9,722 9,059 (6.8) 11,811 271 30.4
------------------------ ------------------------
Total guarantees .................. Rs. 46,115 Rs. 48,514 5.2 Rs. 58,064 US$ 1,331 19.7
======================== ========================
</TABLE>
---------
(1) Consists of instruments guaranteeing the timely contractual payment of
loan obligations, primarily to foreign lenders on behalf of project
companies.
(2) Consists of instruments guaranteeing the performance by a company of an
obligation, such as exports.
Foreign Exchange and Derivative Contracts
We enter into foreign exchange forwards, options, swaps and other
derivative products, which enable customers to transfer, modify or reduce their
foreign exchange and interest rate risks. In addition, we use foreign exchange
contracts and other instruments as a part of our own balance sheet and risk
management. These instruments are used to manage foreign exchange and interest
rate risk relating to specific groups of on-balance sheet assets and
liabilities.
The following table sets forth, for the periods indicated, the notional amount
of our derivative contracts.
<TABLE>
At March 31,
----------------------------------------------------------------------------
Notional principal amounts Balance sheet credit exposure(1)
----------------------------------------------------------------------------
1998 1999 2000 1998 1999 2000
------ ------ ------ ------ ------ ------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Interest rate products:
Swap agreements ................. Rs. 24,169 Rs. 28,731 Rs. 40,201 Rs. -- Rs. -- Rs. --
Others .......................... -- -- -- -- -- --
----------------------------------------------------------------------------
Total interest rate products ...... Rs. 24,169 Rs. 28,731 Rs. 40,201 Rs. -- Rs. -- Rs. --
============================================================================
Foreign exchange products:
Forward contracts ............... Rs. 33,609 Rs. 40,407 Rs. 104,514 Rs. 77 Rs. 425 Rs. 309
Swap agreements ................. 9,151 17,494 30,552 -- -- --
----------------------------------------------------------------------------
Total foreign exchange products ... Rs. 42,760 Rs. 57,901 Rs. 135,066 Rs. 77 Rs. 425 Rs. 309
============================================================================
</TABLE>
---------
(1) Denotes the mark-to-market impact of the derivative and foreign exchange
products on the reporting date.
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<PAGE>
Capital
ICICI and ICICI Bank are subject to the capital adequacy requirements of
the Reserve Bank of India, which are primarily based on the capital adequacy
accord reached by the Basle Committee of Banking Supervision, Bank of
International Settlements in 1988. For a detailed description of the Reserve
Bank of India's capital adequacy guidelines, see "Supervision and
Regulation--Capital Adequacy Requirements". ICICI and ICICI Bank are required
to maintain a minimum ratio of total capital to risk adjusted assets of 9.0%,
at least half of which must be Tier 1 capital. Both ICICI and ICICI Bank have
capital at levels well above the minimum requirement.
The following table sets forth, for the periods indicated, ICICI's
risk-based capital, risk-weighted assets and risk-based capital adequacy ratios
computed in accordance with the applicable Reserve Bank of India guidelines and
based on ICICI's unconsolidated financial statements prepared in accordance
with Indian GAAP.
<TABLE>
At March 31,
--------------------------------------------------------------------------
1999/1998 2000/1999
1998 1999 % change 2000 % change
--------------------------------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Tier 1 capital .................... Rs. 40,299 Rs. 46,997 16.6% Rs. 74,700 US$ 1,711 58.9%
Tier 2 capital .................... 19,469 24,017 23.4 37,350 856 55.5
---------------------------- --------------------------
Total capital ..................... Rs. 59,768 Rs. 71,014 18.8 Rs. 112,050 US$ 2,567 57.8
============================ ==========================
On-balance sheet risk weighted
assets .......................... Rs. 409,726 Rs. 515,970 25.9 Rs. 590,000 US$ 13,517 14.3
Off-balance sheet risk weighted
assets .......................... 49,104 53,912 9.8 60,818 1,393 12.8
---------------------------- --------------------------
Total risk weighted assets ........ Rs. 458,830 Rs. 569,882 24.2 Rs. 650,818 US$ 14,910 14.2
============================ ==========================
Tier 1 capital adequacy ratio(1) .. 8.78% 8.25% 11.48%
Tier 2 capital adequacy ratio(1) .. 4.24 4.21 5.74
---------------------------- --------------------------
Total capital adequacy ratio(1) ... 13.03% 12.46% 17.22%
============================ ==========================
</TABLE>
---------
(1) Our total capital adequacy ratio computed under the applicable Reserve
Bank of India guidelines and based on our consolidated financial
statements prepared in accordance with US GAAP was 15.80% at year-end
fiscal 2000. Using the same basis of computation, our Tier 1 capital
adequacy ratio was 10.53% and our Tier 2 capital adequacy ratio was 5.27%
at year-end fiscal 2000.
At March 31, 2000, ICICI's Tier 1 capital included Rs. 2.5 billion (US$ 57
million) out of the face value of Rs. 3.5 billion (US$ 80 million) of 20-year
non-cumulative preferred stock issued to ITC Classic Finance group companies as
a part of the scheme of acquisition of ITC Classic Finance by ICICI. This
preferred stock carries a negligible non-cumulative dividend of 0.001% per
annum. The Reserve Bank of India has allowed the inclusion of such preferred
stock in Tier 1 capital from April 1999, subject to the creation of a corpus to
be invested in government of India securities of equivalent maturity. At June
30, 2000, this corpus amount was Rs 1.0 billion (US$ 23 million).
Our banking subsidiary, ICICI Bank, also computes its capital adequacy
ratios in accordance with the Reserve Bank of India guidelines. ICICI Bank had
a total capital adequacy ratio of 13.5% at year-end fiscal 1998, 11.1% at
year-end fiscal 1999 and 19.6% at year-end fiscal 2000 with a Tier 1 capital
adequacy ratio of 13.4% at year-end fiscal 1998, 7.3% at year-end fiscal 1999
and 17.4% at year-end fiscal 2000.
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<PAGE>
Capital Expenditure
Our capital expenditure on property and equipment for fiscal 1998 was Rs.
4.3 billion (US$ 99 million), for fiscal 1999 was Rs. 3.6 billion (US$ 82
million) and for fiscal 2000 was Rs.2.7 billion (US$ 61 million). The
expenditure was primarily attributable to construction of our new office
premises, bank branches, substantial improvements to our existing offices which
we own or which we have taken on lease, significant upgradation of software
systems and capital investments in a state-of-the-art data centre.
Segment-wise Revenues and Assets
The varied banking and finance activities of ICICI are carried out by a
number of legal entities. Thus, while the parent company focuses primarily on
medium-term and long-term industrial financing, other activities such as
commercial banking, investment banking, retail distribution, broking and
venture capital activities are conducted by fully or majority owned
subsidiaries. Each subsidiary focuses on specific activities. Accordingly,
management has identified each of these legal entities as operating segments.
Based on business volumes, revenues, income and assets size, management
considers industrial financing, commercial banking and investment banking as
reportable segments. The segment-wise revenues and assets are discussed below.
Industrial Finance Segment
Our industrial finance segment engages in providing medium-term and
long-term project finance, corporate finance and lease finance to Indian
businesses and largely represents the activities of ICICI, the parent company.
Our industrial finance segment contributed 76.3% of the total net income
in fiscal 2000 compared to 91.6% in fiscal 1999. The decline in contribution to
net income is due to the significant increase in net income of the commercial
banking and investment banking segments. Net income was Rs. 7.1 billion (US$
163 million) in fiscal 2000, representing a 3.3% increase from Rs. 6.9 billion
(US$ 158 million) in fiscal 1999. Net income for fiscal 1999 includes an
extraordinary gain of Rs. 292 million (US$ 7 million), net of tax, from the
extinguishment of debt as we purchased some of our outstanding foreign currency
bonds. Net income for fiscal 2000 includes Rs. 249 million (US$ 6 million), net
of tax, on account of the effect of a change in the method of accounting for
depreciation on property and equipment. Excluding both these items, net income
would have increased 4.1% to Rs. 6.9 billion (US$ 157) in fiscal 2000 from Rs.
6.6 billion (US$ 151 million) in fiscal 1999.
Net interest revenue, including dividends, decreased 2.0% to Rs. 11.3
billion (US$ 258 million) in fiscal 2000 from Rs. 11.5 billion (US$ 263
million) in fiscal 1999. This was due to our continued focus on lower risk
loans to highly-rated clients that resulted in lower credit spreads. In
addition, an increase in non-performing loans also lowered our spread.
Non-interest revenue increased 54.5% to Rs. 6.4 billion (US$ 146 million)
in fiscal 2000 from Rs. 4.1 billion (US$ 95 million) in fiscal 1999 primarily
due to an increase in trading account revenue and income from securities
transaction as ICICI took advantage of the significant higher level of trading
opportunities available in fiscal 2000 and the buoyant capital market
conditions.
Provision for credit losses increased 6.4% to Rs. 5.8 billion (US$ 134
million) in fiscal 2000 from Rs. 5.5 billion (US$ 126 million) in fiscal 1999
primarily due to the increase in non-performing loans. Non-interest expense
increased 49.7% to Rs. 4.0 billion (US$ 93 million) in fiscal 2000 from Rs. 2.7
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<PAGE>
billion (US$ 62 million) in fiscal 1999 primarily due to an increase in
employee expense as a result of the cost of employee termination under the
voluntary retirement scheme, and an increase in the administrative cost largely
on account of increased technology and brand building expense.
Total assets increased 12.3% to Rs. 642.0 billion (US$ 14.7 billion) at
year-end fiscal 2000 from Rs. 571.6 billion (US$ 13.1 billion) at year-end
fiscal 1999. Total loans increased by 14.5% to Rs. 514.1 billion (US$ 11.8
billion) at year-end fiscal 2000 from Rs. 449.0 billion (US$ 10.3 billion) at
year-end fiscal 1999. Corporate finance loans increased 53.0% during fiscal
2000. Cash and cash equivalent balances decreased 19.9% to Rs. 35.3 billion
(US$ 809 million) in fiscal 2000 from Rs. 44.1 billion (US$ 1.0 billion) in
fiscal 1999 as ICICI increased its trading assets to take advantage of the
higher level of trading opportunities in fiscal 2000. Trading assets increased
25.8% to Rs.14.9 billion (US$ 340 million) in fiscal 2000 from Rs. 11.8 billion
(US$ 271 million) in fiscal 1999.
Commercial Banking Segment
Our commercial banking segment engages in corporate banking, retail
banking and treasury operations and represents the activities of ICICI Bank,
our 62.2% owned commercial banking subsidiary. ICICI Bank completed an initial
public offering in March 2000, representing approximately a 16.2% equity
interest. ICICI Bank's ADSs are listed on the New York Stock Exchange under the
symbol IBN. Additional information about ICICI Bank is available in its filings
with the Securities and Exchange Commission.
Our commercial banking segment contributed 15.0% of total net income in
fiscal 2000 compared to 8.0% in fiscal 1999. Net income was Rs. 1.4 billion
(US$ 32 million) in fiscal 2000 representing a 131.7% increase from Rs. 0.6
billion (US$ 14 million) in fiscal 1999.
Net interest revenue, including dividends, increased 46.2% to Rs. 1.8
billion (US$ 41 million) in fiscal 2000 from Rs. 1.2 billion (US$ 28 million)
in fiscal 1999, reflecting an increase in the average volume of
interest-earning assets, principally loans, offset, in part, by a decline in
spreads. The loan growth was largely due to an increase in the working capital
loans primarily to more highly rated larger corporate clients acquired through
the joint marketing efforts of our commercial banking segment with ICICI, the
parent company, through the Major Clients Group. Spreads decreased primarily
due to this shift towards loans to highly rated clients, which earn lower
yields.
Non-interest revenue increased 105.7% to Rs. 1.8 billion (US$ 40 million)
in fiscal 2000 from Rs. 0.9 billion (US$ 20 million) in fiscal 1999, primarily
due to an increase in trading account revenue due to the significantly higher
level of trading opportunities in fiscal 2000, and an increase in fees and
commissions.
Provision for credit losses decreased 8.2% to Rs. 427 million (US$ 10
million) in fiscal 2000 from Rs. 465 million (US$ 11 million) in fiscal 1999
primarily due to a reduction in the non-performing assets. Non-interest expense
increased 66.1% to Rs. 1.3 billion (US$ 30 million) in fiscal 2000 from Rs. 0.8
billion (US$ 18 million) in fiscal 1999 primarily due to a significant increase
in administrative and other expenses as a result of expansion of the branch
network and an increase in employee expenses as a result of increase in the
number of employees.
Total assets increased 75.5% to Rs. 130.4 billion (US$ 3.0 billion) at
year-end fiscal 2000 from Rs. 74.3 billion (US$ 1.7 million) at year-end fiscal
1999. Total loans increased 88.0% to Rs. 47.0 billion (US$ 1.1 billion) at
year-end fiscal 2000 from Rs. 25.0 billion (US$ 0.6 billion) at year-end fiscal
1999.
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<PAGE>
Cash and cash equivalent balances increased by 88.8% during fiscal 2000 and
trading assets increased 77.6% during fiscal 2000. Total deposits increased by
62.5% to Rs. 98.7 billion (US$ 2.3 billion) in fiscal 2000 from Rs. 60.7
billion (US$ 1.4 billion) in fiscal 1999.
Investment Banking Segment
Our investment banking segment engages in corporate advisory, fixed income
and equities trading and represents the activities of ICICI Securities, our
99.9% owned investment banking subsidiary.
Our investment banking segment contributed 8.3% of the total net income in
fiscal 2000 compared to 2.6% in fiscal 1999. Net income was Rs. 770 million
(US$ 18 million) in fiscal 2000 representing a 288.9% increase from Rs. 198
million (US$ 5 million) in fiscal 1999.
Net interest revenue, including dividends, increased 120.3% to Rs. 890
million (US$ 20 million) in fiscal 2000 from Rs. 404 million (US$ 9 million) in
fiscal 1999 primarily due to an increase in interest revenue and dividend on
trading assets.
Non-interest revenue increased 108.2% to Rs. 758 million (US$ 17 million)
in fiscal 2000 from Rs. 364 million (US$ 8 million) in fiscal 1999 primarily
due to an increase in fees and commissions and an increase in trading account
revenue. Trading account revenue in fiscal 2000 was significantly higher
compared to fiscal 1999 primarily due to the increased revenues resulting from
short-term market opportunities created by the decrease in interest rates
during fiscal 2000.
Provision for credit losses decreased 28.3% to Rs. 76 million (US$ 2
million) in fiscal 2000 from Rs. 106 million (US$ 2 million) in fiscal 1999
primarily due to a reduction in the non-performing assets. Non-interest
expenses increased 9.3% to Rs. 401 million (US$ 9 million) in fiscal 2000 from
Rs. 367 million (US$ 8 million) in fiscal 1999 primarily due to an increase in
administrative cost offset, in part, by a decrease in premise and equipment
expense.
Total assets increased 53.9% to Rs. 23.3 billion (US$ 533 million) at the
year-end fiscal 2000 from Rs. 15.1 billion (US$ 346 million) at year-end fiscal
1999. Cash and cash equivalent balances increased 75.6% during fiscal 2000 and
trading assets increased 66.6% during fiscal 2000.
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<PAGE>
MANAGEMENT
Directors and Executive Officers
ICICI's board of directors, which currently consists of 15 members, is
responsible for the management of ICICI's business. ICICI's organizational
documents provide for at least five and no more than 17 directors, excluding
the government director and debenture director (defined below), if any. ICICI
may, subject to the provisions of its organizational documents and the
Companies Act, change the minimum or maximum number of directors by a
resolution which is passed at a general meeting by a majority of 75.0% of the
present and voting shareholders.
The composition of ICICI's board of directors reflects the principal
shareholdings held by the government-controlled institutions, the terms of the
Indian government's credit and guarantee facilities and the wide public
ownership in India. Under the terms of the loan and guarantee facilities
provided to ICICI, the government of India is entitled to appoint and has
appointed one representative to ICICI's board, currently Mr. Devi Dayal. In
addition to the government-nominated director, ICICI has traditionally invited
a representative of the Ministry of Industry to be one of its directors,
currently Mr. Ajit Kumar. The government-controlled insurance companies that
are ICICI's largest shareholders, General Insurance Corporation of India and
its subsidiaries and Life Insurance Corporation of India, also each have a
representative on ICICI's board, currently Mr. Debadatta Sengupta and Mr.
Gnanasundaram Krishnamurthy, respectively. Of the remaining 11 directors, the
Chairman is the former executive chairman of ICICI, three are executive
directors, six are from a broad range of industrial companies and one is a
professor.
ICICI's organizational documents also provide that ICICI may execute trust
deeds securing its debentures under which the trustee or trustees may appoint a
director, known as a debenture director. This director is not subject to
retirement by rotation and may only be removed as provided in the relevant
trust deed. There is currently no debenture director.
ICICI's organizational documents further provide that the board of
directors may appoint members of the board as managing and other executive
directors for terms not exceeding five years. The board appointed Mr. K. V.
Kamath as Managing Director and Chief Executive Officer on May 1, 1996. The
other executive directors are Ms. Lalita D. Gupte, Joint Managing Director and
Chief Operating Officer, who was appointed by the board on June 24, 1994 and
then reappointed by the board on June 24, 1999, and Mr. S. H. Bhojani, Deputy
Managing Director, who was appointed by the board on April 22, 1996. The
current terms of office of these executive directors will expire on April 30,
2001, June 23, 2004 and April 21, 2001, respectively.
At least two-thirds of ICICI's total number of directors, excluding the
government director and the debenture director, are subject to retirement by
rotation. One-third of these directors must retire from office at each annual
meeting of shareholders. A retiring director is eligible for re-election.
Managing and other executive directors may serve more than one term.
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ICICI's board of directors at July 31, 2000 had the following members:
<TABLE>
-----------------------------------------------------------------------------------------------------------------------------------
Name, Designation Date of
And Profession Age Appointment Other Appointments
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mr. Narayanan Vaghul 63 September 6, 1985 Chairman
Chairman of the board of directors ICICI Knowledge Park Limited
Nandi Infrastructure Corridor Enterprises Limited
Profession : Development Banker Vice-Chairman
Intercommercial Bank, West Indies
Director
Air India Limited
ICICI International Limited, Mauritius
ICICI - West Bengal Infrastructure Development
Corporation Limited
Ispat International N.V., Rotterdam, Netherlands
Ispat Mexicana, S.A. de C.V., Mexico
Mahindra Industrial Park Limited
Mahindra & Mahindra Limited
Nicholas Piramal India Limited
Samcor Glass Limited
TCW/ICICI India Pvt. Equity AMP Fund L.L.C.,
Mauritius
TCW/ICICI India Pvt. Equity Fund L.L.C., Mauritius
TCW/ICICI Investment Partners L.L.C., Mauritius
Technology Network (India) Private Limited
Wipro Limited
Chairman of the Board of Governing Council
Indian Institute for Production Management, Kansbahal
Chairman of the Board of Governors
Institute for Financial Management and Research
Member of the Board of Governors
Administrative Staff College, Hyderabad
Member of the Governing Body
National Institute of Public Finance and Policy
Mr. Basant Kumar Jhawar 64 April 18, 1996 Chairman
Jhawar Social Medical Research Institute
Profession : Chairman, Usha Beltron Limited
Usha Beltron Limited Usha Siam Steel Industries Limited
Director
Orient Paper & Industries Limited
Reliance Chemotex Industries Limited
Usha Audiotel Limited
Usha Martin Infrastructure Services Limited
Committee Member
Indian Institute of Production Management
Jhawar Institute of Medicine
Usha Scientific Research Institute
Trustee
Hindustan Charity Trust
Kamala Devi Charity Trust
Krishi Gram Vikas Kendra
Krishna Devi Philanthrophical Trust
Usha Martin Education Training & Research Foundation
125
<PAGE>
-----------------------------------------------------------------------------------------------------------------------------------
Name, Designation Date of
And Profession Age Appointment Other Appointments
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mr. Ramaswamy Seshasayee 51 May 6, 1997 Managing Director
Chairman - Audit Committee Ashok Leyland Limited
Director
Profession : Managing Director AL Engines Private Ltd.
Ashok Leyland Limited Ashley Holdings Limited
Ashley Investments Limited
Ashok Leyland Finance Limited
Ennore Foundries Limited
Sundaram Newton Asset Management Company Limited
Dr. Rakesh Khurana 52 May 6, 1997 Chairman
Chairman - Share Transfer Committee Knowledge Network India Private Limited
- Systems and Technology Director
Committee Escort Investment Trust Company Limited
Fyne Foods Private Limited
Profession : Chairman ICICI Knowledge Park
Knowledge Network India Khurana Land Housing and Investment Company Private
Limited
Dr. Ashok S. Ganguly 64 May 6, 1997 Chairman
Chairman - Credit Committee ICI India Limited
ICICI West Bengal Infrastructure Development
Profession : Chairman Corporation Limited
ICI India Limited Intellectual Property Commission,
International Chamber of Commerce
Technology Network (India) Pvt. Limited
Director
British Airways Plc.
ICICI Knowledge Park
Mahindra & Mahindra Limited
Sedgwick Parekh Health Management (P) Limited
Wipro Limited
Mr. Gnanasundaram Krishnamurthy 59 August 1, 1998 Director
Profession : (Ex-Chairman) UTI Bank Limited
Life Insurance Corporation Poysha Industrial Company Limited
of India
Mr. Debadatta Sengupta 57 August 1, 1998 Chairman
General Insurance Corporation of India
Profession : Chairman GIC Housing Finance Limited
General Insurance GIC AMC Limited
Corporation of India Loss Prevention Association of India Limited
Indian International Insurance Pte. Limited, Singapore
Director
Export Credit Guarantee Corporation of India Limited
Indian Register of Shipping
Kenindia Assurance Company Limited, Nairobi
Life Insurance Corporation of India
President
Insurance Institute of India
Member of the Governing Body
National Insurance Academy
Member
Asian Reinsurance Corporation, Bangkok, Thailand
Tariff Advisory Committee
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<PAGE>
-----------------------------------------------------------------------------------------------------------------------------------
Name, Designation Date of
And Profession Age Appointment Other Appointments
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mr. N.R. Narayana Murthy 53 August 1, 1998 Chairman & CEO
Chairman - Board Governance Committee Infosys Technologies Limited
Director
Profession : Chairman & Chief Executive The India Growth Fund Inc.
Officer Videsh Sanchar Nigam Limited
Infosys Technologies Limited
Prof. Marti Gurunath Subrahmanyam 53 August 1, 1998 Director
Chairman - Investment Committee Aventine Investment Management Inc.
Deutsche Software (I) Limited
Profession : Professor Dextrous Fibres Limited
Stern School of Business Hindalco Industries Limited
New York University Indiaserver.com Inc.
Infosys Technologies Limited
Nippon Performance Fund Limited
Nomura Asset Management (U.S.A.) Inc.
RMAS Limited
Sanwa International Plc.
Speedmerchant.com Inc.
Usha Communications Inc.
Mr. Ajit Kumar 58 January 29, 1999 Director
Industrial Development Bank of India
Profession : Government service, Ministry of Export-Import Bank of India
Industry, Government of India
Mr. Lakshmi Niwas Mittal 49 April 1, 1999 Director
Artha Limited
Profession : Chief Executive Officer B4U Network (Europe) Limited
Ispat International N.V. Caribbean Communications Network
Limited
Caribbean Ispat Limited
Consorcio Minero Benito Juarez Pena
Colorada S.A. De C.V.
Dunmurray Company Unlimited
Galmatias Limited
Grupo Ispat International S.A. de C.V.
Inmobiliaria Sersiin S.A. de C.V.
Intercommercial Bank Limited
Irish Ispat Limited
Ispat Canada Inc.
Ispat Germany GmbH
Ispat Hamburger Stahlwerke GmbH
Ispat Inland Finance LLC
Ispat Inland Holdings Inc.
Ispat Inland Inc.
Ispat Inland L.P.
Ispat International Limited
Ispat International N.V.
Ispat International (U.K.) Limited
Ispat Karmet Antilles Holdings N.V.
Ispat Karmet Holdings B.V.
Ispat Karmet JSC
Ispat Mexicana S.A. de C.V.
127
<PAGE>
-----------------------------------------------------------------------------------------------------------------------------------
Name, Designation Date of
And Profession Age Appointment Other Appointments
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mr. Lakshmi Niwas Mittal (Continued) Ispat Shipping Limited
Ispat Sidbec Inc.
Ispat Stahlwerk Ruhrort GmbH
Ispat Unimetal
Ispat US Holdings B.V.
Ispat (US) Holdings Inc.
Ispat US Investments B.V.
Kent Wire (Ispat) Limited
LNM Capital Limited
LNM Holdings S.L.
LNM Internet Ventures Limited
Lucre Limited
Metique.Inc
Metique.com Limited
MLBS Holdings Limited
Nestor Limited
Nuav Limited
PT Ispat Indo
Roan Antelope Mining Corporation of Zambia PLC
Servicios Siderurgicos Integrados S.A. de C.V.
Tecvest Corporation N.V.
Tommyfield Limited
Trefileurope GmbH
Walker Wire (Ispat) Inc.
3019693 Nova Scotia ULC
9064-4816 Quebec Inc.
Mr. Devi Dayal 58 July 22, 1999 Director
Industrial Development Bank of India
Profession : Government service, Infrastructure Development Finance Company Limited
Ministry of Finance, National Bank for Agriculture and Rural Development
Government of India National Housing Bank
State Bank of India
Mr. Kundapur Vaman Kamath 52 October 12, 1995 Chairman
Managing Director and CEO ICICI Infotech Services Limited
ICICI Personal Financial Services Limited
Chairman - Management Committee ICICI Prudential Life Insurance Company Limited
Resources, Treasury and ICICI Securities and Finance Company Limited
Asset-Liability Management ICICI Venture Funds Management Company Limited
Committee ICICI Web Trade Limited
Prudential ICICI Asset Management Company Limited
Profession : ICICI Executive Vice Chairman
Indian School of Business
Director
ICICI Bank Limited
Indian Institute of Management, Ahmedabad
National Development Bank, Sri Lanka
Member
Confederation of Indian Industry
Advisory Board of Economic Times Editorial
Advisory Board of NCR Financial Solutions Group
Limited, London
128
<PAGE>
-----------------------------------------------------------------------------------------------------------------------------------
Name, Designation Date of
And Profession Age Appointment Other Appointments
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mr. Kundapur Vaman Kamath (Continued) Member - Board of Management
Manipal Academy of Higher Education
Member - Managing Committee
The Associated Chamber of Commerce & Industry
of India (ASSOCHAM)
Member - Governing Board
Enterpreneurship Development Institute of India
National Institute of Bank Management
Member - Governing Council
Manel Srinivas Naik Institute of Management
Ms. Lalita Dileep Gupte 51 June 22, 1994 Chairperson
Joint Managing Director & Chief ICICI Capital Services Limited
Operating Officer ICICI Home Finance Company Limited
Director
Profession : ICICI Executive G.S. Mhaskar Private Limited
ICICI Bank Limited
ICICI Infotech Services Limited
ICICI Personal Financial Services Limited
ICICI Prudential Life Insurance Company Limited
ICICI Securities and Finance Company Limited
ICICI Venture Funds Management Company Limited
ICICI Web Trade Limited
National Stock Exchange of India Limited
Prudential ICICI Asset Management Company Limited
Mr. Shashikant Harilal Bhojani 56 April 22, 1996 Director
Deputy Managing Director ICICI Home Finance Company Limited
ICICI Infotech Services Limited
Profession : ICICI Executive ICICI Personal Financial Services Limited
ICICI Prudential Life Insurance Company Limited
ICICI Securities and Finance Company Limited
ICICI Venture Funds Management Company Limited
ICICI Web Trade Limited
Prudential ICICI Trust Limited
Member - Advisory Board
The Institute of Company Secretaries of India
Trustee
The Kandivili Education Society
</TABLE>
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<PAGE>
The executive officers of ICICI at July 31, 2000 were as follows:
<TABLE>
Years of Total
work remuneration Stock
Name Age Position experience in fiscal 2000(1) Shareholding options (2)
------------------------------- --- --------------------------- ---------- ----------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Mr. Kundapur Vaman Kamath 52 Managing Director and 29 Rs. 8,948,676 35,000 240,000
Chief Executive Officer
Ms. Lalita Dileep Gupte 51 Joint Managing Director 29 7,067,777 10,085 220,000
and Chief Operating Officer
Mr. Shashikant Harilal Bhojani 56 Deputy Managing Director 30 6,150,035 13,664 200,000
Mr. Sanjiv Kerkar 49 Senior General Manager 24 2,682,228 6,182 120,000
Ms. Chanda Kochhar 38 Senior General Manager 16 2,236,684 5,765 60,000
Mr. Nachiket Madusudan Mor 36 Senior General Manager 13 2,202,647 -- 60,000
Ms. Kalpana Morparia 51 Senior General Manager 24 2,952,468 30,383 120,000
Mr. Subrata Mukherji 47 Senior General Manager 22 2,980,209 3,009 120,000
Ms. Ramni Nirula 48 Senior General Manager 24 1,749,993 4,133 60,000
Mr. Devdatt Shah 45 Senior General Manager 21 1,687,908 -- 60,000
Ms. Shikha Sharma 41 Senior General Manager 20 3,276,712 1,833 120,000
Mr. Srinivasan Venkatraman 44 Senior General Manager 20 2,104,933 5,916 60,000
</TABLE>
---------
(1) Including bonuses as described under "-Compensation and Benefits to
Directors and Officers - Bonus".
(2) See "-Compensation and Benefits to Directors and Officers-Employee Stock
Option Scheme" for a description of the terms of these stock options.
Mr. K.V. Kamath is a mechanical engineer and a post-graduate in Business
Management from the Indian Institute of Management, Ahmedabad. He joined ICICI
in 1971 and gained experience in project finance, leasing, resources and
corporate planning. In 1988, he left ICICI to join the Asian Development Bank,
where he worked for six years. In January 1995, he joined a major private
sector group in Indonesia as advisor to the Chairman. Mr. Kamath joined the
board of ICICI in October 1995 and was appointed Managing Director and Chief
Executive Officer of ICICI in May 1996.
Ms. Lalita D. Gupte has a Bachelor of Arts degree and also holds a
Master's degree in Management Science from the Jamnalal Bajaj Institute of
Management Studies, University of Mumbai. Ms. Gupte joined ICICI in 1971 and
has been with ICICI since then. She has worked in the areas of project finance,
leasing, resources and treasury, and credit operations. Ms. Gupte joined the
board of directors of ICICI in June 1994 as an executive director and was
designated as the Deputy Managing Director in 1996. In April 1999, she was
designated as the Joint Managing Director and Chief Operating Officer of ICICI.
Mr. S.H. Bhojani has a Bachelor of Science degree and also holds a
Master's degree in law from the University of Mumbai. Mr. Bhojani started his
career with Bharat Bijlee Limited and later worked with BSES Limited and
Crompton Greaves Limited. He joined ICICI in 1973 and has been with ICICI since
then. Mr. Bhojani has worked in the legal, rehabilitation, taxation and
investment departments and has also worked in the areas of accounts, human
resources and administration. In 1986, he was appointed as the Corporate Legal
Advisor of ICICI. He was appointed as an executive director and Legal Advisor
of ICICI in 1996. In April 1999, Mr. Bhojani was designated as the Deputy
Managing Director of ICICI.
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<PAGE>
Mr. Sanjiv Kerkar is a chemical engineer and holds a Management degree
from the Jamnalal Bajaj Institute of Management Studies, University of Mumbai.
He worked with ICICI from 1979 until 1993, when he joined Asian Finance and
Investment Company Limited (AFIC), an affiliate of the Asian Development Bank.
Mr. Kerkar worked with AFIC from 1993 to 1996. In 1996, he re-joined ICICI as a
General Manager and has been in charge of the Risk Management Department in
ICICI since then. In 1998 he was designated as a Senior General Manager of
ICICI.
Ms. Chanda Kochhar is a graduate from Mumbai University and a
post-graduate in Business Management from Jamnalal Bajaj Institute of
Management Studies, Mumbai University. She joined ICICI in 1984 and worked in
the Project Finance Department until 1993. She was deputed to ICICI Bank as a
Senior Executive for the period from 1993 to 1996. Ms. Kochhar was Regional
Manager, Western Regional Office of ICICI for the period from 1997 to 1998. In
1998, Ms. Kochhar was put in charge of the Major Clients Group of ICICI. In
1999, she was given additional charge of the E-commerce Division of ICICI. In
2000, she was designated as Senior General Manager of ICICI. Currently, Ms.
Kochhar is in charge of the Personal Financial Services Group and the
E-Commerce Division.
Dr. Nachiket Mor is a graduate in science from Mumbai University and a
post-graduate in Business Management from Indian Institute of Management,
Ahmedabad. He joined ICICI in 1987 in the Corporate Planning and Policy
Department. He then completed his Ph.D degree from the University of
Pennsylvania during the period 1990-1994. Since 1994, he worked in the Planning
and Treasury Department at various levels and became General Manager in 1998.
He became Senior General Manager in 2000 and currently Dr. Mor is heading the
Treasury, the Structured Products Group and the Social Initiative Group.
Ms. Kalpana Morparia holds Bachelor's degrees in Science and Law. She
worked in the Legal Department of ICICI from 1975 to 1994. Since 1996, when she
was designated as General Manager, she was in charge of the legal, planning,
treasury and corporate communications departments. In 1998, she was designated
as a Senior General Manager of ICICI. Currently, Ms. Morparia is in charge of
Legal, Human Resources Development, Corporate Communications, Planning and
Strategic Support Group and Special Projects.
Mr. S. Mukherji holds a Management degree from the Jamnalal Bajaj
Institute of Management Studies, University of Mumbai and a Master's degree
from the London School of Economics. Mr. Mukherji worked in the Projects and
Operations Department of ICICI at Mumbai between 1978 and 1992 and at Calcutta
between 1992 and 1997. He was Zonal Manager of ICICI's Calcutta Zonal Office
between 1992 and 1997. During 1997, he headed the Western Regional Office of
ICICI. He was designated as Senior General Manager of ICICI in 1998. Mr.
Mukherji is currently in charge of the Major Clients Group, the Infrastructure
Industry Group, the Oil, Gas and Petrochemicals Group and the Special Asset
Management Group.
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<PAGE>
Ms. Ramni Nirula is a post-graduate in management studies from a reputed
Indian University. Ms. Nirula joined ICICI in 1975 and held various positions
in the Northern Regional Office of ICICI. Ms. Nirula became General Manager in
1998 and was the Zonal Manager of the Delhi Zonal Office for the period 1998 to
2000. She was designated as Senior General Manager of ICICI in 2000. Currently
she is in charge of the Growth Clients Group of ICICI.
Mr. Devdatt Shah is an electrical engineer from the Indian Institute of
Technology, Mumbai and holds a Master's degree in Business Administration from
the State University of New York. From 1979 to 1981, Mr. Shah was an Associate
Consultant in Policy Planning and Evaluation Inc. Mr. Shah joined J.P. Morgan &
Co. in 1981 and worked in various departments including equity research,
structured products and financial advisory services. He left J.P. Morgan in
1995 to join India Capital Advisors, Toronto. In 1996, Mr. Shah joined the
Canadian Imperial Bank of Commerce as Managing Director (India). Mr. Shah
joined ICICI in January 1999 and is currently working as Managing Director of
ICICI Securities and Finance Company Limited.
Ms. Shikha Sharma is a graduate from the University of Delhi and a
post-graduate in Management from the Indian Institute of Management, Ahmedabad.
Ms. Sharma joined ICICI in 1980 and worked at ICICI until 1995. Thereafter, she
worked at ICICI Securities and was deputed to J.P. Morgan & Co. After rejoining
ICICI in 1997, she served as General Manager in charge of the Strategic
Planning and Development Department until 1998 and set up the Structured
Products Group. In 1998, she was designated as a Senior General Manager and was
in charge of the Personal Financial Services Group. Currently Ms. Sharma has
been deputed to ICICI Prudential Life Insurance Company as Managing Director.
Mr. V. Srinivasan is a graduate in mathematics from Madras University and
a Chartered Accountant and Company Secretary. Mr. Srinivasan joined ICICI in
1980 and served at various levels in the Chennai Zonal Office until 1994. From
1994 to 1996, he worked in the Systems Department. Mr. Srinivasan has served as
the Company Secretary of ICICI from 1996 to 1999. He was designated General
Manager and Company Secretary in 1999. He became Senior General Manager in 2000
and currently has been deputed to ICICI Infotech as Managing Director.
Employed for part of the year:
Mr. M.J. Subbaiah, Senior General Manager opted for early retirement from
the services of ICICI effective July 10, 2000.
In accordance with ICICI's corporate policy, all its employees, other than
those who are executive directors, retire at the age of 58 years.
Corporate Governance
ICICI revised its corporate governance policies in 1997. To recognize the
accountability of the board and to make it transparent to all our constituents,
including employees, clients, investors and the government of India, and to
demonstrate that the shareholders are the ultimate beneficiaries of our
economic activities, we restructured ICICI's board of directors.
The series of steps taken by ICICI at the time included a clear
demarcation between the role of the board and that of the executive management,
ensuring that not less than 75.0% of the board would be
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<PAGE>
non-executive directors and setting up a series of board sub-committees for
overseeing the functions of the executive management. It was also decided that
all important board committees would be presided over by non-executive
directors, and will consist mainly of non-executive directors.
The board's role, functions, responsibility and accountability are clearly
defined at ICICI. In addition to its primary role of monitoring corporate
performance, the functions of ICICI's board include:
o approving our corporate philosophy and mission;
o participating in the formulation of strategic and business plans;
o reviewing and approving financial plans and budgets;
o monitoring corporate performance against strategic and business
plans, including overseeing operating results on a regular basis;
o ensuring ethical behavior and compliance with laws and regulations;
o selecting and evaluating senior executives;
o reviewing and approving borrowing limits;
o formulating exposure limits; and
o keeping major shareholders informed regarding our plans, strategies
and performance.
To enable the board to discharge these responsibilities effectively,
ICICI's executive management gives the board detailed reports on ICICI's
performance on a quarterly basis.
The board functions either as a full board or through committees. The
following committees have been formed to focus on specific issues.
Board Governance Committee
The Board Governance Committee consists of four directors, all of whom are
independent directors and is chaired by an independent director. The current
members are Mr. N.R. Narayana Murthy, Dr. Ashok Ganguly, Mr. G. Krishnamurthy
and Mr. D. Sengupta. The functions of this committee include submission of
recommendations to the board to fill vacancies on the board or in senior
management positions, evaluating the performance of our executive management,
the board and its individual members and recommending the compensation,
including performance bonus and employee stock options, to the executive
directors and senior executives.
Audit Committee
The Audit Committee consists entirely of independent directors and
accordingly is chaired by an independent director. The current members are Mr.
R. Seshasayee, Dr. Ashok Ganguly and Dr. B. K. Jhawar. It provides direction to
and oversees the audit and risk management function, reviews the financial
accounts, interacts with the statutory auditors and reviews matters of special
interest.
Credit Committee
The Credit Committee consists of five directors, including the Managing
Director and Chief Executive Officer and the Joint Managing Director and Chief
Operating Officer, and is chaired by an
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<PAGE>
independent director. The current members are Dr. Ashok Ganguly, Mr. Rakesh
Khurana, Mr. D. Sengupta, Mr. K.V. Kamath and Ms. Lalita D. Gupte. This
committee approves credit policies and related modifications. It also considers
and approves proposals, which the Management Committee is not empowered to
consider, such as proposals for companies with ratings below investment grade,
and reviews any other proposals referred to it on an exceptional basis. The
Credit Committee also ratifies financial assistance to any company in which any
director of ICICI is also a director.
Management Committee
The Management Committee consists of executive directors and is presided
over by the Managing Director and Chief Executive Officer. The board has
delegated certain operational powers to the Management Committee relating to
approval of financial assistance. The board approves financial assistance only
in exceptional circumstances and in cases where the Managing Director and Chief
Executive Officer would like the Credit Committee's views on certain key
decisions.
Investment Committee
The Investment Committee, which is chaired by an independent director,
approves the basic policies and necessary limits governing disinvestment. It
also establishes criteria for investment in shares and securities in the
secondary market.
Systems and Technology Committee
The Systems and Technology Committee, which is made up of three directors,
including the Managing Director and Chief Executive Officer, reviews human
resource development, systems and technology policy practices and advises
executive management on systems and technology issues.
Resources, Treasury and Asset Liability Management Committee
The Resources, Treasury and Asset Liability Management Committee consists
of all the executive directors, and reviews the resources and treasury
functions, including management of assets and liabilities. For further details
on the role of this committee, see "Business--Risk Management--Quantitative and
Qualitative Disclosures about Market Risk".
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<PAGE>
Share Transfer and Shareholder/Investor Grievance Committee
The Share Transfer and Shareholder/Investor Grievance Committee is made up
of three directors and is presided over by an independent director. This
committee reviews and approves share transfers and addresses grievances of
shareholders and investors.
Compensation and Benefits to Directors and Officers
Under ICICI's organizational documents, each director, except a director
who is from the government of India and the executive directors, is entitled to
remuneration for attending each meeting of the board or of a board committee.
The amount of remuneration is set by the board from time to time in accordance
with limitations prescribed by the Indian Companies Act or the government of
India. Remuneration for attending a board meeting was Rs. 2,000 and for a
committee meeting was Rs. 1,000 till fiscal 2000. However, currently, the
remuneration for both the board meeting and the committee meeting has been
fixed at Rs. 5,000. ICICI reimburses directors for travel and related expenses
in connection with board and committee meetings and with related matters. If a
director is required to perform services for ICICI beyond attending meetings,
ICICI may remunerate the director as determined by the board of directors and
this remuneration may be either in addition to or as substitution for the
remuneration discussed above.
At its meeting held on April 26, 1999, the board of directors decided to
revise the salaries paid to the executive directors effective April 1, 1999.
This was approved at the annual meeting of shareholders on July 30, 1999. The
board or any committee of the board may in its exclusive discretion fix within
the range stated below the salary payable to the management directors:
<TABLE>
<S> <C>
Managing Director and Chief Executive
Officer....................................... Rs. 200,000 to Rs. 400,000 (US$ 4,582 to US$ 9,164) per month
Joint Managing Director and Chief
Operating Officer............................. Rs. 160,000 to Rs. 320,000 (US$ 3,666 to US$ 7,331) per month
Deputy Managing Director ....................... Rs. 160,000 to Rs. 320,000 (US$ 3,666 to US$ 7,331) per month
</TABLE>
Total compensation paid to ICICI's directors and the executive officers at
year-end fiscal 2000 was Rs. 38,765,206 (US$ 888,091) in fiscal 2000.
Bonus
Each year, ICICI's board of directors awards bonuses to ICICI employees,
including the executive directors, on the basis of performance and seniority.
The performance of each employee is judged by a management appraisal system.
The aggregate amount paid towards bonuses to all eligible employees in fiscal
2000 was Rs. 145 million (US$ 3 million).
Voluntary Retirement Scheme
During the year, ICICI successfully completed a Voluntary Retirement
Scheme, which was availed of by 223 staff members. The expenditure on account
of the Voluntary Retirement Scheme was approximately Rs. 299 million (US$ 7
million).
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<PAGE>
Employee Stock Option Scheme
ICICI has formulated an employee stock option scheme to encourage and
retain high performing employees. Up to 5.0% of ICICI's issued equity shares at
June 30, 2000 can be allocated to employee stock options. The stock options
will entitle eligible employees of ICICI and its subsidiaries to apply for
equity shares. The Board Governance Committee, which also acts as the
Compensation Committee, determines the eligibility of each employee based on an
evaluation of the employee, including an evaluation of the employee's work
performance, technical knowledge and leadership qualities. On August 3, 1999,
ICICI granted 2,323,750 share options to certain employees of ICICI at the
market price prevailing on that date, Rs. 85.55 (US$ 1.96) per equity share. On
April 28, 2000, ICICI granted a further 2,922,500 share options to certain
employees of ICICI at the market price prevailing on that date, Rs.133.4 (US$
3.06) per equity share. These options vest in installments over a period of
three years with 20.0%, 30.0% and 50.0% of the grants vesting at the end of
each year. The options can be exercised within 10 years from the date of the
grant or five years from the date of vesting whichever is later. As none of the
options granted were eligible for vesting as on March 31, 2000, there has been
no dilution of earnings per share.
ICICI Bank has formulated a similar employee stock option scheme whereby
it can issue up to 9.84 million equity shares to its employees (including
executive directors) and employees of ICICI (including executive directors). On
February 21, 2000, ICICI Bank granted 1,788,000 options to the eligible
employees. Of these, 718,750 options and 150,000 options were granted to
employees and executive directors of ICICI, respectively. Each option confers
on the employee the right to apply for one equity share at Rs. 171.90 (US $
3.94), the closing price on BSE on February 21, 2000.
Loans
ICICI has internal rules and regulations to grant loans to employees to
acquire certain assets such as property or vehicles. These loans currently
carry 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. At March 31, 2000, there were Rs. 640 million (US$ 15
million) loans outstanding to employees, including Rs. 6 million (US$ 137,500)
to certain ICICI directors.
Gratuity
Under Indian law, ICICI is required to pay a gratuity to employees who
after at least five years of continuous service have departed or retired. ICICI
has set up a gratuity fund. Actuarial valuation of the fund is done by an
independent actuary. In accordance with ICICI's gratuity fund rules, gratuity
liability is calculated based on certain assumptions regarding rate of
interest, salary growth, mortality and staff turnover. The total corpus of the
fund at March 31, 2000 was Rs. 187 million (US$ 4 million).
Superannuation Fund
ICICI contributes 15.0% of the total annual salary of each employee to a
superannuation fund, which is administered by the Life Insurance Corporation of
India. An employee gets 33.0% of the commuted value on retirement and a monthly
pension after that for life. In the event of the death of an employee, the
beneficiary receives the accumulated balance of the commuted value of 67.0%.
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Provident Fund
ICICI is statutorily required to maintain a provident fund as a part of
its retirement benefits to its employees. Each employee contributes 12.0% of
his salary and ICICI contributes an equal amount to the fund. This fund is
managed by in-house trustees. The investments of the fund are made according to
rules made by the government of India. The accounts of the fund are audited by
independent auditors. The corpus of the fund at March 31, 1999 was Rs. 362
million (US$ 8 million). ICICI contributed Rs. 52 million (US$ 1 million) to
the provident fund plan in fiscal 2000.
Interest of Management in Certain Transactions
Except as otherwise stated in this document, no amount or benefit has been
paid or given to any of ICICI's executive directors. During the period from
April 1, 1999 to August 31, 2000, ICICI's executive directors and officers
borrowed an aggregate amount of Rs.9.7 million (US$ 222,100) from ICICI. An
aggregate amount of Rs. 31.3 million (US$ 717,300) was outstanding on August
31, 2000. These loans currently carry interest rates ranging from 2.5% to 3.5%
per annum and are repayable over fixed periods of time.
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OVERVIEW OF THE INDIAN FINANCIAL SECTOR
The information in this section has been extracted from publicly available
documents from various sources, including officially prepared materials from
the government of India and its various ministries and the Reserve Bank of
India, and has not been prepared or independently verified by us. This is the
latest available information to our knowledge at year-end fiscal 2000.
The Reserve Bank of India, the central banking and monetary authority of
India, is the central regulatory and supervisory authority for the Indian
financial system. A variety of financial intermediaries in the public and
private sectors participate in India's financial sector, including the
following:
o commercial banks;
o long-term lending institutions;
o non-bank finance companies, including housing finance companies; and
o other specialized financial institutions, and state-level financial
institutions.
Until the early 1990s, the Indian financial system was strictly
controlled. Interest rates were administered, formal and informal parameters
governed the asset allocation, and strict controls limited entry into and
expansion within the financial sector. The government of India's economic
reform program, which began in 1991, encompassed the financial sector. The
first phase of the reform process began with the implementation of the
recommendations of the Committee on the Financial System, the Narasimham
Committee I. The reform process has now entered into its second phase. See
"--Banking Sector Reform--Committee on Banking Sector Reform (Narasimham
Committee II)".
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 the commercial banks and the long-term
lending institutions. This is followed by a brief summary of the banking reform
process along with the recommendations of various committees which have played
a key role in the reform process. We then present a brief discussion on the
impact of the liberalization process on long-term lending institutions and
commercial banks. Finally, reforms in the non-banking financial sector are
briefly reviewed.
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 these
traditional central banking roles, the Reserve Bank of India undertakes certain
developmental and promotional roles.
The Reserve Bank of India issues guidelines on exposure standards, income
recognition, asset classification, provisioning for non-performing assets and
capital adequacy standards 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 the Reserve
Bank of India on a regular basis. For further discussion regarding 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".
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Commercial Banks
Commercial banks in India have traditionally focused only on meeting the
short-term financial needs of industry, trade and agriculture. At year-end
fiscal 2000, there were 297 scheduled commercial banks in the country, with a
network of 65,521 branches serving approximately Rs. 8.2 trillion in deposit
accounts. Scheduled commercial banks are banks which are listed in the schedule
to the Reserve Bank of India Act, 1934, and may further be classified as public
sector banks, private sector banks and foreign banks.
Commercial banks have a presence throughout India, with nearly 71.8% of
bank branches located in rural or semi-urban areas of the country. A large
number of these branches belong to the public sector banks.
Public Sector Banks
Public sector banks make up the largest category in the Indian banking
system. They include the State Bank of India and its associate banks, 19
nationalized banks and 196 regional rural banks. Excluding the regional rural
banks, the remaining public sector banks have 45,957 branches, and account for
76.8% of the outstanding gross bank credit and 78.7% of the aggregate deposits
of the scheduled commercial banks. The public sector banks' large network of
branches enables them to fund themselves out of low cost deposits.
The State Bank of India is the largest public sector bank in India. At
year-end fiscal 2000, the State Bank of India and its seven associate banks had
13,388 branches. They accounted for 24.7% of aggregate deposits and 29.1% 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. There were
196 regional rural banks at year-end fiscal 2000 with 14,462 branches,
accounting for 3.9% of aggregate deposits and 2.8% 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. The focus on
public sector banks was maintained throughout the 1970s and 1980s. Furthermore,
existing private sector banks which showed signs of an eventual default were
merged with state-owned banks. 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 by the private sector into the banking
system. This resulted in the introduction of nine private sector banks,
including ICICI Bank. These banks are collectively known as the "new" private
sector banks. With the merger of Times Bank Limited into HDFC Bank Limited in
February 2000, there are only eight "new" private sector banks at present. In
addition, 25 private sector banks existing prior to July 1993 are currently
operating.
At year-end fiscal 2000, private sector banks accounted for approximately
11.7% of aggregate deposits and 12.4% of gross bank credit outstanding of the
scheduled commercial banks. Their network of 4,931 branches accounted for 7.5%
of the total branch network of scheduled commercial banks in the country.
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Foreign Banks
At June 30, 2000, there were 42 foreign banks with 183 branches operating
in India. At year-end fiscal 2000, foreign banks accounted for 5.7% of
aggregate deposits and 8.0% 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. This has led
to increased foreign banking activity.
The primary activity of most foreign banks in India has been in the
corporate segment. However, in recent years, some of the larger foreign banks
have started to make consumer financing a larger part of their portfolios based
on the growth opportunities in this area in India. These banks also offer
products such as automobile finance, home loans, credit cards and household
consumer finance.
Cooperative Banks
Cooperative banks cater to the financial 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.
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. These
institutions provide fund-based and non-fund-based assistance to industry in
the form of loans, underwriting, direct subscription to shares, debentures and
guarantees. The primary long-term lending institutions include ICICI Limited,
the Industrial Development Bank of India, the Industrial Finance Corporation of
India Limited and the Industrial Investment Bank of India.
The long-term lending institutions were expected to play a critical role
in Indian industrial growth and accordingly, had access to concessional
government funding. However, in recent years, the operating environment of the
long-term lending institutions has changed substantially. Although the initial
role of these institutions was largely limited to providing a channel for
government funding to industry, the reform process has required them to expand
the scope of their business activities. Their new activities include:
o fee-based activities like investment banking and advisory services;
and
o short-term lending activity including issuing corporate finance and
working capital loans.
In addition, there are three other investment institutions at the national
level, Life Insurance Corporation of India, General Insurance Corporation of
India and its subsidiaries and Unit Trust of India, which also provide
long-term financial assistance to the industrial sector.
Non-Bank Finance Companies
There are over 10,000 non-bank finance companies in India, mostly in the
private sector. All non-bank finance companies are required to register with
the Reserve Bank of India. The non-bank finance companies may be categorized
into entities which take public deposits and those which do not. The companies
which accept public deposits are subject to strict supervision and capital
adequacy
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requirements of the Reserve Bank of India. ICICI Securities is a non-bank
finance company, which does not accept public deposits.
The scope and activities of non-bank finance companies have grown
significantly over the years. The primary activities of the non-bank finance
companies are consumer credit, including automobile finance, home finance and
consumer durable products finance, wholesale finance products to small and
medium-sized companies such as bills discounting, and fee-based services such
as investment banking and underwriting.
Over the last few years, certain non-bank finance companies have defaulted
to investors and depositors, and consequently actions (including bankruptcy
proceedings) have been initiated against them, many of which are currently
pending.
Housing Finance Companies
Housing finance companies form a distinct sub-group of the non-bank
finance companies. As a result of the various incentives given to investing in
the housing sector by the government in recent years, the scope of this
business has grown substantially. Housing Development Finance Corporation
Limited is a premier institution providing housing finance in India. In
addition, insurance institutions like Life Insurance Corporation of India and
several commercial banks have also established housing finance subsidiaries.
The National Housing Bank and the Housing and Urban Development Corporation
Limited are the two government-controlled financial institutions created to
improve the availability of housing finance in India.
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. They include the National Bank for Agricultural and Rural
Development, Export Import Bank of India, the Small Industries Development Bank
of India, ICICI Venture Funds Management Company Limited, Risk Capital and
Technology Finance Corporation Limited, Tourism Finance Corporation of India
Limited, National Housing Bank, Power Finance Corporation Limited and the
Infrastructure Development Finance Corporation Limited.
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-sized enterprises.
Impact of Liberalization on the Indian Financial Sector
Until 1991, the financial sector in India was heavily controlled and
commercial banks and long-term lending institutions, the two dominant financial
intermediaries, had mutually exclusive roles and objectives and operated in a
largely stable environment, with little or no competition. Long-term lending
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institutions were focused on the achievement of the Indian government's various
socio-economic objectives, including balanced industrial growth and employment
creation, especially in areas requiring development. Long-term lending
institutions were extended access to long-term funds at subsidized rates
through loans and equity from the government of India and from funds guaranteed
by the government of India originating from commercial banks in India and
foreign currency resources originating from multilateral and bilateral
agencies.
The focus of the commercial banks was primarily to mobilize household
savings through demand and time deposits and to use these deposits to meet the
short-term financial needs of borrowers in industry, trade and agriculture. In
addition, the commercial banks provided a range of banking services to
individuals and business entities.
However, since 1991, there have been comprehensive changes in the Indian
financial system. Various financial sector reforms, implemented since 1991,
have transformed the operating environment of the banks and long-term lending
institutions. In particular, the deregulation of interest rates, emergence of a
liberalized domestic capital market, and entry of new private sector banks,
along with the broadening of long-term lending institutions' product
portfolios, have progressively intensified the competition between banks and
long-term lending institutions.
All of these factors are leading to a gradual disappearance of the
traditional boundaries between banks and long-term lending institutions.
Long-term lending institutions now compete directly with banks in several areas
of business. At the same time, since 1992, the long-term lending institutions'
access to subsidized domestic sources of long-term funds has diminished and
they now primarily depend upon market borrowings. They do not have complete
access to retail savings and demand deposits and have certain restrictions on
the short maturity funds that they are able to raise from the market.
Banking Sector Reform
Most large banks in India were nationalized in 1969 and thereafter were
subject to a high degree of control until reform began in 1991. In addition to
controlling interest rates and entry into the banking sector, these regulations
also channeled lending into priority sectors. Banks were required to fund the
public sector through the mandatory acquisition of low interest-bearing
government securities or statutory liquidity ratio bonds to fulfill statutory
liquidity requirements. As a result, bank profitability was low, non-performing
assets were comparatively high, capital adequacy was diminished, and
operational flexibility was severely hindered.
Committee on the Financial System (Narasimham Committee I)
The Committee on the Financial System (The Narasimham Committee I) was set
up in August 1991 to recommend measures for reforming the financial sector.
Many of the recommendations made by the committee, which addressed
organizational issues, accounting practices and operating procedures, were
implemented by the government of India. The major recommendations that were
implemented included the following:
o With fiscal stabilization and the government increasingly resorting
to market borrowing to raise resources, the statutory liquidity ratio
or the proportion of the banks' net demand and time liabilities that
were required to be invested in government securities was reduced
from 38.5% in the pre-reform period to 25.0% in October 1997. This
meant that the significance of the statutory liquidity ratio shifted
from being a major instrument for financing the public sector in the
pre-reform era to becoming a prudential requirement;
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o Similarly, the cash reserve ratio or the proportion of the bank's net
demand and time liabilities that were required to be deposited with
the Reserve Bank of India was reduced from 15.0% in the pre-reform
period to 8.5% currently;
o Special tribunals were created to resolve bad debt problems;
o Almost all restrictions on interest rates for deposits were removed.
Commercial banks were allowed to set their own level of interest
rates for all deposits except savings bank deposits;
o Substantial capital infusion to several state-owned banks was
approved in order to bring their capital adequacy closer to
internationally accepted standards. By the end of fiscal 1999,
aggregate recapitalization amounted to Rs. 204.5 billion. The
stronger public sector banks were given permission to issue equity to
further increase capital; and
o Banks were granted the freedom to open or close branches.
Committee on Banking Sector Reform (Narasimham Committee II)
The second Committee on Banking Sector Reform (Narasimham Committee II)
submitted its report in April 1998. The major recommendations of the committee
were as follows:
o Capital adequacy requirements should take into account market risk in
addition to credit risk. Accordingly, this committee suggested that
government securities and other approved securities should carry risk
weights;
o Risk weight on a government guaranteed advance should be the same as
for other advances;
o Foreign exchange open positions should carry a 100.0% risk weight;
o The minimum capital to risk assets ratio should be increased from
8.0% to 10.0% and a general provision of 1.0% for standard assets
should be introduced;
o There should be stricter standards for asset classification;
o For resolution of non-performing assets, this committee proposed the
establishment of an asset reconstruction company. Alternatively,
banks in difficulty could issue Tier II bonds guaranteed by the
government of India and these bonds could be made eligible for
statutory liquidity ratio investments;
o The shareholdings of the government of India and the Reserve Bank of
India in public sector banks should be reduced;
o Banks should introduce risk management, asset-liability management
and efficient treasury management policies;
o Decisions to merge public sector banks should originate from the
management of the relevant banks, with the government of India as the
common shareholder playing a supportive role; and
o Mergers should not be seen as a means of bailing out weak banks.
Rather, weak banks should be strengthened by slowing down their
expansion and eliminating their high cost funds and borrowings.
The Reserve Bank of India accepted and began implementing many of these
recommendations in October 1998.
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Working Group on Role of Banks and Financial Institutions
In December 1997, the Reserve Bank of India created a working group under
the chairmanship of S. H. Khan to harmonize the role and operations of
long-term lending institutions and banks. In its report submitted in April
1998, the Khan Working Group recommended that banks and long-term lending
institutions progressively move towards universal banking and encouraged the
development of a regulatory framework for this purpose.
Based on the recommendations of the Khan Working Group and the Narasimham
Committee II, the Reserve Bank of India, in January 1999, issued a discussion
paper entitled "Harmonizing the Role and Operations of Development Financial
Institutions and Banks". The paper described the future of the financial
system:
o The provision of diversified services both by banks and long-term
lending institutions should continue, subject to appropriate
regulation by the Reserve Bank of India;
o Ultimately there should be only banks and restructured non-bank
finance companies;
o The special role of long-term lending institutions being noted, a
transitional path was envisioned for them to become either
full-fledged non-bank finance companies or banks. This transitory
arrangement should be worked out in consultation with the Reserve
Bank of India;
o If a long-term lending institution chooses to provide commercial
banking services directly, permission to create a 100.0% owned
banking subsidiary would be considered by the Reserve Bank of India;
o A corporate form of organization under the Companies Act was
recommended to provide the financial intermediaries with the
necessary flexibility for mergers and acquisitions and the
diversification to meet the needs of the evolving situation;
o Any conglomerate in which a bank is present should be subject to
supervision and regulation on a consolidated basis; and
o Supervisory functions should be isolated and brought under a
consistent supervisory framework. Ownership of financial
intermediaries should be transferred from the Reserve Bank of India
to the government of India. This would help ensure that the Reserve
Bank of India focused on its supervisory and regulatory functions.
Recent Structural Reforms
Legislative Framework for Recovery of Debts due to Banks
Following the recommendations of the Narasimham Committee , the Recovery
of Debts due to Banks and Financial Institutions Act, 1993 was enacted. The
purpose of this legislation is to provide for the establishment of a tribunal
for speedy resolution of litigation and recovery of debts owed to banks or
financial institutions. This act creates tribunals before which the banks or
the financial institutions can file a suit for recovery of the amounts due to
them. However, if a scheme of reconstruction is pending before the Board for
Industrial and Financial Reconstruction, under the Sick Industrial Companies
(Special Provision) Act, 1985, no proceeding for recovery can be initiated or
continued before the tribunals.
As part of their effort to continue bank reform, the Reserve Bank of India
announced a series of measures in the credit policy for fiscal 1999 and fiscal
2000 aimed at deregulating and strengthening the financial system.
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Credit Policy for Fiscal 1999
In the monetary and credit policy for fiscal 1999, the following major
changes regarding banks were announced:
o The minimum maturity of term deposits was reduced from 30 days to 15
days;
o Differential interest rates were permitted on term deposits of
different sizes, but of the same maturity; and
o To facilitate flow of credit to small borrowers the lending rates for
loans below Rs. 200,000 were not to exceed the prime lending rate.
The major changes regarding banks and long-term lending institutions
announced in the mid-term review of the monetary and credit policy for fiscal
1999 included:
o Regulations were tightened to require provisioning for investment in
government-guaranteed loans;
o Risk weights of 2.5% for central government securities and other
approved securities and 20.0% for advances guaranteed by state
governments which remained in default were stipulated effective from
fiscal 2000;
o Effective from fiscal 1999, foreign exchange open positions carry a
100.0% risk weight;
o General provisioning of a minimum of 0.25% was introduced for
standard assets effective from fiscal 2000;
o Minimum capital to risk assets ratio for banks was raised from 8.0%
to 9.0% effective from fiscal 2000; and
o The period for classifying assets in the sub-standard category as
doubtful will be reduced from 24 months to 18 months effective
year-end fiscal 2001.
Credit Policy for Fiscal 2000
In the monetary and credit policy for fiscal 2000, the Reserve Bank of
India reduced the cash reserve ratio to 10.0%. In addition, several structural
reform measures in the banking sector were introduced including:
o The introduction of differential prime lending rates for various
maturities;
o Permission for banks to provide fixed rate loans; and
o Permission for long-term lending institutions to enter the repo
market for short-term liquidity management before making the
call-money market a purely inter-bank market.
The mid-term review of the monetary and credit policy for fiscal 2000
introduced the following major changes applicable to the financial sector:
o The cash reserve ratio was reduced from 10.0% to 9.0% for banks;
o A market risk weight of 2.5% was introduced in respect of all bank
investments in government securities (on other bank investments also
from fiscal 2001); and
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o The exposure limit in respect of a single borrower was reduced from
25.0% to 20.0% of the capital funds of banks and financial
institutions effective from April 1, 2000. However, at October 31,
1999, if the exposure level of any institution or bank to a single
borrower was in excess of 20.0% of its capital funds, it would have a
two year period to reduce exposure to 20.0%, i.e., by October 31,
2001.
Credit Policy for Fiscal 2001
In the monetary and credit policy for fiscal 2001, the Reserve Bank of
India introduced the following structural reform measures in the banking
sector:
o Requirement of a minimum of 85.0% daily maintenance of cash reserve
ratio balances by banks was reduced to 65.0%;
o Financial institutions were given greater flexibility to fix interest
rates on term deposits; and
o A broad approach towards "universal banking" was outlined. A
development finance institution intending to transform itself into a
bank would need to prepare a transition path in order to fully comply
with the regulatory requirements of a bank. The institution concerned
may consult the Reserve Bank of India for such transition
arrangements. The Reserve Bank of India would consider such requests
on a case-by-case basis.
Recommendations of the Working Group on Restructuring Weak Public Sector
Banks
The Reserve Bank of India constituted a working group on restructuring
weak public sector banks which submitted its report in October 1999. The group
has suggested a restructuring program which covers the following:
o Operational restructuring involving
- Changes in the method of operations;
- Adoption of modern technology;
- Resolution of the problem of high non-performing loans; and
- Reduction in cost of operations;
o Organizational restructuring aimed at improved governance and
increased management involvement and efficiency;
o Financial restructuring including the investment of funds by the
government on fulfillment of certain conditions; and
o Restructuring providing for legal changes and institution building
for supporting the restructuring process.
Working Group to Review Deposit Insurance in India
The working group constituted by the Reserve Bank of India to review the
role of deposit insurance in India submitted its report in October 1999. The
group has recommended changes with respect to the following in the existing
system of deposit coverage:
o Institutions to be brought within the ambit of deposit insurance;
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o Regulatory systems to be set up;
o Introduction of a risk-based premium;
o Parameters for the assessment of risk; and
o Parameters for the capital of a deposit insurance agency.
The Reserve Bank of India has released the report for public discussion.
Reforms of the Non-Bank Finance Companies
The standards relating to income recognition, provisioning and capital
adequacy were prescribed for non-bank finance companies in June 1994. The
registered non-bank finance companies were required to achieve a minimum
capital adequacy of 6.0% by year-end fiscal 1995 and 8.0% by year-end fiscal
1996 and to obtain a minimum credit rating. To encourage the companies
complying with the regulatory framework, the Reserve Bank of India announced in
July 1996 certain liberalization measures under which the non-bank finance
companies registered with it and complying with the prudential norms and credit
rating requirements were granted freedom from the ceiling on interest rates on
deposits and amount of deposits. A new set of regulatory measures were
announced by the Reserve Bank of India in January 1998. The Reserve Bank of
India has presently stipulated a cap of 16.0% on interest rates on the deposits
raised from the public by the non-bank finance companies.
Efforts have also been made to integrate non-bank finance companies into
the mainstream financial sector. The first phase of this integration covered
measures relating to registrations and standards. These include requiring
non-bank finance companies to register and to have minimum net owned funds of
Rs. 2.5 million. Other measures introduced include requiring non-bank finance
companies to maintain a certain percentage of liquid assets and to create a
reserve fund. The percentage of liquid assets to be maintained by non-bank
finance companies has been revised uniformly upwards and beginning in April
1999, 15.0% of public deposits must be maintained.
The focus of supervision has now shifted to non-bank finance companies
accepting public deposits. This is because these companies will be subject to
deposit regulations and standards. A task force on non-bank finance companies
set up by the government of India submitted its report in October 1998, and
recommended several steps to rationalize the regulation of non-bank finance
companies. Accepting these recommendations, Reserve Bank of India issued new
guidelines for non-bank finance companies, which were as follows:
o A minimum net owned fund of Rs. 2.5 million is mandatory before
existing non-bank finance companies may accept public deposits;
o A minimum investment grade rating is compulsory for loan and
investment companies accepting public deposits, even if they have the
minimum net owned funds;
o Permission to accept public deposits was also linked to the level of
capital to risk assets ratio. Different capital to risk assets ratio
levels for non-bank finance companies with different ratings were
specified; and
o Non-bank finance companies were advised to restrict their investments
in real estate to 10.0% of their net owned funds.
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In the Reserve Bank of India's monetary and credit policy for fiscal 2000,
the Reserve Bank of India stipulated a minimum capital base of Rs. 20 million
for all new non-bank finance companies.
Regulations Review Authority
In March 1999, the Reserve Bank of India set up a Regulations Review
Authority to provide an opportunity to the public at large to seek
justification for and suggest deletion or modification of any regulation,
circular or return issued, or required by the Reserve Bank of India. This
authority is neither a forum for grievance redressal nor a policy-making forum.
This authority will, however, convey its views on an application to the
relevant department of the Reserve Bank of India.
Based on the recommendations of this authority, some of the existing
regulations may come under review over time.
Insurance
The R.N. Malhotra Committee was set up in April 1993 to recommend reforms
in the insurance industry. This committee submitted its report on January 7,
1994 and its major recommendations were as follows:
o the entry of the private sector in the insurance industry should be
allowed;
o India's two insurance corporations, the Life Insurance Corporation of
India and General Insurance Corporation of India should be
privatized, with the government retaining a 50.0% stake;
o the licensing system for surveyors should be abolished;
o the tariff regime in general insurance must continue;
o contributions to pension schemes must be exempt from tax;
o settlement of claims must be expedited; and
o high priority should be given to activating the regulatory apparatus.
As a first step towards implementation of the recommendations of the
Malhotra Committee on Reforms in the Insurance Sector, the budget for fiscal
1996 indicated that an independent regulatory authority would be set up for the
insurance industry, and the Insurance Regulatory Authority was set up in 1996.
In December 1999, the parliament approved the Insurance Regulatory and
Development Authority Bill, 1999. This bill has opened up the Indian insurance
sector for foreign and private investors. This bill allows foreign equity
participation in new insurance companies of up to 26.0%. The new company should
have a minimum paid up equity capital of Rs. 1.0 billion to carry out the
business of life insurance or general insurance or Rs. 2.0 billion to carry out
exclusively the business of reinsurance. An Insurance Regulatory and
Development Authority has been set up to regulate, promote and ensure orderly
growth of the insurance industry.
In the monetary and credit policy for fiscal 2001, the Reserve Bank of
India issued guidelines governing the entry of banks and financial institutions
into the insurance business. The objective of the guidelines is to allow only
financially strong banks and financial institutions to enter the insurance
business. These guidelines permit banks and financial institutions to enter the
business of underwriting
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insurance through joint ventures if they meet the stipulated criteria
relating to their net worth, capital adequacy ratio, profitability track
record and level of non-performing loans and the performance of their
existing subsidiary companies. These guidelines specify the maximum
percentage of the paid up capital and of the net worth of the bank or
financial institution that can be invested in the joint venture. To keep
the risks associated with each of the businesses distinct, the guidelines
envisage an "arms length" relationship between the bank or financial
institution and the insurance company.
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SUPERVISION AND REGULATION
Reserve Bank of India Regulations
ICICI is regulated and supervised by the Reserve Bank of India. The
Reserve Bank of India requires ICICI to furnish statements, information and
certain details relating to its business. It has issued guidelines for
financial institutions and commercial banks on income recognition, asset
classification, capital adequacy standards and provisioning for non-performing
assets. The Reserve Bank of India has also set up a Board for Financial
Supervision, under the chairmanship of the Governor of the Reserve Bank of
India. This Board is assisted by the Department of Financial Supervision of the
Reserve Bank of India which is responsible for supervision of financial
institutions and commercial banks. The Department of Financial Supervision is
authorized to make requests for information from or undertake both on-site
inspection and off-site surveillance of financial institutions. ICICI Bank is
licensed as a "banking company" and is also regulated and supervised by the
Reserve Bank of India.
Loan Loss Provisions and Non-performing Assets
In March 1994, the Reserve Bank of India issued formal guidelines on
income recognition, asset classification, provisioning standards and valuation
of investments applicable to long-term lending institutions, which are revised
from time to time. Similar guidelines are also applicable to ICICI Bank. These
guidelines are applied for the calculation of non-performing assets under
Indian GAAP. The discussion of asset quality in this prospectus is under US
GAAP and the US GAAP standards applied are set forth in "Business--Risk
Management--Non-Performing Portfolio."
The principal features of these Reserve Bank of India guidelines, which
have been implemented with respect to ICICI's loans, debentures, lease assets,
hire purchases and bills are set forth below.
Non-Performing Assets
A non-performing asset is an asset in respect of which any amount of
interest has remained past due for more than two quarters or any amount of
principal has remained past due for more than four quarters. In the case of a
banking company, like ICICI Bank, any amount of principal or interest must have
remained past due for more than two quarters before being classified as a
non-performing asset. In the case of a financial institution, like ICICI, loans
are not classified as non-performing until the borrower has missed two interest
payments (180 days) or four principal payments (365 days). "Past due" means any
amount that is outstanding for one month beyond the due date. Interest in
respect of non-performing assets is not recognized or credited to the income
account unless collected.
Asset Classification
Assets are classified as described below:
o Standard Assets. Assets that do not have any problems or do not carry
more than normal risk attached to the business.
o Sub-Standard Assets. Assets that are non-performing assets for a
period not exceeding two years (18 months by year-end fiscal 2001),
or have been renegotiated or rescheduled after the project to which
they relate has achieved cash break-even.
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o Doubtful Assets. Assets that are non-performing assets for more than
two years (18 months by March 31, 2001) or carry potential threats to
recoveries on account of erosion in the value of security and other
factors such as fraud.
o Loss Assets. Assets on which losses have been identified but the
amount has not been written off wholly or partly or assets that are
considered uncollectible.
Payments on renegotiated or rescheduled loans must have no past due
amounts for one year after renegotiation or rescheduling for the loan to be
upgraded.
Provisioning and Write-Offs
Provisions are based on guidelines specific to the classification of the
assets. The following guidelines apply to the various asset classifications:
o Standard Assets. A general provision of 0.25% is required.
o Sub-Standard Assets. A general provision of 10.0% is required.
o Doubtful Assets. A 100.0% write-off is required to be taken against
the unsecured portion of the doubtful asset and charged against
income. 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. In cases where there is a
secured portion of the asset, depending upon the period for which the
asset remains doubtful, a 20.0% to 50.0% provision is required to be
taken against the secured asset as follows:
- Up to one year: 20.0% provision
- One to three years: 30.0% provision
- More than three years: 50.0% provision
o Loss Assets. The entire asset is required to be written off or
provided for.
The Reserve Bank of India has also issued guidelines for classification
and valuation of investments.
Legal Reserve Requirements
Cash Reserve Ratio
A banking company such as ICICI Bank is required to maintain a specified
percentage of its demand and time liabilities, excluding inter-bank deposits,
by way of a cash reserve with itself and by way of a balance in a current
account with the Reserve Bank of India. In April 2000, the Reserve Bank of
India in its credit and monetary policy announced the new cash reserve ratio to
be maintained by scheduled commercial banks of 8.0% which was raised to 8.5% in
July 2000. The following liabilities are not considered in the calculation of
the cash reserve ratio:
o inter-bank liabilities;
o liabilities to primary dealers;
o repatriable and non-repatriable deposits from non-resident Indians;
o foreign currency deposits from non-resident Indians; and
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o refinancing from the Reserve Bank of India and other institutions
permitted to offer refinancing to banks.
The Reserve Bank of India pays no interest on the cash reserves up to 3.0%
of the demand and time liabilities and pays 4.0% on the balance.
The cash reserve ratio has to be maintained on an average basis for a
fortnightly period and should not be below 65.0% of the required cash reserve
ratio on any particular day except the last business day of the fortnight. On
the last business day of the fortnight, no restrictions apply.
Ever since the Reserve Bank of India introduced the financial sector
reforms, the goal has been to reduce the cash reserve ratio. It has been
indicated by the Reserve Bank of India that the ratio would ultimately be
reduced to the statutory minimum of 3.0%. In July 2000, the Reserve Bank of
India raised the cash reserve ratio by 0.5 percentage points to 8.5% as part of
the measures introduced to contain the sudden depreciation of the rupee against
the US dollar. This depreciation of the rupee was due to excess demand
conditions in the foreign exchange market arising out of large payments for
crude oil imports and a slowdown in capital inflows.
Statutory Liquidity Ratio
In addition to the cash reserve ratio, a banking company such as ICICI
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 securities. The
percentage of this liquidity ratio is fixed by the Reserve Bank of India from
time to time. Currently, the Reserve Bank of India requires banking companies
to maintain a liquidity ratio of 25.0%.
Regulations on Asset Liability Management
For Banks
At present, Reserve Bank of India regulations for asset liability
management require banks to draw up asset-liability gap statements separately
for rupee and for four major foreign currencies. These gap statements are
prepared by scheduling all assets and liabilities according to the stated and
anticipated re-pricing date, or maturity date. These statements have to be
submitted to the Reserve Bank of India on a quarterly basis. The Reserve Bank
of India has advised banks to actively monitor the difference in the amount of
assets and liabilities maturing or being re-priced in a particular period and
place internal prudential limits on the gaps in each time period, as a risk
control mechanism. Additionally, the Reserve Bank of India had asked banks to
manage their asset-liability structure such that the negative liquidity gap in
the 1-14 day and 15-28 day time periods does not exceed 20.0% of cash outflows
in these time periods. This 20.0% limit on negative gaps has been made
mandatory with effect from April 1, 2000.
For Financial Institutions
The Reserve Bank of India issued guidelines on asset-liability management
for financial institutions to be implemented effective April 1, 2000. The
guidelines introduce a formal framework for the management of liquidity and
interest rate risk. A financial institution is required to constitute an Asset
Liability Committee headed by the Chief Executive Officer or the Chairman and
Managing Director or the Deputy Managing Director or the Executive Director.
Senior management from relevant functions should be represented in the Asset
Liability Committee. The Management Committee of the Board or any
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committee specifically constituted for the purpose should oversee the
implementation of the asset liability management system. Further, the Reserve
Bank of India has stipulated liquidity and interest rate-risk sensitivity gap
reports, which have to be prepared currency-wise. The reports have to be
prepared by grouping asset and liability cashflows in relevant maturity or
re-pricing time periods. The guidelines define the time periods and also state
the norms for the classification of assets and liabilities in particular time
periods.
Financial institutions are presently required to prepare these reports on
a quarterly basis. With effect from April 1, 2001, the liquidity report will be
required to be prepared on a fortnightly basis and the interest rate
sensitivity report will be required to be prepared every month. Short-term
liquidity gap limits stipulate that the negative gap in the 1-14 day and in the
15-28 day time periods should not exceed 10.0% and 15.0% of the outflows,
respectively. However, these limits can be revised and a higher limit can be
approved by the board of directors or the Asset Liability Committee, giving due
reasons for such enhancement. This relaxation is only temporary and the Reserve
Bank of India stipulated limits are intended to be mandatory with effect from
April 1, 2001. A financial institution is advised to monitor their
asset-liability positions with respect to these limits and also stipulate other
internal liquidity limits that it deems appropriate. For interest rate risk,
the Reserve Bank of India has recommended that the board of directors or the
Asset Liability Committee of the financial institution should decide the
prudential tolerance limits.
Directed Lending
Priority Sector Lending Requirements
The Reserve Bank of India requires Indian commercial banks such as ICICI
Bank to lend a certain percentage of their net bank credit to specific sectors
(the priority sectors) such as agriculture, small-scale industry, small
businesses and export companies. Total priority sector advances should be 40.0%
of net bank credit with agricultural advances required to be 18.0% of net bank
credit and advances to weaker sections required to be 10.0% of net bank credit.
Any shortfall in the amount required to be lent to the priority sectors
may be required to be deposited with developmental banks like National Bank for
Agriculture and Rural Development and Small Industries Development Bank of
India. These deposits can be for a period of one year to five years and
presently carry an interest rate of 8.0% per annum to 11.75% per annum.
The Reserve Bank of India requires banks to lend a minimum of 3.0% of
incremental deposits in the previous fiscal year towards housing finance. This
can be in the form of home loans to individuals or subscription to the
debentures and bonds of National Housing Bank and housing development
institutions recognized by the government of India.
Export Credit
The Reserve Bank of India also requires Indian commercial banks such as
ICICI Bank to make loans to exporters at concessional rates of interest. This
enables exporters to have access to an internationally competitive financing
option. Pursuant to existing guidelines, 12.0% of ICICI Bank's net bank credit
is required to be in the form of export credit. ICICI Bank provides export
credit for pre-shipment and post-shipment requirements of exporter borrowers in
rupees and foreign currencies.
Capital Adequacy Requirements
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ICICI and ICICI Bank are subject to the capital adequacy requirements of
the Reserve Bank of India, which, based on the guidelines of the Basle
Committee on Banking Regulations and Supervisory Practices, 1988, requires them
to maintain a minimum ratio of capital to risk adjusted assets and off-balance
sheet items of 9.0%, at least half of which must be Tier 1 capital.
The total capital of a company is classified into Tier 1 and Tier 2
capital. Tier 1 capital, the core capital, provides the most permanent and
readily available support against unexpected losses. It comprises paid-up
capital and reserves consisting of any statutory reserves, free reserves,
capital reserves or special reserves created pursuant to the Indian Income Tax
Act, 1961 reduced by equity investments in subsidiaries, intangible assets, and
the gap in provisioning and losses in the current period and those brought
forward from the previous period. Recently, the Reserve Bank of India has,
subject to certain conditions, also permitted the inclusion of certain types of
non-cumulative preference shares in Tier 1 capital.
Tier 2 capital consists of undisclosed reserves, revaluation reserves (at
a discount of 55.0%), general provisions and loss reserves (allowed up to a
maximum of 1.25% of weighted risk assets), hybrid debt capital instruments
(which combine certain features of both equity and debt securities),
subordinated debt and redeemable cumulative non-convertible preference shares
with an initial maturity of not less than five years. Subordinated debt and
redeemable cumulative non-convertible preference shares are subject to
progressive discounts for inclusion in Tier 2 capital and are limited to 50.0%
of Tier 1 capital. Tier 2 capital cannot exceed Tier 1 capital.
Risk adjusted assets are the risk weighted total of specified funded and
non-funded items. Degrees of credit risk expressed as percentage weighting have
been assigned to balance sheet assets and conversion factors to off-balance
sheet items. The value of each asset item is multiplied by the relevant weights
to produce risk-adjusted values of assets and off-balance-sheet items.
Guarantees are treated similarly to funded exposure and are subject to similar
risk weightings. All foreign exchange open position limits of ICICI and ICICI
Bank carry a 100.0% risk weight. Starting from March 31, 2000, investment in
government and approved securities also carry a risk weight for fluctuation in
prices. The aggregate risk weighted assets are taken into account for
determining the capital adequacy ratio.
Credit Exposure Limits
As a prudent measure aimed at better risk management and avoidance of
concentration of credit risk, the Reserve Bank of India has prescribed credit
exposure limits for long-term lending institutions and banks in respect of
their lending to individual borrowers and to all companies in a single group
(or sponsor group).
The limits set by the Reserve Bank of India are as follows:
o Effective from April 1, 2000, exposure to individual borrowers must
not exceed 20.0% of paid-up capital and free reserves of the bank or
financial institution. However, at October 31, 1999, if the exposure
level of any institution or bank to a single borrower was in excess
of 20.0% of the capital funds, it would have a two year period to
reduce exposure to 20.0%, i.e., by October 31, 2001.
o Exposure to sponsor groups must not exceed 50.0% of paid-up capital
and free reserves of the bank or financial institution. In the event
the additional credit exposure is in respect of
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infrastructure projects, exposure to group borrowers may be up to
60.0% of paid-up capital and free reserves of the bank or financial
institution.
Exposure includes funded and non-funded credit limits, underwriting and
other similar commitments. The exposure limit is calculated as the aggregate of
actual outstanding plus undisbursed or undrawn commitments. However, in respect
of non-funded credit limits, only 50.0% of such outstandings is taken into
account for determining exposure limits.
The credit exposures of ICICI and ICICI Bank to individual borrowers and
sponsor groups are within the percentages prescribed by the Reserve Bank of
India based on paid-up capital and reserves calculated under Indian GAAP.
Borrowing Guidelines
ICICI requires specific approval of the Ministry of Finance and Reserve
Bank of India for borrowings in foreign currency. See also "Restriction on
Foreign Ownership of Indian Securities". ICICI requires the specific approval
of the Reserve Bank of India for certain borrowings including public bond
issues. The Reserve Bank of India has also stipulated certain restrictions on
the mobilization of funds through other specified instruments. The minimum
maturity of ICICI Bank's time deposit is restricted to 15 days.
Foreign Currency Dealership
The Reserve Bank of India has granted ICICI a limited license to engage in
foreign currency transactions. Under this license, ICICI as an authorized
dealer has been granted permission to engage in foreign exchange transactions
in all foreign currencies in respect of raising foreign currency resources,
granting foreign currency sub-loans, servicing foreign currency debt repayment
obligations, opening letters of credit, opening accounts with banks abroad,
issuing guarantees, entering derivative transactions, carrying out risk
management activities and other activities that are incidental to ICICI's
normal functions authorized under its organizational documents.
Authorized dealers such as ICICI are required to determine their own open
positions in accordance with certain guidelines and these limits are approved
by the Reserve Bank of India. Further, authorized dealers are permitted to
hedge foreign currency loan liabilities of Indian corporations, including in
the form of interest rate swaps, currency swaps and forward rate agreements,
subject to certain conditions.
ICICI Bank is authorized to conduct all foreign currency transactions
under current Indian regulations.
SEBI Regulations and Guidelines
The Securities and Exchange Board of India was established to protect the
interests of public investors in securities and to promote the development of,
and to regulate, the Indian securities market. We are subject to Securities and
Exchange Board of India regulations for our capital issuances, as well as our
underwriting, custodial, depositary participant, investment banking, registrar
and transfer agents, broking and debenture trusteeship activities. These
regulations provide for our registration with the Securities and Exchange Board
of India for each of these activities, functions and responsibilities. We are
required to adhere to a code of conduct applicable for these activities.
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Under the regulations governing capital issuances of securities, ICICI is
designated as a "development financial institution" by the Securities and
Exchange Board of India. The regulations governing development financial
institutions differ from those governing capital issuances by other financial
and industrial companies. Benefits available to ICICI as a development
financial institution include an optional over-allotment of up to 100.0% of an
issuance, while other issuers are not permitted any over-allotment option. The
Securities and Exchange Board of India also permits filing of an umbrella
prospectus or "shelf prospectus" by development financial institutions for debt
issuances during a fiscal year. The Securities and Exchange Board of India has
provided for a minimum subscription clause, wherein an issuer shall refund the
amounts raised during a public issue if the minimum subscription of 90.0% is
not received. However, development financial institutions, in their issuances,
do not have to comply with the minimum subscription clause. These regulations
also require development financial institutions to maintain a debt to equity
ratio not exceeding 12:1 and a minimum notional debt service coverage ratio of
1.2.
As a public financial institution, ICICI is exempt from public offer
requirements under the Securities and Exchange Board of India (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997, when it acquires shares
in the ordinary course of business on its own account or as a pledgee.
Public Financial Institution Status
ICICI is a public financial institution under the Indian Companies Act,
1956.
The special status of Public Financial Institutions is also recognized
under other statutes including the Indian Income Tax Act, 1961, Sick Industrial
Companies (Special Provisions) Act, 1985 and Recovery of Debts Due to Banks and
Financial Institutions Act, 1993. As a public financial institution, ICICI is
entitled to certain benefits under various statutes including the following:
o For income tax purposes, ICICI's deposits and bonds are prescribed
modes for investing and depositing surplus money by charitable and
religious trusts.
o The government of India has permitted non-government provident,
superannuation and gratuity funds to invest up to 40.0% of their
annual accretion of funds in bonds and securities issued by public
financial institutions. Further, the trustees of these funds may at
their discretion invest an additional 20.0% of such accretions in
these bonds and securities.
o Indian law provides that a public financial institution cannot,
except as provided by law or practice, divulge any information
relating to or to the affairs of its customers.
o The Recovery of Debts Due to Banks and Financial Institutions Act,
1993 provides for establishment of debt recovery tribunals for
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.
o The Reserve Bank of India has stipulated a 20.0% risk weighting on
commercial banks' investments in bonds issued by public financial
institutions.
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In the event ICICI ceases to be a public financial institution, it would
be an event of default under some of ICICI's loan agreements related to foreign
currency borrowings.
Income Tax Benefits
Under the Indian Income Tax Act, ICICI is allowed a deduction of up to
40.0% of its taxable business income derived from the business of long-term
financing (defined as loans and advances extended for a period of not less than
five years) which is included in the special reserve, provided that the total
amount of this reserve does not exceed two times the paid-up share capital and
general reserves. ICICI has been granted this benefit because it is a financial
institution engaged in providing long-term financing for industrial development
activity which the government of India encourages. Effective fiscal 1998, if a
special reserve is created, it must be maintained and if it is utilized, it
must be treated as taxable income of the year in which it is utilized.
Deposit Insurance
ICICI Bank takes both demand and time deposits. In India, the Deposit
Insurance and Credit Guarantee Corporation, a 100.0% subsidiary of the Reserve
Bank of India, insures bank deposits, of Rs. 100,000 (US$ 2,291) or less.
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EXCHANGE CONTROLS
Restrictions on Conversion of Rupees
There are restrictions on the conversion of rupees into dollars. Before
February 29, 1992, the Reserve Bank of India determined the official value of
the rupee in relation to a weighted basket of currencies of India's major
trading partners. In the February 1992 budget, a new dual exchange rate
mechanism was introduced by allowing conversion of 60.0% of the foreign
exchange received on trade or current account at a market-determined rate and
the remaining 40.0% at the official rate. All importers were, however, required
to buy foreign exchange at the market rate except for certain specified
priority imports. In March 1993, the exchange rate was unified and allowed to
float. In February 1994 and again in August 1994, the Reserve Bank of India
announced relaxations in payment restrictions in the case of a number of
transactions. Since August 1994, the government of India has substantially
complied with its obligations owed to the International Monetary Fund, under
which India is committed to refrain from using exchange restrictions on current
international transactions as an instrument in managing the balance of
payments. Effective July 1995, the process of current account convertibility
was advanced by relaxing restrictions on foreign exchange for various purposes,
such as foreign travel and medical treatment.
In December 1999, the Indian parliament passed the new Foreign Exchange
Management Act, 1999, which has become effective on June 1, 2000, replacing the
earlier Foreign Exchange Regulation Act, 1973. This new legislation indicates a
major shift in the policy of the government with regard to foreign exchange
management in India. While the Foreign Exchange Regulation Act, 1973, was aimed
at the conservation of foreign exchange and its utilization for the economic
development of the country, the objective of the Foreign Exchange Management
Act, 1999, is to facilitate external trade and promote the orderly development
and maintenance of the foreign exchange market in India.
The Foreign Exchange Management Act, 1999, permits most transactions
involving foreign exchange except those prohibited or restricted by the Reserve
Bank of India. The Foreign Exchange Management Act, 1999, has eased
restrictions on current account transactions. However the Reserve Bank of India
continues to exercise control over capital account transactions (i.e., those
which alter the assets or liabilities, including contingent liabilities, of
persons). The Reserve Bank of India has issued regulations under the Foreign
Exchange Management Act, 1999, to regulate the various kinds of capital account
transactions, including certain aspects of the purchase and issuance of shares
of Indian companies.
Restrictions on Sale of the Equity Shares underlying the ADSs and for
Repatriation of Sale Proceeds
ADSs issued by Indian companies to non-residents have free transferability
outside India. However, under Indian regulations and practice, the approval of
the Reserve Bank of India is required for the sale of equity shares underlying
the ADSs (other than a sale on a stock exchange or in connection with an offer
made under the takeover regulations) by a non-resident of India to a resident
of India as well as for renunciation of rights to a resident of India. Further,
the depositary cannot accept deposits of outstanding equity shares and issue
ADRs evidencing ADSs representing such equity shares. Therefore, an investor in
the ADSs who surrenders ADSs and withdraws equity shares is not permitted
subsequently to deposit such equity shares and obtain ADSs. Nor would a holder
to whom such equity shares are transferred be permitted to deposit such equity
shares. Investors who seek to sell in India any equity shares withdrawn from
the depositary facility and to convert the rupee proceeds from such sale into
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foreign currency and repatriate such foreign currency from India will,
subject to the foregoing, have to obtain Reserve Bank of India approval for
each such transaction.
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NATURE OF THE INDIAN SECURITIES TRADING MARKET
The information in this section has been extracted from publicly available
documents from various sources, including officially prepared materials from
the Securities and Exchange Board of India, the BSE and the National Stock
Exchange or the NSE, and has not been prepared or independently verified by us.
This is the latest available information to our knowledge.
Market Price Information
Equity Shares
ICICI's outstanding equity shares are listed and traded on the Bangalore,
Calcutta, Delhi, Madras, Mangalore and Vadodara Stock Exchanges, the BSE and on
the National Stock Exchange of India Limited or the NSE. The equity shares were
first listed on the BSE in 1955. The prices for equity shares as quoted in the
official list of each of the Indian stock exchanges are in Indian rupees. The
following table shows:
o the reported high and low closing prices quoted in rupees for the
equity shares on the BSE; and
o the reported high and low closing prices for the equity shares,
translated into U.S. dollars, based on the noon buying rate on the
last business day of each period presented.
<TABLE>
Price per Price per
Equity share(1) Equity share
----------------------------------------------------------------
High Low High Low
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Annual Prices:
Fiscal 1996 ......................... Rs. 125.00 Rs. 67.00 US$ 3.64 US$ 1.95
Fiscal 1997 ......................... 113.00 50.25 3.15 1.40
Fiscal 1998 ......................... 106.75 57.75 2.70 1.46
Fiscal 1999 ......................... 122.60 39.30 2.88 0.92
Fiscal 2000 ......................... 190.05 41.40 4.35 0.95
Quarterly prices:
Fiscal 1999:
First Quarter ....................... 122.60 64.00 2.88 1.51
Second Quarter ...................... 84.00 53.25 1.98 1.25
Third Quarter ....................... 53.05 39.30 1.25 0.92
Fourth Quarter ...................... 56.50 40.45 1.33 0.95
Fiscal 2000:
First Quarter ....................... 78.00 41.40 1.80 0.95
Second Quarter ...................... 95.00 72.00 2.17 1.65
Third Quarter ....................... 113.45 75.95 2.61 1.75
Fourth Quarter ...................... 190.05 96.50 4.35 2.21
Fiscal 2001:
First Quarter ....................... 154.00 101.95 3.45 2.28
Second Quarter (through August 31) .. 151.80 104.05 3.31 2.27
Monthly prices:
March 2000 .......................... 190.05 130.00 4.35 2.98
April 2000 .......................... 146.40 124.00 3.35 2.84
May 2000 ............................ 135.25 101.95 3.03 2.28
June 2000 ........................... 154.00 125.45 3.45 2.81
July 2000 ........................... 151.80 119.35 3.36 2.64
August 2000 ......................... 124.90 104.05 2.72 2.27
</TABLE>
---------
(1) Data from the BSE. The prices quoted on the NSE and other stock
exchanges may be different.
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On August 31, 2000, the closing price of equity shares on the BSE was Rs.
108.35 equivalent to US$ 2.36 per equity share (US$ 11.80 per ADS on an imputed
basis) translated at the noon buying rate of Rs. 45.90 per US$ 1.00 on August
31, 2000.
At August 25, 2000, there were approximately 578,442 holders of record of
our equity shares, of which 95 had registered addresses in the United States
and held an aggregate of approximately 201,623 equity shares.
ADSs
ICICI's ADSs, each representing five equity shares, were originally issued
in September 1999 in a public offering and were listed and traded on the New
York Stock Exchange under the symbol IC.d. The equity shares underlying the
ADSs have been listed on the Bangalore, Calcutta, Delhi, Madras, Mangalore and
Vadodara Stock Exchanges, the BSE and the NSE.
Subsequent to ICICI's ADS offering in September 1999, ICICI completed an
exchange offer of its GDRs for its SEC-registered ADSs on a one-for-one basis.
ICICI's GDRs, each representing five equity shares, were originally issued in
August 1996 and listed on the London Stock Exchange. Subsequent to this
exchange offer in November 1999, ICICI's GDRs were delisted from the London
Stock Exchange. These ADSs were listed and traded on the New York Stock
Exchange under the symbol IC. The trading symbol of the ADSs sold in the public
offering in September 1999, IC.d, was different from the trading symbol of the
ADSs issued in the exchange offer, IC. The equity shares underlying the ADSs
sold in the public offering were issued in the middle of fiscal 2000 and were
subject to a pro rata dividend for fiscal 2000 whereas the equity shares
underlying the ADSs issued in the exchange offer were issued in August 1996 and
were subject to a full dividend for fiscal 2000. Subsequent to June 19, 2000,
the record date for the final dividend for fiscal 2000, all of ICICI's
outstanding ADSs ranked pari passu and since then have traded under the symbol
IC on the New York Stock Exhange. At August 31, 2000, we had 51,282,857 ADSs
outstanding.
The following table sets forth, for the periods indicated, the reported
high and low closing prices on the New York Stock Exchange for the outstanding
ADSs traded under the symbol IC.
Price per ADS
----------------------------
High Low
----------------------------
Annual prices:
Fiscal 2000 ................... US$ 40.50 US$ 10.63
Quarterly prices:
Fiscal 2000:
Third Quarter
(from November 1, 1999) .... 17.50 10.63
Fourth Quarter ................ 40.50 15.25
Fiscal 2001:
First Quarter ................. 26.75 14.56
Second Quarter
(through August 31, 2000) .. 18.94 13.25
Monthly prices:
March 2000 .................... 37.00 22.75
April 2000 .................... 26.75 16.75
May 2000 ...................... 23.75 14.56
June 2000 ..................... 20.00 17.50
July 2000 ..................... 18.94 15.25
August 2000 ................... 15.38 13.25
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The following table sets forth, for the periods indicated, the reported
high and low closing prices on the New York Stock Exchange for the outstanding
ADSs traded under the symbol IC.d.
Price per ADS
----------------------------
High Low
----------------------------
Annual prices:
Fiscal 2000 ................... US$ 39.75 US$ 10.94
Quarterly prices:
Fiscal 2000:
Second Quarter
(from September 22, 2000) ..... 12.00 11.06
Third Quarter ................. 16.25 10.94
Fourth Quarter ................ 39.75 15.00
Fiscal 2001:
First Quarter
(through June 16, 2000) ....... 25.38 14.31
Monthly prices:
March 2000 .................... 35.75 22.50
April 2000 .................... 25.38 15.63
May 2000 ...................... 23.75 14.31
June 2000
(through June 16, 2000) ....... 19.44 17.38
Indian Securities Market
India has a long history of organized securities trading. In 1875, the
first stock exchange was established in Mumbai.
Stock Exchange Regulation
India's stock exchanges are regulated primarily by the Securities and
Exchange Board of India, as well as by the government of India acting through
the Ministry of Finance, Stock Exchange Division, under the Securities
Contracts (Regulation) Act, 1956 and the Securities Contracts (Regulation)
Rules, 1957. The Securities Contracts (Regulation) Rules regulate the
recognition of stock exchanges, the qualifications for membership and the
manner in which contracts are entered into and enforced between members.
The main objective of the Securities and Exchange Board of India, which
was established by the government of India in February 1992, is to promote the
development of and regulate the Indian securities markets and protect the
interests of investors. The Securities and Exchange Board of India may make or
amend an exchange's by-laws and rules, overrule an exchange's governing body
and withdraw recognition of an exchange. In the past, the Securities and
Exchange Board of India's regulation of market practices was limited. The
Securities and Exchange Board of India Act, 1992 granted the Securities and
Exchange Board of India powers to regulate the business of Indian securities
markets, including stock exchanges and other financial intermediaries, promote
and monitor self-regulatory organizations, prohibit fraudulent and unfair trade
practices and insider trading, and regulate substantial acquisitions of shares
and takeovers of companies. The Securities and Exchange Board of India has also
issued guidelines concerning minimum disclosure requirements by public
companies, rules and regulations concerning investor protection, insider
trading, substantial acquisitions of shares and takeovers of companies,
buybacks of securities, employee stock option schemes, stockbrokers, merchant
bankers, mutual funds, credit rating agencies and other capital market
participants.
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Recently, the Securities Contracts (Regulation) Act has been amended to
include derivatives of securities and instruments of collective investment in
the definition of "securities". This has been done with a view to develop and
regulate the markets for derivatives. Trading in derivatives commenced on the
BSE and the National Stock Exchange in June 2000. The Securities and Exchange
Board of India also set up a committee for the review of Indian securities
laws, which has proposed a draft Securities Bill. The draft Securities Bill, if
accepted, will result in a substantial revision in the laws relating to
securities in India.
The Indian Companies Act, 1956 was amended to introduce significant
changes such as allowing buybacks of securities and issuances of sweat equity
shares, making accounting standards issued by the Institute of Chartered
Accountants of India mandatory and relaxing restrictions on inter-corporate
investment and loans.
Public Issuance of Securities
Under the Companies Act, a public offering of securities in India must
generally be made by means of a prospectus, which must contain information
specified in the Companies Act. The prospectus should be filed with the
Registrar of Companies having jurisdiction over the place where a company's
registered office is situated. A company's directors and promoters may be
subject to civil and criminal liability for misstatements in a prospectus. The
Companies Act also sets forth procedures for the acceptance of subscriptions
and the allotment of securities among subscribers and establishes maximum
commission rates for the sale of securities.
The Securities and Exchange Board of India has issued detailed guidelines
concerning disclosures by public companies and investor protection. Prior to
the repeal of certain rules in mid-1992, the Controller of Capital Issues of
the government of India regulated the prices at which companies could issue
securities. The Securities and Exchange Board of India guidelines now permit
existing listed companies to price freely their issues of securities, though
the pricing of initial public offerings is subject to certain restrictions. All
new issues governed by the Securities and Exchange Board of India guidelines
are conditional upon a minimum subscription requirement of 90.0% of the
securities being issued. However, such minimum subscription clause is not
applicable to development financial institutions such as ICICI. In July 1996,
the Securities and Exchange Board of India relaxed the foregoing minimum
subscription requirement in the case of "offer for sale" of securities, but
introduced regulations which require that there be a minimum of ten
shareholders for every Rs. 100,000 of nominal value of shares offered to the
public. In the case of public issues, the requirement is for a minimum of five
shareholders for every Rs. 100,000 of nominal value of shares offered to the
public. Promoters of companies are required to retain a certain minimum
certified holding of equity share capital, which is subject to a lock-up for
three years. No issuance of bonus shares is permitted within 12 months of any
public issue or rights issue
In 1995, the Securities and Exchange Board of India introduced guidelines
for issue of equity capital through use of the book-building process. These
guidelines were modified in October 1997 and again in October 1999. Under the
existing guidelines, an issuer has the option to book build either 90 per cent
or 75 per cent of the net offering to the public. The balance issue is offered
to the public at the fixed price determined through the book-building exercise.
Public limited companies are required under the Companies Act to prepare,
file with the Registrar of Companies and circulate to their shareholders
audited annual accounts, which comply with the Companies Act's disclosure
requirements and regulations governing their manner of presentation. In
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addition, a listed company is subject to continuing disclosure requirements
pursuant to the terms of its listing agreement with the relevant stock
exchange. The Securities and Exchange Board of India has notified amendments to
the listing agreement tightening the ongoing disclosure standards by
corporations. Accordingly, companies are now required to publish unaudited
financial statements on a quarterly basis and are required to inform stock
exchanges immediately regarding any stock-price sensitive information.
Listing
The listing of securities on a recognized Indian stock exchange is
regulated by the Securities Contract Rules.
Under the standard terms of stock exchange listing agreements, the
governing body of each stock exchange is empowered to suspend trading of or
dealing in a listed security for breach of the company's obligations under such
agreement, subject to the company receiving prior notice of the intent of the
exchange. A listed company can also be delisted after a notice period of six
months if the number of public shareholders falls below five for every Rs.
100,000 of nominal value of shares offered to the public, the public
shareholding falls below 20.0% of the number of shares offered to the public or
the listed company fails to pay annual listing fees to the relevant stock
exchange. The Securities and Exchange Board of India has recently issued
guidelines for standardizing listing agreements and by-laws of stock exchanges
in India. The Securities and Exchange Board of India proposes to issue
additional guidelines, which set out basic listing standards for all stock
exchanges in India. In the event that a suspension of a company's securities
continues for a period in excess of three months, the company may appeal to the
Securities and Exchange Board of India to set aside the suspension. The
Securities and Exchange Board of India has the power to veto stock exchange
decisions in this regard.
Indian Stock Exchanges
There are 24 stock exchanges in India. These stock exchanges are served by
over 9,000 brokers dispersed across India. Most of the stock exchanges have
their governing board for self-regulation.
It is estimated that the six major exchanges, the BSE, the stock exchanges
at Ahmedabad, Calcutta, Chennai and Delhi, and the NSE, account for more than
90.0% of the market capitalization of listed Indian companies. The BSE and the
NSE account for a majority of trading volumes of securities in India. The BSE
and NSE together hold a dominant position among the stock exchanges in terms of
number of listed companies, market capitalization and trading activity.
The Securities and Exchange Board of India has prescribed certain
guidelines for the pricing and reporting of negotiated deals. A negotiated deal
refers to a transaction executed at a price not determined through stock
exchange pricing and involving a value of not less than Rs. 2.5 million or a
volume of not less than 10,000 shares. Before these guidelines were issued, a
negotiated deal had to be reported to the stock exchange within 15 minutes from
the time the trade was negotiated or, if such transaction occurred after
trading hours, on the following day when the market opened. However, for
greater transparency, the Securities and Exchange Board of India has decided
that negotiated deals will not be permitted in the existing manner and they
have to be executed on the screens of the exchanges just like any other normal
trade.
There are generally no restrictions on price movements of any security on
any given day. However, to restrict abnormal price volatility, the Securities
and Exchange Board of India instructed stock exchanges to implement daily
circuit breakers which do not allow transactions at prices different by more
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than 8.0% of the previous closing price for shares quoted at Rs. 20 or more.
The Securities and Exchange Board of India has recently instructed stock
exchanges to relax the circuit breakers by a further 8.0% after half an hour
from the time prices reach the limit of 8.0%. It has allowed stock exchanges to
fix circuit breakers for shares quoted at prices up to Rs. 20. Further, margin
requirements are also imposed by stock exchanges that are required to be paid
at rates fixed by the stock exchanges. The Indian stock exchanges can also
exercise the power to suspend trading during periods of market volatility.
A settlement cycle is an account period for the securities traded on a
stock exchange. At the end of the period, obligations are settled, i.e., buyers
of securities pay for and receive securities while sellers deliver securities
and receive payment for them. The obligations are settled on a net basis, i.e.,
if some security is both purchased and sold in the same settlement cycle then
only the net quantity of securities is delivered or received and the net amount
of funds paid or received. Typically, the length of the settlement period is
five business days. The Securities and Exchange Board of India has specified
163 shares that were to be settled by rolling settlement from May 21, 2000.
Under rolling settlement, the length of the settlement period is one day.
In December 1993, the Securities and Exchange Board of India announced a
ban on forward trading on the Ahmedabad, Calcutta and Delhi stock exchanges and
the BSE in order to contain excessive speculation, protect the interests of
investors and regulate the stock market. All transactions thereafter were
required to be for payment and delivery.
In October 1995, the Securities and Exchange Board of India announced the
introduction of a modified forward trading system to enable buyers and sellers
to defer the settlement of their obligations to the following settlement cycle.
This system began on the BSE for select shares in January 1996. The new system
segregates trades into different categories, namely, carry-forward, delivery
and jobbing, with different identification numbers of the various trades. The
Securities and Exchange Board of India has appointed a committee to recommend
rules and procedures for a carry forward mechanism under the rolling
settlement. This committee has recently submitted its report. Once the revised
carry forward mechanism is approved, rolling settlement will also be applicable
for shares in the carry forward list.
In 1992, the Securities and Exchange Board of India promulgated rules and
regulations that prescribe conditions for registration of stockbrokers. A
stockbroker may not buy, sell or deal in securities except pursuant to a
certificate granted by the Securities and Exchange Board of India. The
regulations also prescribe a broker code of conduct and rules for the fair
treatment of investors by brokers, the procedures for registration, the payment
of registration fees, maintenance of appropriate books and records and the
right of inspection of the books of the stockbrokers by the Securities and
Exchange Board of India. Broker liability in cases of default extends to
suspension or cancellation of the broker's registration. The Securities and
Exchange Board of India has issued registration certificates to over 9,000
stockbrokers who are members of various stock exchanges in India. Before these
regulations, stockbrokers were required to be registered only with the stock
exchanges of which they were members. The Securities and Exchange Board of
India regulations introduced the concept of dual registration of stockbrokers
with the Securities and Exchange Board of India and the stock exchanges, and
brought the brokers under regulation for the first time.
The Securities and Exchange Board of India has enforcement powers over
secondary market participants for violation of any provisions of the Securities
and Exchange Board of India Act, 1992, or breach of the rules and regulations
of the Securities and Exchange Board of India. The Securities and Exchange
Board of India may also take enforcement actions for violations of the
Securities Contract Act or rules made thereunder and rules, regulations and
by-laws of the stock exchanges.
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National Stock Exchange or NSE
In April 1993, the government of India gave the final clearance for the
setting up of the NSE at Mumbai. The NSE was established by financial
institutions and banks, with the Industrial Development Bank of India as the
coordinating agency. The NSE serves as a national exchange, providing
nationwide on-line satellite-linked screen-based trading facilities with market
makers and electronic clearing and settlement. The principal aim of the NSE is
to enable investors to buy or sell securities from anywhere in India, serving
as a national market for securities, including government securities,
debentures, public sector bonds and units. Deliveries for trades executed
"on-market" are exchanged through the National Securities Clearing Corporation
Limited. As in the case with the BSE, negotiated or off-market trades are
reported to the NSE on-line. Since June 30, 2000, screen-based paperless
trading and settlement has been possible through the NSE in 333 cities in
India. The NSE has about 6,839 trading terminals across the country.
Trading in government securities, public sector bonds and units commenced
on the NSE in July 1994 and trading in equities of 200 large companies started
in November 1994. The average daily traded value of the capital market segment
rose from approximately Rs. 70 million in November 1994 to approximately Rs.
54.3 billion in June 2000. The NSE has 890 trading members on the capital
market segment and 96 trading members on the wholesale debt market segment. At
October 31, 1999, 685 securities were listed and 572 securities were permitted
to trade on the capital market segment. On the wholesale debt market segment,
797 securities were listed and 517 securities were permitted to trade at
October 31, 1999. The NSE launched the NSE 50 Index, now known as S&P CNX
NIFTY, on April 22, 1996 and the Mid-cap index on January 1, 1996. The
securities in the S&P CNX NIFTY are highly liquid. In May 1998, India Index
Services and Products Limited (IISL) was launched as a joint venture between
the NSE and Credit Rating and Information Services of India Limited with the
objective of providing index-related services and products for the capital
markets. IISL has a consulting agreement with Standard & Poor's, the world's
leading provider of equity indices, for co-branding IISL's equity indices. The
market capitalization of the NSE at June 30, 2000 was approximately Rs. 8.5
trillion. With a wide network in major metropolitan cities, screen-based
trading, central monitoring system and greater transparency, the NSE has lately
recorded high volumes of trading. The volume of trading on the NSE now
generally exceeds that on the BSE.
The NSE has set up a disaster recovery site at Pune to enable it to
commence normal business operations within a very short time frame should a
disaster occur.
The clearing and settlement operations of the NSE are managed by its
wholly owned subsidiary, the National Securities Clearing Corporation. A key
factor in the growth of the NSE has been the short and tight settlement cycles
that have operated since its commencement. The National Securities Clearing
Corporation operates a well-defined settlement cycle and there has been no
deviation or deferment from this cycle. The NSE provides a facility for
multiple settlement mechanisms including an account period settlement in
regular market sub-segment dealing in physical securities and rolling
settlement--normal (lot size one) and rolling settlement--normal (marketable
lots) in book-entry sub-segment.
The account period cycle starts every Wednesday and ends on a Tuesday with
the pay in of securities on the next Monday, pay-in of funds on the next
Tuesday and pay-out of funds and securities on the next Wednesday. The
settlement in the book-entry sub-segment is conducted on the next Tuesday. The
settlement is completed within eight days of the last day of the trading cycle.
The rolling settlement is typically on a T+5 working day basis, trades taking
place on Monday will be settled on the next Monday.
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All settlements for securities are through the clearing house in the case of
physical settlement and through the depositary in the case of book entry
sub-segment. Funds settlement takes place through designated clearing banks.
Deals on the book-entry sub-segment are settled through the depositary. The
National Securities Clearing Corporation Limited interfaces with the depositary
on the one hand and the clearing banks on the other to provide delivery versus
payment settlement for depositary enabled trades.
BSE
The BSE, the oldest stock exchange in India, was established in 1875. It
has evolved over the years into its present status as the premier stock
exchange of India. The BSE switched over to online trading (BOLT) in May 1995.
At June 30, 2000, the BSE had 680 members, comprising 229 individual members,
430 Indian companies, 20 foreign brokers and one composite corporate member.
Only a member of the BSE has the right to trade in the stocks listed on the
BSE.
At June 30, 2000, the estimated market capitalization of stocks trading on
the BSE was Rs. 7.9 trillion. The average daily turnover on the BSE has also
shown a significant increase from approximately Rs. 67 million in January 1987
to approximately Rs. 39.2 billion in June 2000. At June 30, 2000, the BSE had
1,544 trading work-stations in 276 cities across the country. The BSE has
Securities Exchange Board of India approval to expand its BOLT on-line trading
network to 424 cities.
Until 1995, brokers and members of the BSE received individual orders from
which any cross-orders were matched and taken off. The balance of the orders
was transmitted to the trading floor for execution in an open outcry system.
The BSE has now introduced its BOLT online trading system on the exchange. The
enhanced transparency in dealings due to implementation of BOLT has assisted
considerably in smoothening settlement cycles and improving efficiency in back
office work. From July 3, 1995, all listed shares were transferred to BOLT.
At June 30, 2000, there were 5,886 listed companies trading on the BSE.
Shares on the BSE are classified into A, B1, B2 and Z groups. All the groups
follow a seven-day (five working day) trading period commencing every Monday
and ending every Friday. All groups settle funds and securities through the BSE
clearing house. For the A group of shares, forward trading and custodial
settlement are permitted. For the B1 group of shares, custodial settlement is
permitted but forward trading is not permitted. For the B2 group of shares,
neither forward trading nor custodial settlement is permitted. The Z group
includes those companies who have not fulfilled the listing guidelines or have
not paid listing fees. ICICI's equity shares are in the A group.
The trading period for all group shares lasts from Monday to Friday. The
trades are normally settled by the broker's net payment to the BSE clearing
house for securities on the following Thursday and the broker's delivery of
securities to the BSE clearing house on the same Thursday and, in the case of
overflow of securities, on Friday. The BSE clearing house then makes payments
and delivers securities to the brokers on the following Monday. All shortages
in delivery are compulsorily auctioned by the clearing house. The auction
system is fully computerized and has been following a closed-bid system. For
payments, the bank accounts of the brokers are maintained with the designated
clearing banks which are debited or credited on the specified days.
The maximum commission charged by brokers for trading equities is 2.5% of
the transaction value but, in practice, commissions are normally in the range
of 0.5% to 2.0%. The 1994 budget imposed a 5.0% service tax on brokerage
commissions.
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The following two indices are generally used in tracking the aggregate
price movements on the BSE.
o The BSE Sensitive Index (Sensex) consists of the listed shares of 30
large market capitalization companies from the A group, including
ICICI. The companies were selected on the basis of market
capitalization, liquidity and the need for sectoral representation.
The BSE Sensitive Index was first compiled in 1986 with fiscal 1979
as its base year. This is the most commonly used index in India.
o The BSE 100 Index (formerly the BSE National Index) consists of the
listed shares of 100 companies including the 30 in the BSE Sensitive
Index. The BSE 100 Index was introduced in January 1986 with fiscal
1984 as its base year.
Internet-Based Securities Trading and Services
The Securities and Exchange Board of India has recently allowed
Internet-based securities trading under the existing legal framework. The
regulations allow the Internet to be used as an order routing system through
stock brokers registered with the Securities and Exchange Board of India on
behalf of clients for executing trades on a recognized stock exchange in India.
Stock brokers interested in providing this service are required to apply for
permission from the respective stock exchange and also must comply with certain
minimum conditions stipulated by the Securities and Exchange Board of India.
Given the limited life of these new regulations to date, it is possible that
these regulations will continue to evolve in the future.
Takeover Code
Disclosure and mandatory bid obligations under Indian law are governed by
the Securities and Exchange Board of India (Substantial Acquisition of Shares
and Takeovers) Regulations, 1997 (the "Takeover Code") which prescribes certain
thresholds or trigger points that give rise to these obligations. The Takeover
Code is under constant review by the Securities and Exchange Board of India and
was recently amended.
The most important features of the Takeover Code, as amended, are as
follows:
Any acquirer (meaning a person who, directly or indirectly, acquires or
agrees to acquire shares or voting rights in a company, either by himself or
with any person acting in concert) who acquires shares or voting rights that
would entitle him to more than 5.0% of the shares or voting rights in a company
is required to disclose the aggregate of his shareholding or voting rights in
that company to the company (which in turn is required to disclose the same to
each of the stock exchanges on which the company's shares are listed) within
four working days of (a) the receipt of allotment information or (b) the
acquisitions of shares or voting rights, as the case may be.
o A person who holds more than 15.0% of the shares or voting rights in
any company is required to make annual disclosure of his holdings to
that company (which in turn is required to disclose the same to each
of the stock exchanges on which the company's shares are listed).
o Promoters or persons in control of a company are also required to
make annual disclosure of their holdings in the same manner.
o An acquirer cannot acquire shares or voting rights which (taken
together with existing shares or voting rights, if any, held by him
or by persons acting in concert with him) would entitle
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such acquirer to exercise 15.0% or more of the voting rights in a
company, unless such acquirer makes a public announcement offering to
acquire a further 20.0% of the shares of the company.
o An acquirer who, together with persons acting in concert with him,
holds between 15.0% and 75.0% of the shares cannot acquire additional
shares or voting rights that would entitle him to exercise a further
5.0% of the voting rights in any period of 12 months unless such
acquirer makes a public announcement offering to acquire a further
20.0% of the shares of the company.
o Any further acquisition of shares or voting rights by an acquirer who
holds 75.0% of the shares or voting rights in a company triggers the
same public announcement requirements.
o In addition, regardless of whether there has been any acquisition of
shares or voting rights in a company, an acquirer acting in concert
cannot directly or indirectly acquire control over a company (for
example, by way of acquiring the right to appoint a majority of the
directors or to control the management or the policy decisions of the
company) unless such acquirer makes a public announcement offering to
acquire a minimum of 20.0% of the shares of the company.
The Takeover Code sets out the contents of the required public
announcements as well as the minimum offer price.
The Takeover Code permits conditional offers as well as the acquisition
and subsequent delisting of all shares of a company and provides specific
guidelines for the gradual acquisition of shares or voting rights. Specific
obligations of the acquirer and the board of directors of the target company in
the offer process have also been set out. Acquirers making a public offer are
also required to deposit in an escrow account a percentage of the total
consideration which amount will be forfeited in the event that the acquirer
does not fulfill his obligations. In addition, the Takeover Code introduces the
"chain principle" by which the acquisition of a holding company will obligate
the acquirer to make a public offer to the shareholders of each subsidiary
company which is listed.
The general requirements to make such a public announcement do not,
however, apply entirely to bail-out takeovers when a promoter (i.e., a person
or persons in control of the company, persons named in any offer document as
promoters and certain specified corporate bodies and individuals) is taking
over a financially weak company but not a "sick industrial company" pursuant to
a rehabilitation scheme approved by a public financial institution or a
scheduled bank. A "financially weak company" is a company which has at the end
of the previous financial year accumulated losses, which have resulted in
erosion of more than 50.0% but less than 100.0% of the total sum of its paid up
capital and free reserves at the end of the previous financial year. A "sick
industrial company" is a company registered for more than five years which has
at the end of any financial year accumulated losses equal to or exceeding its
entire net worth.
The Takeover Code does not apply to certain specified acquisitions
including the acquisition of shares (i) by allotment in a public, rights and
preferential issue, (ii) pursuant to an underwriting agreement, (iii) by
registered stockbrokers in the ordinary course of business on behalf of
clients, (iv) in unlisted companies, (v) pursuant to a scheme of reconstruction
or amalgamation or (vi) pursuant to a scheme under Section 18 of the Sick
Industrial Companies (Special Provisions) Act, 1985. The Takeover Code does not
apply to acquisitions in the ordinary course of business by public financial
institutions such as ICICI either on their own account or as a pledgee. In
addition, the Takeover Code does not apply to the acquisition of ADSs so long
as they are not converted into equity shares.
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Depositaries
In August 1996, the Indian Parliament enacted the Depositaries Act, 1996
which provides a legal framework for the establishment of depositaries to
record ownership details and effectuate transfers in book-entry form. The
Securities and Exchange Board of India passed the Securities and Exchange Board
of India (Depositaries and Participants) Regulations, 1996 which provides for
the formation of such depositaries, the registration of participants as well as
the rights and obligations of the depositaries, participants and the issuers.
Every depositary has to register with the Securities and Exchange Board of
India. Pursuant to the Depositaries Act, the National Securities Depository
Limited was established by the Unit Trust of India, the Industrial Development
Bank of India and the NSE in 1996 to provide electronic depositary facilities
for trading in equity and debt securities. The National Securities Depository
Limited, which commenced operations in November 1996, was the first depositary
in India. Another depositary, the Central Depository Services Limited,
established by the BSE has commenced operations since July 15, 1999. The
depositary system has significantly improved the operations of the Indian
securities markets.
Trading of securities in book-entry form commenced in December 1996 and
was available for securities of 865 companies at June 2000. In order to
encourage "dematerialization" of securities, the Securities and Exchange Board
of India has set up a working group on dematerialization of securities
comprising foreign institutional investors, custodians, stock exchanges, mutual
funds and the National Securities Depository Limited to review the progress of
securities and trading in dematerialized form and to recommend scrips for
compulsory dematerialized trading in a phased manner. Accordingly, commencing
January 1998, the Securities and Exchange Board of India has notified scrips of
various companies for compulsory dematerialized trading by certain categories
of investors such as foreign institutional investors and other institutional
investors and has also notified compulsory dematerialized trading in specified
scrips for all retail investors. The Securities and Exchange Board of India
proposes to increase the number of scrips in which dematerialized trading is
compulsory for all investors significantly in the near future. The Securities
and Exchange Board of India has also provided that the issue and allotment of
shares in public, rights or offer for sale offerings after a specified date to
be notified by the Securities and Exchange Board of India shall only be in
dematerialized form and an investor shall be compulsorily required to open a
depositary account with a participant.
However, even in case of scrips notified for compulsory dematerialized
trading, investors, other than institutional investors, are permitted to trade
in physical shares on transactions outside the stock exchange where there are
no requirements of reporting such transactions to the stock exchange and
transactions on the stock exchange involving lots less than 500 securities.
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RESTRICTION ON FOREIGN OWNERSHIP OF INDIAN SECURITIES
India strictly regulates ownership of Indian companies by foreigners.
Foreign investment in Indian securities, including the equity shares
represented by the ADSs, is generally regulated by the Foreign Exchange
Management Act, 1999, which permits transactions involving the inflow or
outflow of foreign exchange and empowers the Reserve Bank of India to prohibit
or regulate such transactions.
The Foreign Exchange Management Act permits most transactions involving
foreign exchange except those prohibited or restricted by the Reserve Bank of
India. The Foreign Exchange Management Act has eased restrictions on current
account transactions. However, the Reserve Bank of India continues to exercise
control over capital account transactions (i.e., those which alter the assets
or liabilities, including contingent liabilities, of persons). The Reserve Bank
of India has issued regulations under the Foreign Exchange Management Act 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 recently issued a notification under the
provisions of the Foreign Exchange Management Act relaxing the requirement of
prior approval for an Indian company making an ADS issue provided that the
issuer is eligible to issue ADSs pursuant to guidelines issued by the Ministry
of Finance and has the necessary approval from the Foreign Investment Promotion
Board.
Under the foreign investment rules, there are four applicable restrictions
on foreign ownership:
o Under the foreign direct investment route, foreign investors may own
equity shares of ICICI only with the approval of the Foreign
Investment Promotion Board; this approval is granted on a
case-by-case basis except, as discussed immediately below, where the
investment is by acquisition of ADSs or GDRs;
o Under the Issue of Foreign Currency Convertible Bonds and Equity
Shares (through Depositary Receipt Mechanism) Scheme, 1993, foreign
investors may purchase ADSs or GDRs, subject to the receipt of all
necessary government approvals at the time the depositary receipt
program is set up;
o Under the portfolio investment route, foreign institutional
investors, subject to registration with the Securities and Exchange
Board of India and the Reserve Bank of India, may be permitted to own
in the aggregate up to an additional 24.0% of ICICI's equity shares
that are not represented by ADSs or GDRs; no single foreign
institutional investor may own more than 10.0% of ICICI's equity
shares;
o Non-resident Indians and corporate bodies predominantly owned by
non-resident Indians may own up to 10.0% of ICICI's equity shares; no
single non-resident Indian or corporate body predominantly owned by
non-resident Indians may own more than 5.0% of ICICI's total equity
shares.
Foreign investors own 48.3% of ICICI's equity shares in total and 32.7%
through the ADS program.
ICICI, like all Indian companies, must obtain the Ministry of Finance's
approval to raise equity in the international markets. It was a condition of
the Ministry of Finance's approval of ICICI's ADS offering in September 1999
that the total foreign equity shareholding in ICICI, by all possible routes,
may
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not exceed 49.0% including existing foreign direct investors, non-resident
Indian and overseas corporate body investors, the existing GDR investors, the
existing investors in the foreign currency corporate borrowings of ICICI,
foreign institutional investors and the holders of the ADSs issued in the
offering. Other conditions of the Ministry of Finance's approval for the
offering were that control must rest with Indian shareholders, that investors
in the ADSs may not be granted voting rights and that the ADSs will be voted by
the depositary in accordance with the direction of the board of directors. In
accordance with the conditions stipulated by the Ministry of Finance in its
approval of ICICI's offering of ADSs, the depositary has the right to vote on
the equity shares represented by the ADSs as directed by ICICI's board of
directors so as to keep management control of ICICI in the hands of Indian
shareholders.
ICICI does not have any agreement with its government-controlled
shareholders regarding management control, voting rights, anti-dilution or any
other matter. However, any future equity offerings by ICICI, like any other
Indian public company, would require the approval of shareholders representing
at least 75.0% of the total equity shares voted at a general meeting of the
shareholders. Accordingly, given the size of their holdings, the approval of
ICICI's government-controlled shareholders would be required to approve any
future issuance of additional equity shares. To prevent dilution of the
ownership of the principal government-controlled shareholders and in light of
the government's desire that control must rest with Indian shareholders, ICICI
offered 68.5 million shares to its principal government-controlled
shareholders, the Life Insurance Corporation of India, General Insurance
Corporation of India and its subsidiaries and Unit Trust of India, in a private
placement on September 9, 1999 and also offered 41.5 million equity shares in a
public offering in India from September 9-14, 1999. Both of these offerings
were carried out at a price of Rs. 73.00 per equity share, approximately the
market price on the date the board of directors approved the private placement
and the domestic public offering.
As an investor in ADSs, you do not need to seek the specific approval from
the government of India to purchase, hold or dispose of your ADSs. In the
offering, ICICI was required to obtain the approval of the government of
India's Ministry of Finance, the Foreign Investment Promotion Board, the
Reserve Bank of India, the Department of Company Affairs and the relevant stock
exchanges. ICICI obtained these approvals.
Equity shares which have been withdrawn from the depositary facility and
transferred on our register of shareholders to a person other than the
depositary or its nominee may be voted by that person. However, you may not
receive sufficient advance notice of shareholder meetings to enable you to
withdraw the underlying equity shares and vote at such meetings.
Notwithstanding the foregoing, if a foreign institutional investor,
non-resident Indian or overseas corporate body were to withdraw its equity
shares from the ADS program, its investment in the equity shares would be
subject to the general restrictions on foreign ownership noted above and may be
subject to the portfolio investment restrictions, including the 10-24.0%
portfolio investment limitations, and the 5-10.0% non-resident Indian
limitation. The application of these limitations, however, is not clear.
Secondary purchases of securities of Indian companies in India by foreign
direct investors or investments by non-resident Indians, persons of Indian
origin, overseas corporate bodies and foreign institutional investors above the
ownership levels set forth above require government of India approval on a
case-by-case basis. It is unclear whether similar case-by-case approvals of
ownership of equity shares withdrawn from the depositary facility by foreign
institutional investors, non-resident Indians and overseas corporate bodies
would be required.
Further, if you withdraw your equity shares from the ADS program and your
direct or indirect holding in ICICI exceeds 15.0% of ICICI's total equity
(under the Takeover Code), you would be required
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to make a public offer to the remaining shareholders. If you withdraw your
equity shares from the depositary facility, you will not be able to redeposit
them with the depositary.
If you wish to sell the equity shares withdrawn from the depositary
facility, you will be required to receive the prior approval of the Reserve
Bank of India, unless the sale is on a stock exchange or in connection with an
offer under the Takeover Code.
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DIVIDENDS
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 of 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 company profits for the fiscal year in which the dividend is declared or
out of undistributed profits of prior fiscal years. We have paid dividends
consistently every year since fiscal 1956.
The following table sets forth, for the periods indicated, the dividend
per equity share and the total amount of dividends payable on the equity
shares, both exclusive of dividend tax.
Dividend per Total amount of
Fiscal Year equity share dividends payable
--------------------- -------------- -------------------
(in millions)
1998 ............... Rs. 5.5 Rs. 2,618
1999 ............... 5.5 2,641
2000 ............... 5.5 3,504
Until fiscal 1997, investors were required to pay tax on dividend income.
From fiscal 1998, dividend income was made tax-exempt. However, ICICI was
required to pay a 10.0% tax on distributable profits. From fiscal 1999, this
tax rate rose to 11.0% because of a 10.0% surcharge imposed on all taxes by the
government. For all distributions subsequent to May 2000, ICICI was required to
pay a 22.0% tax on distributable profits which included a 20.0% tax and a 10.0%
surcharge on such tax.
Future dividends will depend upon our revenues, cash flow, financial
condition and other factors. As an owner of ADSs, you will be entitled to
receive dividends payable in respect of the equity shares represented by such
ADSs. The equity shares represented by ADSs will rank pari passu with existing
equity shares. At present, we have equity shares issued in India and equity
shares represented by ADSs.
With respect to equity shares issued by the company during a particular
fiscal year, dividends declared and paid for such fiscal year generally will be
prorated from the date of issuance to the end of such fiscal year.
For a description of the tax consequences of dividends paid to our
shareholders, see "Taxation--Indian Tax--Taxation of Distributions".
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TAXATION
Indian Tax
The following discussion of Indian tax consequences for investors in ADSs
and equity shares received upon redemption of ADSs who are not resident in
India whether of Indian origin or not is based on the provisions of the Indian
Income Tax Act, 1961, including the special tax regime for ADSs contained in
Section 115AC, which has recently been extended to cover additional ADSs that
an investor may acquire in an amalgamation or restructuring of the company, and
certain regulations implementing the Section 115AC regime. The Indian Income
Tax Act is amended every year by the Finance Act of the relevant year. Some or
all of the tax consequences of the Section 115AC regime may be amended or
modified by future amendments to the Indian Income Tax Act.
The summary is not intended to constitute a complete analysis of the tax
consequences under Indian law of the acquisition, ownership and sale of ADSs
and equity shares by non-resident investors. Potential investors should,
therefore, consult their own tax advisers on the tax consequences of such
acquisition, ownership and sale, including specifically the tax consequences
under Indian law, the law of the jurisdiction of their residence, any tax
treaty between India and their country of residence, and in particular the
application of the regulations implementing the Section 115AC regime.
Residence
For the purpose of the Indian Income Tax Act, an individual is a resident
of India during any fiscal year, if he (i) is in India in that year for 182
days or more or (ii) having within the four years preceding that year been in
India for a period or periods amounting in all to 365 days or more, is in India
for period or periods amounting in all to 60 days or more in that year. The
period of 60 days is substituted by 182 days in case of an Indian citizen who
has left India for employment outside India or a non-resident Indian who comes
on a visit to India during the financial year. A company is resident in India
in any fiscal year if it is registered in India or the control and management
of its affairs is situated wholly in India in that year. A firm or other
association of persons is resident in India except where the control and the
management of its affairs are situated wholly outside India.
Taxation of Distributions
Dividends distributed will not be subject to tax in the hands of the
shareholders. Consequently, withholding tax on dividends paid to shareholders
does not apply. However, if dividends are declared, the company is required to
pay a 22.0% tax on distributable profits.
Taxation on Redemption of ADSs
The acquisition of equity shares upon a redemption of ADSs by a
non-resident investor will not give rise to a taxable event for Indian tax
purposes.
Taxation on Sale of Equity Shares or ADSs
Any transfer of ADSs or equity shares outside India by a non-resident
investor to another non-resident investor does not give rise to Indian capital
gains tax. Subject to any relief under any relevant double taxation treaty, a
gain arising on the sale of an equity share to a resident of India or where the
sale
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is made inside India will generally give rise to a liability for Indian capital
gains tax. Such tax is required to be withheld at source. Where the equity
share has been held for more than 12 months (measured from the date of advice
of redemption of the ADSs by the depositary), the rate of tax is 11.0%. Where
the equity share has been held for 12 months or less, the rate of tax varies
and will be subject to tax at normal rates of income-tax applicable to
non-residents under the provisions of the Indian Income Tax Act, subject to a
maximum of 48.0%. The actual rate depends on a number of factors, including
without limitation the nature of the non-resident investor and the amount of
such investor's income chargeable in India. During the period the underlying
equity shares are held by non-resident investors on a transfer from the
depositary upon redemption of ADRs, the provisions of the Avoidance of Double
Taxation Agreement entered into by the government of India with the country of
residence of the non-resident investors will be applicable in the matter of
taxation of any capital gain arising on a transfer of the equity shares. The
double taxation treaty between the United States and India does not provide US
residents with any relief from Indian tax on capital gains.
For purposes of determining the amount of capital gains arising on a sale
of an equity share for Indian tax purposes, the cost of acquisition of an
equity share received upon redemption of an ADS will be the price of the Share
prevailing on the BSE or the National Stock Exchange on the date on which the
depositary advises the custodian of such redemption, not the acquisition cost
of the ADS being redeemed. The holding period of an equity share received upon
redemption of an ADS will commence from the date of advice of redemption by the
depositary. The exact procedures for the computation and collection of Indian
capital gains tax are not settled.
Rights
Distribution to non-resident holders 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 tax in the hands of the non-resident holder.
It is unclear as to whether capital gain derived from the sale of rights
by a non-resident holder not entitled to exemption under a tax treaty to
another non-resident holder outside India will be subject to Indian capital
gains tax. If rights are deemed by the Indian tax authorities to be situated
within India, as the situs of ICICI is in India, the gains realized on the sale
of rights will be subject to customary Indian taxation as discussed above.
Buyback of Securities
Indian companies are not subject to any tax on the buyback of their
shares. However, the shareholders will be taxed on any resulting gains. ICICI
would be required to deduct tax at source according to the capital gains tax of
the shareholder.
Stamp Duty
Upon the issuance of the equity shares underlying the ADSs, ICICI was
required to pay a stamp duty of 0.1% per share of the issue price. A transfer
of ADSs is not subject to Indian stamp duty. Normally, upon the acquisition of
equity shares from the depositary in exchange for ADSs representing such equity
shares in physical form, an investor would be liable for Indian stamp duty at
the rate of 0.5% of the market value of the equity shares at the date of
registration. Similarly, a sale of equity shares by an investor would also be
subject to Indian stamp duty at the rate of 0.5% of the market value of the
equity shares on the trade date, although customarily such tax is borne by the
transferee, that is, the purchaser.
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However, ICICI equity shares are compulsorily deliverable in dematerialized
form, and under Indian stamp law, no stamp duty is payable on the acquisition
or transfer of equity shares in dematerialized form.
Other Taxes
At present, there are no taxes on wealth, gifts and inheritance which may
apply to the ADSs and underlying equity shares.
Service Tax
Brokerage or commissions paid to stockholders in connection with the sale
or purchase of shares is subject to a service tax of 5.0%. The stockbroker is
responsible for collecting the service tax and paying it to the relevant
authority.
United States Tax
The following discussion describes certain US federal income tax
consequences of the acquisition, ownership and sale of ADSs that are generally
applicable to US investors. For these purposes, you are an US investor if you
are:
o a citizen or resident of the United States under US federal income
tax laws;
o a corporation organized under the laws of the United States or of any
political subdivision of the United States; or
o an estate or trust the income of which is includable in gross income
for US federal income tax purposes regardless of its source.
This discussion only applies to ADSs that you own as capital assets.
Please note that this discussion does not discuss all of the tax
consequences that may be relevant in light of your particular circumstances. In
particular, it does not address investors subject to special rules, including:
o insurance companies;
o tax-exempt entities;
o dealers in securities;
o financial institutions;
o persons who own the ADSs as part of an integrated investment
(including a straddle, hedging or conversion transaction) comprised
of the ADS, and one or more other positions for tax purposes;
o persons whose functional currency is not the US dollar; or
o persons who own actually or constructively 10.0% or more of ICICI's
voting stock.
This discussion is based on the tax laws of the United States currently in
effect (including the Internal Revenue Code of 1986, as amended, referred to as
"the Code"), Treasury Regulations, Revenue Rulings, and judicial decisions.
These laws may change, possibly with retroactive effect.
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Although the matter is not entirely clear, it is likely and this
discussion assumes that ICICI will be a passive foreign investment company for
US federal income tax purposes. It is also likely that some of ICICI's
subsidiaries will be passive foreign investment companies.
For US federal income tax purposes, if you own an ADS, you will generally
be treated as the owner of the equity shares underlying the ADS.
Please consult your tax advisor with regard to the application of the US
federal income tax laws to the ADSs in your particular circumstances, including
the passive foreign investment company rules described below, as well as any
tax consequences arising under the laws of any state, local or foreign taxing
jurisdictions.
Taxation of Dividends
Subject to the discussion under "Passive Foreign Investment Company Rules"
below, dividends you receive on the ADSs, other than certain pro rata
distributions of common shares or rights to acquire common shares or ADSs, will
generally constitute foreign source dividend income for US federal income tax
purposes. The amount of the dividend you will be required to include in income
will equal to the US dollar value of the rupees, calculated by reference to the
exchange rate in effect on the date the payment is received by the depositary,
regardless of whether the payment is converted into US dollars. If you realize
gain or loss on a sale or other disposition of rupees, it will be US source
ordinary income or loss. You will not be entitled to claim a dividends-received
deduction for dividends paid by ICICI.
Passive Foreign Investment Company Rules
In general, a foreign corporation is a passive foreign investment company
for any taxable year in which (i) 75.0% or more of its gross income consists of
passive income (such as dividends, interest, rents and royalties) or (ii) 50.0%
or more of the average quarterly value of its assets consists of assets that
produce, or are held for the production of, passive income. Although the matter
is not entirely clear, it is likely that ICICI will be a passive foreign
investment company for US federal income tax purposes. It is also likely that
some of ICICI's subsidiaries will be passive foreign investment companies. If
ICICI is a passive foreign investment company at any time that you own ADSs,
you will be generally subject to the rules described below even if ICICI ceases
to be a passive foreign investment company subsequently. Please consult your
tax advisor about how you will be treated if ICICI ceases to be a passive
foreign investment company while you own ADSs.
Except as described below regarding the mark-to-market election, special
rules will generally apply to:
o any "excess distributions" on the ADSs (generally, any distributions
received by you on the ADSs in a taxable year other than the first
year in which you hold the ADSs that are greater than 125.0% of the
average annual distributions received by you in the three preceding
taxable years, or, if shorter, your holding period for the ADSs); and
o any gain realized on the sale or other disposition (including a
pledge) of the ADSs.
Under these rules:
o the excess distribution or gain would be allocated ratably over your
holding period for the ADSs;
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o the amount allocated to the current taxable year would be taxed as
ordinary income; and
o the amount allocated to each of the prior taxable years would be
subject to tax at the highest rate of tax in effect for your class of
taxpayer for that year, and an interest charge for the deemed
deferral benefit would be imposed on the resulting tax attributable
to each prior year.
As long as ICICI's ADSs are regularly traded on the New York Stock
Exchange, you will be able to make a mark-to-market election with respect to
the ADSs. If you make the mark-to-market election upon acquisition of the ADSs,
you will be required to include as ordinary income each year the excess of the
fair market value of the ADSs over your adjusted basis in the ADSs, and will be
entitled to deduct as an ordinary loss each year the lesser of:
o the excess of your original or if applicable, adjusted basis in the
ADSs over their fair market value; or
o the excess of the total amounts included in income in prior years
over the total amount of deductions allowed in prior years under the
mark-to-market rules.
Your adjusted basis in the ADSs will be increased by the amount of any
income inclusions and will be decreased by the amount of any deductions. If you
dispose of the ADSs for an amount in excess of your adjusted basis, the gain
will be taxed at ordinary income tax rates.
If you make a mark-to-market election, it will be effective for the
taxable year for which the election is made and all subsequent taxable years,
unless ICICI's ADSs cease to be regularly traded on the New York Stock Exchange
or the IRS consents to the revocation of the election.
If you make the mark-to-market election after the year in which you
acquire the ADSs, you will be subject to the rules governing excess
distributions and gain described below with respect to:
o distributions and disposition proceeds received in the first taxable
year that you make the election; and
o an amount equal to the excess of the fair market value of the ADSs
for the year you make the election over your adjusted basis in the
ADSs.
You should consult your tax advisor about the availability of making a
mark-to-market election and whether doing so would be advisable in your
specific situation.
Under proposed Treasury regulations, which have a proposed retroactive
effective date that would apply to an investment in the ADSs, you may be
subject to tax, even if you make a mark-to-market election, in connection with:
o distributions made by any of ICICI's subsidiary passive foreign
investment companies;
o gain ICICI recognizes on the disposition of any of ICICI's subsidiary
passive foreign investment companies;
o gain ICICI is deemed to recognize on certain restructurings of its
holdings of any of its subsidiary passive foreign investment
companies; and
o future offerings by ICICI of equity shares or ADSs.
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You could be subject to tax in these circumstances even if you do not
actually receive any cash in connection with these events. Please consult your
tax advisor about the application of these proposed regulations to an
investment in the ADSs.
ICICI does not intend to comply with the requirements necessary for you to
make another election (the qualified electing fund election), which is
sometimes available to shareholders of a passive foreign investment company.
For each year in which you hold the ADSs, you will be required to file an
annual return on IRS Form 8621 that describes the distributions received from
your ownership of ADSs and any gain realized on the sale or other disposition
of ADSs you owned. Gain or loss from the disposition of ADSs will generally be
US source income or loss.
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USE OF PROCEEDS
Pursuant to ICICI's Registration Statement on Form F-1 (File No.
333-10792), which was declared effective by the Securities and Exchange
Commission on September 21, 1999, ICICI registered $315 million of its equity
shares, par value Rs. 10 per share, each represented by 0.2 ADSs, and offered
and sold 32,142,857 ADSs, each representing five equity shares, at the public
offering price of US$ 9.80 per ADS or aggregating US$ 314,999,999. ICICI
received net proceeds of US$ 302,400,000 from the sale of these ADSs, after
deducting the underwriting discount and actual offering expenses of US$
12,599,999. The joint global coordinators of this offering were Merrill Lynch
(Singapore) Pte. Ltd. and Morgan Stanley & Co. International Limited.
From September 21, 1999 to March 31, 2000, we had used net offering
proceeds of US$ 210,524,046 for financing purposes. This use of proceeds was in
line with the use of proceeds described in ICICI's Registration Statement.
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PRESENTATION OF FINANCIAL INFORMATION
ICICI has prepared its historical financial statements in accordance with
Indian generally accepted accounting principles. Starting in fiscal 1999, we
adopted US generally accepted accounting principles for the ICICI group and
published in ICICI's annual shareholders' report US GAAP consolidated financial
statements for the ICICI group and Indian GAAP unconsolidated financial
statements for ICICI and its subsidiaries. We intend to continue to report the
consolidated financial statements for the ICICI group in US GAAP and the
unconsolidated financial statements for ICICI and its subsidiaries in Indian
GAAP.
The financial information in this annual report has been prepared in
accordance with US GAAP, unless we have indicated otherwise. Our fiscal year
ends on March 31 of each year so all references to a particular fiscal year are
to the year ended March 31 of that year. In this annual report, all references
to "consolidated financial statements" are to the consolidated financial
statements of the ICICI group for fiscal years 1998, 1999 and 2000 and at
year-end fiscal 1999 and 2000, including the notes to these financial
statements, audited by KPMG Peat Marwick, India, independent accountants. The
consolidated financial statements, including the notes to these financial
statements, are set forth at the end of this annual report. The consolidated
financial statements have been derived from the unconsolidated financial
statements of all ICICI group companies prepared in accordance with Indian
GAAP. Selected unconsolidated financial statements for ICICI for fiscal 1996,
1997, 1998, 1999 and 2000 are also set forth at the end of this annual report.
As used in this annual report, all references to "minority interest" are
primarily to the 39.7% equity interest in ICICI Securities not owned by ICICI
in fiscal 1997 and 1998 (substantially all of which was bought back by ICICI in
fiscal 1999) and the 25.8% equity interest in ICICI Bank sold by ICICI to the
public in fiscal 1998.
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 below, or at all. All translations from
rupees to dollars are based on the noon buying rate in the City of New York for
cable transfers in rupees at March 31, 2000. The Federal Reserve Bank of New
York certifies this rate for customs purposes on each date the rate is given.
The noon buying rate on March 31, 2000 was Rs. 43.65 per US$ 1.00. The exchange
rates used for convenience translations differ from the actual rates used in
the preparation of our consolidated financial statements.
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ADDITIONAL INFORMATION
Memorandum and Articles of Association
Objects and Purposes
Pursuant to ICICI's Memorandum of Association, the objectives of ICICI in
general are to carry on the business of assisting industrial companies within
the private sector of industry in India by:
o assisting in the creation, expansion and modernization of such
companies;
o encouraging and promoting the participation of private capital, both
internal and external, in such companies; and
o encouraging and promoting private ownership of industrial investments
and the expansion of investment markets.
Further to the above general purposes, ICICI also offers a wide range of
products and services to corporate and retail customers in India through a
number of business operations, subsidiaries and affiliates.
Directors' Powers
Our directors' powers include the following:
o Article 133 of the Articles of Association provides that no director
of ICICI shall, as a director, take any part in the discussion of or
vote on any contract or arrangement if such director is directly or
indirectly concerned or interested.
o Directors have no powers to vote in absence of a quorum.
o Article 76 of the Articles of Association provides that the directors
may raise and secure the payment of amounts in a manner and upon such
terms and conditions in all respects as they think fit and in
particular by the issue of bonds, debenture stock, or any mortgage or
charge or other security on the undertaking or the whole or any part
of the property of ICICI (both present and future) including its
uncalled capital.
o There is no age limit requirement in the Articles of Association for
the retirement of directors.
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, which must be passed by not less than three
times the number of votes cast against the resolution.
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Change in Control Provisions
Article 49 and Article 52 of the Articles of Association provide that the
board of directors may at their discretion decline to register or acknowledge
any transfer of shares in respect of shares upon which ICICI has a lien.
Moreover, the board of directors may refuse to register the transfer of any
shares if the total nominal value of the shares or other securities intended to
be transferred by any person would, together with the total nominal value of
any shares held in ICICI, exceed 1% of the paid up equity share capital of
ICICI or if the board of directors is satisfied that as a result of such
transfer, it would result in the change in the board of directors or change in
the controlling interest of ICICI and that such change would be prejudicial to
the interests of ICICI. However, under the Indian Companies Act, the
enforceability of such transfer restrictions is unclear.
Incorporation by Reference
ICICI incorporates by reference the information disclosed under
"Description of Equity Shares" in its Registration Statement on Form F-1 (File
No. 333-10792).
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SELECTED FINANCIAL INFORMATION FOR ICICI UNDER INDIAN GAAP
The selected unconsolidated financial and other data for fiscal 1996,
1997, 1998, 1999 and 2000 have been derived from ICICI's unconsolidated
financial statements, prepared in accordance with Indian GAAP and not included
in this document. ICICI's Indian GAAP unconsolidated financial statements have
been audited by S. B. Billimoria and Company and N. M. Raiji and Company,
Chartered Accountants.
<TABLE>
Year ended March 31,
---------------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2000(1)
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income: (in millions)
Income from loans and
Debenture(2) ............... Rs. 23,249 Rs. 35,263 Rs. 45,478 Rs. 56,999 Rs. 62,066 US$ 1,422
Income from leasing(3) ....... 3,081 4,660 6,632 7,141 7,991 183
Capital gains(4) ............. 704 1,081 480 444 2,934 67
Dividend income .............. 503 868 654 612 2,105 48
Fees and commissions(5) ...... 608 1,201 1,678 3,110 3,237 74
Income from securities(6) .... 677 1,324 1,969 4,438 5,716 131
---------------------------------------------------------------------------------------
Income from operations ....... 28,822 44,397 56,891 72,744 84,049 1,926
Other income(7) .............. 192 314 472 475 545 12
---------------------------------------------------------------------------------------
Total income ................. 29,014 44,711 57,363 73,219 84,594 1,938
=======================================================================================
Expenses:
Interest expense ............. (19,802) (30,018) (38,476) (50,791) (57,852) (1,325)
Interest tax(8) .............. (695) (1,013) (845) (1,050) (1,120) (26)
Depreciation on leased assets (1,542) (2,082) (2,856) (3,548) (3,669) (84)
Depreciation on other assets . (136) (161) (181) (276) (315) (7)
Employee expenses ............ (340) (501) (549) (634) (709) (16)
Establishment expenses ....... (437) (719) (1,028) (1,334) (1,951) (45)
Other expenses(9) ............ (162) (704) (1,032) (992) (1,083) (25)
---------------------------------------------------------------------------------------
Expenses before provisions and
write-offs.................. (23,114) (35,198) (44,967) (58,625) (66,699) (1,528)
=======================================================================================
Provisions and write-offs(10):
Bad debts written off ........ (658) (540) (1,080) (1,031) (2,099) (48)
Provision for doubtful debts . (160) (408) (1,083) (1,290) (1,626) (38)
General provision against sub-
standard assets(11)......... -- -- -- (1,315) (792) (18)
Provision against standard
assets(12) ................. -- -- -- -- (100) (2)
---------------------------------------------------------------------------------------
Provisions and write-offs .... (818) (948) (2,163) (3,636) (4,617) (106)
=======================================================================================
Profit:
Profit before tax ............ 5,082 8,565 10,233 10,958 13,278 304
Provision for tax ............ (720) (1,043) (820) (950) (1,220) (28)
Adjustment for changes in
accounting policy relating
to merger................... -- -- (54) -- -- --
---------------------------------------------------------------------------------------
Profit after tax ............. 4,362 7,522 9,359 10,008 12,058 276
Non-recurring gain(13) ....... -- -- 1,450 -- -- --
---------------------------------------------------------------------------------------
Profit after tax including
non-recurring gain.......... 4,362 7,522 10,809 10,008 12,058 276
Adjustment for changes in
accounting policy(14)....... 378 173 -- 559 405 9
Taxation of earlier years .... 24 (22) 29 272 37 1
---------------------------------------------------------------------------------------
Profit for the year .......... Rs. 4,764 Rs. 7,673 Rs. 10,838 Rs. 10,839 12,500 286
=======================================================================================
</TABLE>
<PAGE>
(1) For your convenience, rupee amounts for fiscal 2000 have been translated
into US dollars using the noon buying rate in effect on March 31, 2000 of
Rs. 43.65 = US$ 1.00.
(2) Represents interest income, commitment charges and loan origination fees
on rupee loans, debentures, foreign currency loans and installment sales
businesses and hire purchase activity.
(3) Represents the lease rentals.
(4) Represent the profit realized on the sale of equity investments net of
provisions on account of permanent diminution.
(5) Includes fees and commissions from guarantees, underwriting and letters of
credit activities, project appraisal and loan processing, custodial
services and debenture trusteeship.
(6) Represents primarily amounts earned on cash balances. It also includes
commitment charges and interest payments under the terms of the scheme of
merger between ICICI and ITC Classic Finance in fiscal 1998, and between
ICICI and Anagram Finance in fiscal 1999. For fiscal 1999, income from
securities also includes profit of Rs. 449 million (US$ 11 million) on
repurchase of foreign currency bonds issued earlier.
(7) Includes primarily rental income from premises leased to subsidiaries and
interest on delayed refund of income tax.
(8) Indian law imposes a tax on interest income and the current tax rate is
2.05%. This tax is separate from corporate income tax.
(9) Includes primarily expenses on loan funds and revenue loss/(gain) on
foreign currency loans, discount and expenses on loan funds written off,
and technical service charges/management fees on assets given on lease.
(10) Prior to March 1994, there were no formal guidelines on provisioning norms
for bad or doubtful debts of financial institutions in India. Doubtful
debts were either charged off to revenue or a provision was created. Since
financial year 1994, ICICI has followed the policy set forth by the
Reserve Bank of India to provide for bad or doubtful debts. Write-off
amounts is stated net of write-backs and appropriations from reserves.
(11) In fiscal 2000, general provisions aggregating Rs. 0.8 billion (US$ 18
million) for sub-standard assets were charged directly to the profit and
loss account. In fiscal 1998, provisions for sub-standard assets were not
charged to the profit and loss account but were appropriated from the
special reserve.
(12) In fiscal 2000, general provisions aggregating 100 million (US$ 2 million)
for standard assets were charged directly to the profit and loss account.
In the previous fiscal year, provisions for standard assets were not
charged to the profit and loss account but were appropriated from the
Special Reserve.
(13) In fiscal 1998, ICICI realized a non-recurring gain of Rs. 1.5 billion
(US$ 35 million) (net of tax of Rs. 130 million). In August 1997, because
of a condition imposed by the Reserve Bank of India, ICICI divested 25.8%
of its equity interest in ICICI Bank. This resulted in a gain of Rs. 916
million (US$ 22 million). In addition, gain on the sale of certain real
estate aggregated Rs. 664 million (US$ 16 million).
(14) In fiscal 1996, as a result of a change in the accounting policy in
respect of providing depreciation on leased assets, excess depreciation
provided in respect of earlier years has been written back. In fiscal
1997, certain accounting policies of the former SCICI were revised in
order to achieve uniformity with accounting policies of ICICI. In fiscal
1998, certain accounting policies of ITC Classic Finance have been revised
in order to achieve uniformity with the accounting policies of ICICI. With
effect from April 1, 1998 ICICI has capitalized interest on funds used for
constructing new office premises with retrospective effect from the date
of commencement of project payments. The interest capitalized assumes that
the entire cost is met out of borrowed funds and is determined at the
average annual interest cost for rupee borrowing, and aggregates Rs. 791
million up to March 31, 1999. Of this amount, interest of Rs. 559 million
(US$13 million) (net of depreciation and income-tax, Rs. 100,000 and Rs.
57 million respectively) pertains to the period up to March 31, 1998. In
fiscal 2000, ICICI has changed the method of providing for depreciation on
fixed assets other than assets given on lease from the written down value
method to the straight line method. ICICI has also capitalized software
expenses as against the earlier policy of treating it as deferred revenue
expenditure and amortizing it over the period(s) during which the benefits
are expected to arise.
186
<PAGE>
<TABLE>
At March 31,
------------------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2000(1)
------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Loans:
Rupee loan ................. Rs. 109,038 Rs. 153,725 Rs. 205,316 Rs. 283,169 Rs. 328,964 7,536
Foreign currency loans ..... 43,162 79,059 92,054 88,558 89,905 2,060
Provisions ............... (2,925) (3,590) (6,219) (8,553) (10,722) (246)
------------------------------------------------------------------------------------------
Net loans .................... 149,275 229,194 291,151 363,174 Rs. 408,148 9,350
Investments:
Equity ..................... 16,042 18,808 19,865 20,733 19,864 455
Debentures ................. 18,569 31,964 48,934 56,922 74,845 1,715
Others ..................... 3,143 4,457 4,501 5,247 10,889 249
Total investments ............ 37,754 55,229 73,300 82,902 105,598 2,419
Current assets(2) ............ 30,313 47,551 60,493 96,847 91,707 2,101
Leased assets ................ 11,886 23,947 26,756 31,076 36,090 827
Other fixed assets ........... 3,426 4,082 4,446 6,270 8,897 204
Other balances ............... 586 2,916 3,056 3,194 3,456 79
------------------------------------------------------------------------------------------
Total assets ................. Rs. 233,240 Rs. 362,919 Rs. 459,202 Rs. 585,468 653,896 14,980
=========================================================================================
Liabilities:
Current liabilities .......... Rs. 14,985 Rs. 24,210 Rs. 31,662 Rs. 43,703 51,781 1,186
Borrowings:
Rupee borrowings ........... 132,958 202,953 272,535 376,374 415,309 9,515
Foreign currency loans ..... 60,940 91,249 101,951 100,212 93,504 2,142
------------------------------------------------------------------------------------------
Total borrowings. ............ 193,898 294,202 374,486 476,586 508,813 11,657
Shareholders' funds:
Equity capital(3) .......... 3,013 4,755 4,782 4,801 7,831 179
Preference capital(4) ...... 750 750 6,351 13,827 13,076 300
Reserves and surplus ....... 20,594 39,002 41,922 46,551 72,395 1,659
------------------------------------------------------------------------------------------
Total shareholders' funds .... 24,357 44,507 53,054 65,179 93,302 2,138
------------------------------------------------------------------------------------------
Total liabilities and
shareholders' funds ........ Rs. 233,240 Rs. 362,919 Rs. 459,202 Rs. 585,468 Rs. 653,896 Rs. 14,980
=========================================================================================
</TABLE>
---------
(1) For your convenience, rupee amounts for fiscal 2000 have been translated
into US dollars using the noon buying rate in effect on March 31, 2000 of
Rs. 43.65 = US$ 1.00.
(2) Includes principally cash and deposits with other banks and interest
accrued but not yet due at period-end. Assets and liabilities in foreign
currencies are translated into rupees at the period-end rates. The
differences in exchange arising on such translation are held in various
suspense accounts and included in current assets or current liabilities,
as appropriate.
(3) Does not include equity capital of Rs. 345 million (US$ 8 million) issued
on July 18, 1999 subsequent to conversion of outstanding convertible debt
of Rs. 518 million (US$ 12 million). At March 31, 1998, equity capital
included Rs. 24 million (US$ 564,706) which was at March 31, 1998 to be
allotted to the equity shareholders of ITC Classic Finance, as a
consequence of its merger with ICICI effective April 1, 1997. At March 31,
1999, equity capital included Rs. 17 million (US$ 400,000) which, at March
31, 1999, was to be allotted to the equity shareholders of Anagram
Finance, as a consequence of its merger with ICICI effective April 1,
1998.
(4) At March 31, 1998, preference capital included an amount of Rs. 3.5
billion (US$ 82 million) received as advance against issue of preference
shares to ITC Classic Finance group companies. At March 31, 1999,
preference share capital included Rs. 338 million (US$ 8 million) which,
at March 31, 1999 was to be allotted to the preference shareholders of
Anagram Finance, consequent to its merger with ICICI effective April 1,
1998.
187
<PAGE>
SIGNIFICANT DIFFERENCES BETWEEN INDIAN GAAP AND US GAAP
Indian GAAP differs in several respects from US GAAP. A summary of the
significant differences between Indian GAAP and US GAAP is presented below:
<TABLE>
-----------------------------------------------------------------------------------------------------------------------------------
Subject Indian GAAP US GAAP
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Statement of cash flows ......Statement is required for companies listed on the Statement is required.
stock exchanges and is recommended for other
companies.
Statement of changes in
stockholders' equity .......Statement is not required. Statement is required.
Consolidation ................The practice of consolidation is not followed. When a company controls more than 50.0% of the
voting securities of another company, the
investee company is known as a subsidiary and
is generally considered to be a part of the
controlling company (parent). In these
circumstances, the financial statements of
the investee are generally required to be
consolidated with the financial statements of
its parent in which all material transactions
between them are eliminated.
Equity method ................Equity accounting is not recognized as an When a company controls 20.0% to 50.0% of the
acceptable method of accounting. investee's voting securities or has a
subsidiary that is not consolidated, the
investment is generally stated at the
underlying net asset value, with the equity
in the investee's earnings or loss included
in the investor's income statement for the
current period (equity accounting).
Business combination .........The conditions for applying the purchase Business combinations are accounted for
method are different and business either under the purchase method or the
combinations are generally accounted as per pooling method.
the pooling of interest method.
188
<PAGE>
-----------------------------------------------------------------------------------------------------------------------------------
Subject Indian GAAP US GAAP
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Allowance for credit
losses .....................Allowance for credit losses are based on Loans are identified as non-performing and
defaults expected both on principal and placed on non- accrual basis, where
interest. The allowance does not consider management estimates that payment of interest
present value of future inflows. or principal is doubtful of collection.
Non-performing loans are reported after
considering the impact of impairment. The
impairment is measured by comparing the
carrying amount of the loan to the present
value of expected future cash-flows or the
fair value of the collateral (discounted at
the loans' effective rate).
Loan origination
fees/costs .................Loan origination fees and costs are taken to Loan origination fees (net of loan
the income statement in the year origination costs) are deferred and
accrued/incurred. recognized as an adjustment to yield over the
life of the loan.
Interest capitalization ......Capitalization of interest is optional. Interest cost incurred for funding an asset
during its construction period is required to
be capitalized based on the average
outstanding investment in the asset and the
average cost of funds. The capitalized
interest cost is included in the cost of the
relevant asset and is depreciated over the
useful life of the asset.
Redeemable preference
shares ....................Redeemable preference shares are a component Redeemable preference shares do not form a
of shareholders' equity, and preference part of the shareholders' equity and
dividend is reported as an appropriation of dividends on such shares are charged to the
income. income statement.
189
<PAGE>
-----------------------------------------------------------------------------------------------------------------------------------
Subject Indian GAAP US GAAP
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment in debt and
equity securities .........Securities are classified as current or Securities are classified as trading, held to
permanent. Current securities are valued at maturity or available for sale based on the
the lower of cost or market value with any acquisition date. While trading and available
unrealized loss charged to the income for sale securities are valued at fair value,
statement. Unrealized gains are not recorded. held to maturity securities are valued at
Permanent investments are valued at cost, cost, adjusted for amortization of premiums
adjusted for permanent diminution. and accretion of discount. The unrealized
gains and losses on trading securities are
taken to the income statement, while those on
available for sale securities are reported as
a separate component of stockholders' equity,
net of applicable taxes.
Revaluation of property,
plant and equipment ........Revaluation of property, plant and equipment Revaluation of property, plant and equipment
is permitted. is not permitted except in certain cases.
Accounting for finance
leases .....................Assets under finance leases are not required Assets under finance leases should be
to be capitalized by lessees but, instead, capitalized and depreciated by lessees, with
are capitalized and depreciated by lessors at the corresponding recognition of the lease
statutory rates. The difference between the obligation. Lease rentals are recognized as
depreciation charge and annual lease charge payments of the lease obligation and interest
is adjusted in the income statement through a thereon. Lessors should recognize the minimum
lease equalization account. lease payments less unearned income, i.e.,
the net investment in the lease, as an asset
Lessees recognize lease rental payments as and the interest component of the lease
expenses as they are incurred. rental as income.
190
<PAGE>
-----------------------------------------------------------------------------------------------------------------------------------
Subject Indian GAAP US GAAP
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sale of securities under
repurchase agreements ......Recorded as sales and removed from balance Sales proceeds are recorded as borrowings in
sheet of seller. the balance sheet of seller/borrower.
Securities continue to be reflected as assets
in the balance sheet of seller/borrower.
Income taxes .................The amount of tax that is currently payable Income taxes are provided against current
is recorded. period income as reflected in the financial
statements, even though all or some of such
income will not be reported for tax purposes
in the current period and taxes will not be
payable currently. This means that, even
though a certain amount of the current period
accounting income is currently not taxable,
income tax must be provided in the financial
statements against both income on which taxes
are currently payable and income on which the
tax liability is deferred regardless of the
length of that deferral, subject to valuation
allowances for deferred tax assets.
Share issue expenses .........Share issue expenses are generally deferred Direct costs to sell shares are treated as a
and amortized over a period of three to five reduction of the issue proceeds; indirect
years. They may also be written off against costs are expensed as incurred.
share premium account.
Debt issue costs .............Debt issue expenses may be written off Debt issue costs are deferred and amortized
against the share premium account or over the life of the debt using the 'interest
accounted as deferred revenue expenses and method'.
amortized.
Extraordinary items ..........Extraordinary items are disclosed separately Extraordinary items are disclosed separately
in the statement of profit and loss. in the statement of profit and loss net of
applicable tax effects.
191
<PAGE>
-----------------------------------------------------------------------------------------------------------------------------------
Subject Indian GAAP US GAAP
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Prior period items ...........Prior period items are disclosed separately Prior period items, less related tax effects,
in the current statement of profit and loss. are excluded from the current statements of
profit and loss and reflected as adjustments
to the opening balance of retained earnings.
Related party
transactions ...............Requirements to report related party Financial statements are generally required
transactions in the financial Statements are to include full disclosures of all material
limited to reporting (a) accounts receivable related party transactions and balances,
and loans given to management, or to other than compensation arrangements, expense
enterprises in which management is interested allowances, and other similar items in the
or which are under the same management; and ordinary course of business.
(b) loans taken from management. Disclosure
is also required of guarantees given by or
for management and of remuneration to
management.
Segmental information ........Segmental information is not required. Information regarding total revenues,
operating costs, gross profit, assets and
liabilities for each operating segment is
required to be disclosed.
</TABLE>
192
<PAGE>
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 its behalf.
For ICICI LIMITED
By : /s/Jyotin Mehta
------------------
Name : Mr. Jyotin Mehta
Title : Joint General Manager and
Company Secretary.
Place : Mumbai
Date : September 26, 2000
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Document
----------- -----------------------
1.1 ICICI Articles of Association, as amended (incorporated by reference
from ICICI's Registration Statement on Form F-1 (File No. 333-10792)
filed on September 10, 1999).
1.2 ICICI Memorandum of Association, as amended (incorporated by reference
from ICICI's Registration Statement on Form F-1 (File No. 333-10792)
filed on September 10, 1999).
2.1 Deposit Agreement among ICICI, Bankers Trust Company and the holders
from time to time of American Depositary Receipts issued thereunder
(including as an exhibit, the form of American Depositary Receipt)
(incorporated by reference from ICICI's Registration Statement on Form
F-1 (File No. 333-10792) filed on September 10, 1999).
2.2 ICICI's Specimen Certificate for Equity Shares (incorporated by
reference from ICICI's Registration Statement on Form F-1 (File No.
333-10792) filed on September 10, 1999).
4.1 ICICI's Employee Stock Option Plan.
4.2 ICICI Bank's Employee Stock Option Plan.
8.1 List of Subsidiaries (included under "Business--Subsidiaries and
Affiliates herein).
<PAGE>
INDEX TO US GAAP FINANCIAL STATEMENTS
Page
Report of the Independent Auditors on the Consolidated Financial Statements..F-2
Consolidated Balance Sheets..................................................F-3
Consolidated Statements of Income............................................F-4
Consolidated Statements of Changes in Stockholders' Equity...................F-5
Consolidated Statements of Cash Flows........................................F-6
Statement of Accounting Policies.............................................F-8
Notes to the Consolidated Financial Statements..............................F-14
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the board of directors and stockholders of ICICI Limited
We have audited the accompanying consolidated balance sheets of ICICI
Limited and its subsidiaries at March 31, 1999 and 2000, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the three-year period ended March 31, 2000. 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 conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of ICICI Limited and
its subsidiaries at March 31, 1999 and 2000, and the results of their operations
and their cash flows for each of the years in the three-year period ended March
31, 2000, in conformity with accounting principles generally accepted in the
United States.
As discussed in Note 13 to the consolidated financial statements,
effective April 1, 1999, the Company changed its method of accounting for
depreciation of property and equipment.
The United States dollar amounts are presented in the accompanying
financial statements solely for the convenience of the readers and are
arithmetically correct on the basis described in Note 1.5.
KPMG
Mumbai, India
April 28, 2000
F-2
<PAGE>
<TABLE>
ICICI LIMITED
US GAAP CONSOLIDATED BALANCE SHEETS
at March 31, 1999 and 2000
At March 31,
--------------------------------------
1999 2000 2000(1)
------------ ----------- -----------
(in millions)
<S> <C> <C> <C>
Assets
Cash and cash equivalents........................Rs. 62,123 Rs. 71,097 US$ 1,629
Trading account assets........................... 35,926 57,396 1,315
Securities:
- Available for sale............................ 15,040 18,226 418
- Held to maturity.............................. 1 645 15
Investment in affiliate.......................... 244 264 6
Loans, net....................................... 476,352 562,420 12,885
Acceptances...................................... 8,773 12,333 283
Property and equipment........................... 7,950 11,775 270
Other assets..................................... 46,936 46,528 1,066
----------- ----------- -----------
Total assets..................................... 653,345 780,684 17,885
----------- ----------- -----------
Liabilities
Interest bearing deposits........................ 56,418 82,827 1,898
Non-interest bearing deposits.................... 4,187 13,855 317
----------- ----------- -----------
Total deposits................................... 60,605 96,682 2,215
Trading account liabilities...................... 14,791 20,684 474
Short-term borrowings............................ 35,794 66,308 1,519
Acceptances...................................... 8,773 12,333 283
Long-term debt................................... 438,440 439,162 10,061
Other liabilities................................ 36,795 48,471 1,110
Taxes and dividends payable...................... 9,966 11,631 266
Redeemable preferred stock....................... 10,897 10,207 234
----------- ----------- -----------
Total liabilities................................ 616,061 705,478 16,162
----------- ----------- -----------
Minority interest................................ 773 4,298 98
Stockholders' equity
Common stock..................................... 4,801 7,832 179
Additional paid-in capital....................... 14,772 37,347 856
Deferred stock compensation...................... -- (70) (2)
Retained earnings................................ 22,189 28,338 649
Accumulated other comprehensive income........... (5,251) (2,539) (58)
----------- ----------- -----------
Total stockholders' equity....................... 36,511 70,908 1,624
----------- ----------- -----------
Total liabilities and stockholders' equity.......Rs. 653,345 Rs. 780,684 US$ 17,885
=========== =========== ===========
</TABLE>
--------------------
(1) Exchange Rate: Rs. 43.65 = US$ 1.00 at March, 2000.
F-3
<PAGE>
<TABLE>
ICICI LIMITED
US GAAP CONSOLIDATED STATEMENT OF INCOME
for the years ended March 31, 1998, 1999 and 2000
Year ended March 31,
--------------------------------------------------
1998 1999 2000 2000(1)
---------- ----------- ---------- ----------
(in millions, except per share data)
<S> <C> <C> <C> <C>
Interest revenue
Loans, including fees....................................... Rs. 50,813 Rs. 63,315 Rs. 69,831 US$ 1,600
Securities, including dividends............................. 735 921 1,890 43
Trading account assets, including dividends................. 1,779 4,862 7,540 173
Other....................................................... 1,613 1,992 1,566 36
---------- ----------- ---------- ----------
Total interest revenue...................................... 54,940 71,090 80,827 1,852
---------- ----------- ---------- ----------
Interest expense
Long-term debt.............................................. 38,181 48,975 53,531 1,226
Deposits.................................................... 1,508 3,682 5,665 130
Short-term borrowings....................................... 2,365 4,607 6,763 155
Trading account liabilities................................. 341 644 1,418 33
Other....................................................... 36 75 16 --
---------- ----------- ---------- ----------
Total interest expense...................................... 42,431 57,983 67,393 1,544
---------- ----------- ---------- ----------
Net interest revenue........................................ 12,509 13,107 13,434 308
Provision for credit losses................................. 4,768 6,067 6,363 146
---------- ----------- ---------- ----------
Net interest revenue after provision for credit losses...... 7,741 7,040 7,071 162
Non-interest revenue, net
Fees, commission and brokerage.............................. 2,156 3,464 4,263 98
Trading account revenue..................................... 673 476 2,029 46
Securities transactions..................................... (69) 275 2,363 54
Gain on sale of subsidiary's stock 920 -- -- --
Foreign exchange transactions............................... 265 829 428 10
Gain on sale of property and equipment...................... 532 -- 212 5
Other....................................................... 848 335 392 9
---------- ----------- ---------- ----------
Net revenue................................................. 13,066 12,419 16,758 384
---------- ----------- ---------- ----------
Non-interest expense
Employee costs.............................................. 828 943 1,618 37
General and administrative expenses......................... 1,858 2,665 3,497 80
Amortization of goodwill.................................... -- 187 187 4
---------- ----------- ---------- ----------
Total non-interest expense.................................. 2,686 3,795 5,302 121
---------- ----------- ---------- ----------
Income before share of equity in earnings of affiliate and
minority interest........................................ 10,380 8,624 11,456 262
Equity in earnings of affiliate............................. (9) (34) 20 --
Minority interest........................................... (135) (170) (361) (8)
---------- ----------- ---------- ----------
Income before taxes........................................ 10,236 8,420 11,115 255
Income tax expense.......................................... 1,446 1,194 2,033 47
---------- ----------- ---------- ----------
Net income before extraordinary items and effect of change in
accounting principle..................................... 8,790 7,226 9,082 208
Extraordinary gain, net of tax.............................. -- 292 -- --
Cumulative effect of change in accounting principle,
net of tax ............................................. -- -- 249 6
---------- ----------- ---------- ----------
Net income.................................................. Rs. 8,790 Rs. 7,518 Rs. 9,331 US$ 214
========== =========== ========== ==========
Earnings per share:
- Basic.................................................... Rs. 18.39 Rs. 15.66 Rs. 14.45 US$ 0.33
- Diluted.................................................. 15.74 13.52 13.77 0.32
</TABLE>
----------------
(1) Exchange Rate: Rs. 43.65 = US$ 1.00 at March, 2000.
F-4
<PAGE>
<TABLE>
ICICI LIMITED
US GAAP CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the years ended March 31, 1998, 1999 and 2000
Accumulated
Other Total
Equity Shares Additional Deferred Compre- Compre- Stock-
No. of Paid-In Stock hensivee hensive Retained holders'
Shares Amount Capital Compensation Income Income Earnings Equity
---------- -------- ---------- ------------ ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(in millions)
Balance at March 31, 1997.... 475,987,246 Rs.4,755 Rs.14,509 Rs. -- Rs.(4,218) Rs.11,741 Rs.26,787
----------------------------- ----------- --------- ---------- ------------ ---------- -------- --------- ---------
Common stock issued.......... 2,458,606 26 137 -- -- -- -- 163
Comprehensive income
Net income................. -- -- -- -- Rs. 8,790 -- 8,790 8,790
Unrealized gain/(loss) on
----------
Comprehensive income....... -- -- -- -- Rs. 8,856 -- -- --
==========
Dividend declared on common
stock...................... -- -- -- -- -- -- (2,930) (2,930)
Balance at March 31, 1998.... 478,445,852 4,781 14,646 -- (4,152) 17,601 32,876
----------------------------- ----------- --------- ---------- ------------- ---------- ---------- ---------- ----------
Common stock issued.......... 1,657,861 20 126 -- -- -- -- 146
Comprehensive income
Net income................. -- -- -- -- Rs. 7,518 -- 7,518 7,518
Unrealized gain/(loss) on
securities, net......... -- -- -- -- (1,099) (1,099) -- (1,099)
----------
Comprehensive income -- -- -- -- Rs. 6,419 -- -- --
==========
Dividend declared on common
stock...................... -- -- -- -- -- -- (2,930) (2,930)
Balance at March 31, 1999.... 480,103,713 4,801 14,772 -- (5,251) 22,189 36,511
----------------------------- ----------- --------- ---------- ------------ ---------- ---------- ---------- ----------
Common stock issued.......... 305,208,635 3,031 18,364 -- -- -- -- 21,395
Compensation related to -- -- 97 (97) -- -- -- --
Amortization of compensation -- -- -- 27 -- -- -- 27
Increase in carrying value on -- -- 4,114 -- -- -- -- 4,114
Comprehensive income
Net income................ -- -- -- -- Rs. 9,331 -- 9,331 9,331
Unrealized gain/(loss) on
securities, net......... -- -- -- -- 2,712 2,712 -- 2,712
----------
Comprehensive income....... -- -- -- -- Rs. 12,043 -- -- --
==========
Dividend declared on common -- -- -- -- -- -- (3,182) (3,182)
stock......................
Balance at March 31, 2000.... 785,312,348 7,832 37,347 (70) (2,539) 28,338 70,908
----------------------------- ----------- --------- ---------- ------------- ---------- ---------- ---------- ----------
Balance at March 31, 2000
(US$)...................... 179 856 (2) (58) 649 1,624
----------------------------- ----------- --------- ---------- ------------- ---------- ---------- ---------- ----------
</TABLE>
F-5
<PAGE>
<TABLE>
ICICI LIMITED
US GAAP CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended March 31, 1998, 1999 and 2000
Year ended March 31,
----------------------------------------------------------
1998 1999 2000 2000(1)
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
(in millions)
Cash flows from operating activities
Net income......................................... Rs. 8,790 Rs. 7,518 Rs. 9,331 US$ 214
Adjustments to reconcile net income to net cash
from operating activities:
Non-cash items
Provision for credit losses........................ 4,768 6,067 6,363 146
Depreciation and amortization...................... 43 186 616 14
Deferral of discount and expenses on loan fund..... 628 820 838 19
Deferred tax charge/(benefit)...................... 162 69 (103) (2)
Revaluation loss on foreign currency balances...... 271 54 22 1
Other than temporary' diminution in the value of
Undistributed equity in earnings of affiliate...... 9 34 (20) --
Minority interest.................................. 135 170 361 8
Net gain on sale of property and equipment......... (532) -- (212) (5)
Net gain on sale of securities available for sale.. (1,255) (1,676) (2,371) (54)
Gain on sale of subsidiary's stock................. (920) -- -- --
Change in accounting principle..................... -- -- (249) (6)
Change in assets and liabilities
Other assets....................................... (2,905) (6,408) (3,317) (76)
Other liabilities.................................. 2,982 11,536 10,262 235
Taxes payable...................................... 479 (2,194) 1,773 41
Trading account assets............................. (7,075) (24,202) (21,470) (492)
Trading account liabilities........................ 273 5,954 5,892 135
------------- ------------- ----------- -----------
Net cash provided by /(used in)
operating activities............................. 7,177 (841) 9,160 210
============= ============= =========== ===========
Cash flows from investing activities
Securities-Available for sale
Purchases.......................................... (2,722) (3,139) (20,406) (467)
Proceeds from sales................................ 3,421 4,831 20,862 478
Securities-Held to maturity
Purchases.......................................... -- -- (644) (15)
Maturities......................................... 19 -- -- --
Proceeds from sale of subsidiary's stock........... 1,676 -- -- --
Net increase in loans.............................. (90,611) (105,235) (92,431) (2,118)
Capital expenditure on property and equipment...... (2,666) (3,600) (4,320) (99)
Proceeds from sale of property and equipment....... 1,091 115 276 6
--------------- --------------- ------------- --------------
Net cash used in investing activities.............. (89,792) (107,028) (96,663) (2,215)
=============== =============== ============= ==============
-------------
(1)......Exchange rate: Rs. 43.65 = US$ 1.00 at March, 2000
</TABLE>
F-6
<PAGE>
<TABLE>
ICICI LIMITED
US GAAP CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
for the years ended March 31, 1998, 1999 and 2000
Year ended March 31,
--------------------------------------------------------
1998 1999 2000 2000(1)
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
(in millions)
Cash flows from financing activities
Net increase in deposits................................. Rs. 18,555 Rs. 31,310 Rs. 36,077 US$ 827
Proceeds from short-term borrowings, net................. 3,210 12,325 30,514 699
Proceeds from issuance of long-term debt................. 111,841 144,654 53,524 1,226
Maturity and redemption of long-term debt................ (37,900) (58,533) (47,909) (1,098)
Proceeds from issuance of redeemable preferred stock..... 2,616 7,690 -- --
Redemption of redeemable preferred stock................. -- (160) (750) (17)
Proceeds from issuance of common stock................... 163 146 20,865 478
Proceeds from issuance of common stock by subsidiary..... -- -- 7,338 166
Purchase of minority interest in subsidiary.............. -- (844) -- --
Payment of dividend...................................... (2,248) (3,171) (3,182) (73)
------------ ------------ ------------ -----------
Net cash provided by financing activities................ Rs. 96,237 Rs. 133,417 Rs. 96,477 Rs. 2,210
============ ============ ============ ===========
Net increase in cash and cash equivalents................ 13,622 25,548 8,974 206
Cash and cash equivalents at the beginning of the year... 22,953 36,575 62,123 1,423
------------ ------------ ------------ -----------
Cash and cash equivalents at the end of the year......... Rs. 36,575 Rs. 62,123 Rs. 71,097 US$ 1,629
============ ============ ============ ===========
</TABLE>
-------------------
(1) Exchange Rate: Rs. 43.65 = US$ 1.00 at March, 2000.
Supplementary schedule of non-cash investing and financing activities
Business combinations
ICICI Limited purchased the entire capital stock of Anagram Finance
Limited (Anagram) for Rs. 167 million with effect from April 1, 1998. Similarly
ICICI Limited purchased the entire capital stock of ITC Classic Finance Limited
(ITCCFL) for Rs. 167 million with effect from April 1, 1997. In conjunction with
these acquisitions, liabilities were assumed as set out below:
ITCCFL Anagram
----------------------------
Year ended March 31,
----------------------------
1998 1999
-------------- -------------
(in millions)
Fair value of assets acquired.................. Rs. 14,044 Rs. 9,631
Fair value of liabilities assumed.............. 13,867 (10,398)
------------- ------------
Excess/(deficit) of fair value of assets
over fair value of liabilities............... 177 (767)
Common stock issued as consideration........... 167 167
------------- ------------
Goodwill/(Negative goodwill)................... Rs. (10) Rs. 934
============== ============
The goodwill is being amortized over a period of five years. The
negative goodwill has been adjusted against the values assigned to non-current,
non-monetary assets on a proportionate basis.
Conversion of convertible instruments to common stock
During the year ended March 31, 2000, convertible debt instruments
aggregating Rs. 530 million were converted to 34.6 million equity shares in
accordance with the original terms of the instruments.
F-7
<PAGE>
ICICI LIMITED
US GAAP STATEMENT OF ACCOUNTING POLICIES
1 Significant accounting policies
1.1 Overview
1.1.1 ICICI Limited incorporated in Mumbai, India is a financial institution
that along with its subsidiaries (collectively, ICICI or the
Company), provides a variety of banking and financial services
including project finance, corporate finance, investment banking and
retail lending.
1.2 Principles of consolidation
1.2.1 The consolidated financial statements include the accounts of ICICI
Limited and all of its subsidiaries, which are more than 50% owned
and controlled. All material inter-company accounts and transactions
are eliminated on consolidation. 20% to 50% owned affiliates are
accounted for under the equity method and the pro rata share of their
income/loss is included in the statement of income, except where
ICICI is unable to exercise significant influence over the operating
and financial policies of the investee.
1.3 Basis of preparation
1.3.1 The accounting and reporting policies of ICICI used in the preparation
of these consolidated financial statements reflect industry practices
and conform to generally accepted accounting principles in the United
States.
1.4 Use of estimates
1.4.1 The preparation of consolidated financial statements in conformity
with United States generally accepted accounting principles requires
that management makes estimates and assumptions that affect the
reported amount of assets and liabilities at the date of the
financial statements and the reported income and expense for the
reporting period. Management believes that the estimates used in the
preparation of the consolidated financial statements are prudent and
reasonable. The actual results could differ from these estimates.
1.5 Functional currency and convenience translation
1.5.1 The accompanying financial statements have been prepared in Indian
rupees (Rs.), the national currency of India. Solely for the
convenience of the readers, the financial statements at and for the
year ended March 31, 2000, have been translated into United States
dollars at the noon buying rate in New York City on March 31, 2000,
for cable transfers in Indian rupees, as certified for customs
purposes by the Federal Reserve of New York of US$ 1 = Rs.43.65. No
representation is made that the Indian rupee amounts have been, could
have been or could be converted into United States dollars at such a
rate or any other certain rate on March 31, 2000, or at any other
certain date.
F-8
<PAGE>
ICICI LIMITED
US GAAP STATEMENT OF ACCOUNTING POLICIES - (Continued)
1.6 Revenue recognition
1.6.1 Interest income is accounted on an accrual basis except in respect of
impaired loans, where it is recognized on a cash basis. Income from
leasing and hire-purchase operations is accrued in a manner to
provide a fixed rate of return on outstanding investments.
1.6.2 Fees from non-fund based activities such as issue management, loan
syndication and financial advisory services are accrued based on the
stage of completion of the underlying transactions. Fees for
guarantees and letters of credit are amortized over the contracted
period of the commitment.
1.7 Cash and cash equivalents
1.7.1 ICICI considers all highly liquid investments, which are readily
convertible into cash and have contractual maturities of three months
or less from the date of purchase, to be cash equivalents. The
carrying value of cash equivalents approximates fair value.
1.8 Securities and trading account activities
1.8.1 In accordance with Statement of Accounting Standards (SFAS) No.115,
Accounting for Certain Investments in Debt and Equity Securities, the
Company classifies its debt and equity securities in one of the three
categories: trading, held to maturity or available for sale, at the
time of purchase and re-evaluates such classifications at each
balance sheet date. Debt securities that are expected to be held to
maturity are carried at cost, adjusted for amortization of premiums
and accretion of discounts. Marketable equity securities and debt
securities available for sale are carried at fair value, with
unrealized gains and losses reported as a separate component of
stockholders' equity, net of applicable income taxes. Equity
securities, which are traded on a securities exchange within six
months of the balance sheet date are considered as publicly traded.
The last quoted price of such securities is taken as their fair
value. Unquoted equity securities are valued at cost, less provision
for 'other than temporary' diminution.
1.8.2 Any 'other than temporary' diminution in the value of securities that
are expected to be held to maturity or that are available for sale is
charged to the statement of income. 'Other than temporary' diminution
is identified based on management's evaluation.
1.8.3 Realized gains and losses on sale of securities are included in
earnings on a weighted average cost basis.
1.8.4 Securities acquired through conversion of loans in a troubled debt
restructuring are initially recorded at the fair value on the date of
conversion.
1.8.5 Trading account assets include securities held for the purpose of sale
in the short term. These securities are valued at fair value, with
the unrealized gain/loss being taken to trading account revenue.
Trading account activities also include foreign exchange products.
Foreign exchange trading positions are valued at prevailing market
rates and the resulting gains/losses are included in foreign exchange
revenue.
F-9
<PAGE>
ICICI LIMITED
US GAAP STATEMENT OF ACCOUNTING POLICIES - (Continued)
1.9 Loans
1.9.1 Loans are reported at the principal amount outstanding, inclusive of
interest accrued and due per the contractual terms. Loan origination
fees (net of loan origination costs) are deferred and recognized as
an adjustment to yield over the life of the loan. Interest is accrued
on the unpaid principal balance and is included in interest income.
1.9.2 Loans are identified as impaired and placed on a non-accrual basis,
when it is determined that payment of interest or principal is
doubtful of collection or that interest or principal is past-due
beyond two payment periods (each payment period being 90 days). Such
loans are classified as non-performing. Any interest accrued and not
received on impaired loans is reversed and charged against current
earnings, and interest is thereafter included in earnings only to the
extent actually received in cash. Non-performing loans are returned
to an accrual status when all contractual principal and interest
amounts are reasonably assured of repayment and there is a sustained
period of repayment performance in accordance with the contractual
terms.
1.9.3 Non-performing loans are reported after considering the impact of
non-performance. The non-performance is measured by comparing the
carrying amount of the loan with the present value of the expected
future cash flows/fair value of the collateral, discounted at the
effective rate of the loan.
1.9.4 Loans include aggregate rentals on lease financing transactions and
residual values, net of related unearned income. Lease financing
transactions substantially represent direct financing leases. Loans
also include the aggregate value of purchased securitized
receivables, net of unearned income. Loans further include credit
substitutes, such as privately placed debt instruments, which are not
readily marketable.
1.10 Aggregate allowance for credit losses
1.10.1 ICICI evaluates its entire credit portfolio on a periodic basis and
grades its accounts considering both qualitative and quantitative
criteria. This evaluation includes an account by account analysis of
the loan portfolio, and an allowance is made for any probable loss on
each account. In evaluating its credit losses, management has
estimated recovery of such loans at various stages of time to
recovery and discounted these using the effective interest rate of
the loans. In estimating recovery, ICICI considers its past credit
loss experience and such other factors, which in its judgement,
deserve current recognition in estimating probable credit losses. It
is possible that actual recoveries may differ from those estimated
and consequently actual loss could differ from the estimate. The
aggregate allowance for credit losses is increased by amounts charged
to the provision for credit losses, net of releases of provisions as
a result of cash collections.
1.11 Property and equipment
1.11.1 Property and equipment are stated at cost, less accumulated
depreciation. The cost of additions, capital improvements and
interest during the construction period are capitalized, while
maintenance and repairs are charged to expenses when incurred.
Property and equipment to be disposed of are reported at the lower of
carrying amount or fair value, less cost to sell.
1.11.2 Depreciation is provided over the estimated useful lives of the
assets.
F-10
<PAGE>
ICICI LIMITED
US GAAP STATEMENT OF ACCOUNTING POLICIES - (Continued)
1.11.3 The cost and accumulated depreciation for property and equipment sold,
retired or otherwise disposed of are relieved from the accounts, and
the resulting gains/losses are reflected in the statement of income.
1.11.4 Property under construction and advances paid towards acquisition of
property and equipment are disclosed as construction in progress.
1.12 Interest capitalization
1.12.1 The interest costs incurred for funding an asset during its
construction period are capitalized based on the average outstanding
investment in the asset and the average cost of funds. The
capitalized interest cost is included in the cost of the relevant
asset and is depreciated over the estimated useful life of the asset.
1.13 Issue of shares by subsidiary/affiliate
1.13.1 An issuance of shares by a subsidiary/affiliate to third parties
reduces the proportionate ownership interest of the Company in the
investee. A change in the carrying value of the investment in a
subsidiary/affiliate due to such direct sale of unissued shares by
the investee is accounted for as a capital transaction, and is
recognized in stockholders' equity when the transaction occurs.
1.14 Income taxes
1.14.1 Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases, and operating loss carry forwards.
Deferred tax assets and liabilities are measured using enacted tax
rates. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in the statement of income in the period
of change. Deferred tax assets are recognized subject to management's
judgement that realization is more likely than not.
1.15 Retirement benefits
1.15.1 Contributions to defined contribution plans are charged to income in
the period in which they accrue.
1.15.2 Current service costs for defined benefit plans are accrued in the
period to which they relate. Prior service costs, if any, resulting
from amendments to the plans are recognized and amortized over the
remaining period of service of the employees.
1.16 Foreign currency transactions
1.16.1 Revenues and expenses in foreign currency are accounted at the
exchange rate on the date of the transaction. Foreign currency
balances at year-end are translated at the year-end exchange rates
and the revaluation gains/losses are adjusted through the statement
of income.
F-11
<PAGE>
ICICI LIMITED
US GAAP STATEMENT OF ACCOUNTING POLICIES - (Continued)
1.16.2 Speculative forward exchange contracts are revalued at year-end based
on forward exchange rates for residual maturities and the contractual
rates, and the revaluation gain/loss is recognized in the statement
of income. Forward exchange contracts that are accounted for as
hedges of foreign currency exposures, are revalued based on year-end
spot rates and the spot rates at the inception of the contract. The
revaluation gain/loss is recognized in the statement of income.
Premium or discount on such forward exchange contracts is recognized
over the life of the contract.
1.17 Derivative instruments
1.17.1 ICICI enters into derivative contracts such as interest rate swaps and
currency swaps, for hedging its on-balance sheet asset and liability
balances. Through derivative instruments, ICICI hedges its interest
rate risk and foreign exchange risk.
1.17.2 The swap contracts entered into are structured such that they bear an
opposite and off-setting impact with the on-balance sheet items they
hedge. No fair value accounting of the swap contracts has been
carried out as the balance sheet exposure of such contracts
(representing the change in the market value of the contracts over
the carrying value) exactly offsets the change in the fair value of
the on-balance sheet item. The swap differentials have been accounted
for on an accrual basis pursuant to the principles of hedge
accounting.
1.17.3 Additionally, ICICI enters into interest rate swaps and currency swaps
for trading purposes. Such contracts are designated as 'traded
contracts' and have been accounted at their fair value.
1.18 Extinguishment of debt
1.18.1 ICICI accounts for reacquisition of its outstanding debt securities as
an extinguishment of debt when it pays the creditors and is relieved
of its obligations for the liability. The difference between the
reacquisition price and the net carrying amount of the extinguished
debt is recognized in the statement of income in the period of
extinguishment. Such gains and losses from extinguishment of debt are
aggregated and, if material, classified as an extraordinary item, net
of the related income tax effect.
1.19 Dividends
1.19.1 Dividends on common stock and the related dividend tax are recognized
on approval by the board of directors.
1.20 Direct costs on issue of common stock
1.20.1 Direct costs on issuance of common stock are charged against the gross
proceeds from the issue.
1.21 Stock-based compensation
1.21.1 The Company uses the intrinsic value based method of Accounting
Principle Board (APB) Opinion No.25 to account for its employee
stock-based compensation plans. The Company has therefore adopted the
pro forma disclosure provision of SFAS No.123, Accounting for
Stock-Based Compensation.
F-12
<PAGE>
ICICI LIMITED
US GAAP STATEMENT OF ACCOUNTING POLICIES - (Continued)
1.21.2 A consolidated subsidiary has a stock option plan, which includes
grants of options to employees of the parent company. Such options
granted to employees of the parent company are accounted for in
accordance with SFAS No.123. These stock options are valued based
upon an option-pricing model with the compensation cost being
expensed over the vesting period of the options.
1.22 Earnings per share
1.22.1 In accordance with SFAS No.128, Earnings Per Share, basic earnings per
share is computed using the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed
using the weighted average number of common and dilutive common
equivalent shares outstanding during the period, using the treasury
stock method for options, except where the results would be
antidilutive.
1.23 Reclassifications
1.23.1 Certain reclassifications have been made in the financial statements
of prior years to conform to classifications used in the current
year. These changes had no impact on previously reported results of
operations or stockholders' equity.
F-13
<PAGE>
ICICI LIMITED
NOTES TO US GAAP CONSOLIDATED FINANCIAL STATEMENTS
2 Financial instruments
2.1.1 ICICI provides a wide variety of financial instruments as products to
its customers, and it also uses these instruments in connection with
its own activities. The following notes are explanatory notes
regarding financial assets and liabilities, off-balance sheet
financial instruments, concentration of credit risk and the estimated
fair value of financial instruments.
2.1.2 Collateral requirements are made on a case-by-case evaluation of each
customer and product, and may include cash, securities, receivables,
property, plant and machinery and other assets.
2.2 Financial assets and liabilities
Cash and cash equivalents
2.2.1 Cash and cash equivalents at March 31, 2000, include a balance of
Rs. 6,904 million (1999: Rs. 4,400 million) maintained with the
Reserve Bank of India being the minimum daily stipulated amount to be
maintained under statutory requirements. This balance is subject to
withdrawal or usage restrictions.
2.2.2 Cash and cash equivalents at March 31, 2000, also include,
interest-bearing deposits with banks aggregating Rs. 47,340 million
(1999: Rs. 44,110 million).
2.2.3 ICICI has certain borrowings, which have been raised under specific
lines of credit from multilateral agencies at concessional rates of
interest. These borrowings have restrictions on lending and usage and
can be disbursed only for specified purposes. Pending disbursement,
the funds are placed with banks in India. Cash and cash equivalents
at March 31, 2000, include Rs. 1,076 million (1999: Rs. 1,149
million) of such undisbursed funds.
Trading account assets
2.2.4 A listing of the trading account assets is set out below:
At March 31,
-------------------------
1999 2000
-------------------------
(in millions)
Government of India securities ................... Rs. 30,025 Rs. 46,281
Corporate debt securities......................... 5,470 9,239
Equity securities................................. 6 1,567
Revaluation gains on derivative and foreign
exchange contracts......................... 425 309
-------------------------
Total............................................. Rs. 35,926 Rs. 57,396
=========================
2.2.5 In accordance with the Banking Regulation Act, 1949, ICICI Bank
Limited, a consolidated subsidiary, is required to maintain a
specified percentage of its net demand and time liabilities by way of
assets such as cash and approved securities. The amount required to
be maintained at March 31, 2000, was Rs. 20,570 million (1999: Rs.
12,875 million). Government of India securities qualify as approved
securities under the regulations.
2.2.6 At March 31, 2000, trading account assets included certain Government
of India securities amounting to Rs. 10,842 million (1999: Rs. 5,460
million), which are pledged in favour of the Reserve Bank of India
for the purpose of collateralizing short-term borrowings.
F-14
<PAGE>
ICICI LIMITED
NOTES TO US GAAP CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Trading account revenue
2.2.7 A listing of trading account revenue is set out below:
Year ended March 31,
--------------------------------
1998 1999 2000
--------------------------------
(in millions)
Gain on sale of trading securities, net ..... Rs. 1,024 Rs. 574 Rs. 2,397
Revaluation loss on trading securities, net.. (351) (98) (368)
--------------------------------
Total........................................ Rs. 673 Rs. 476 Rs. 2,029
================================
Securities
2.2.8 The portfolio of securities is set out below:
<TABLE>
At March 31, 1999 At March 31, 2000
------------------------------------------------------------------------------------------------
Amortized Gross Gross Gross Gross
cost unrealized unrealized Fair Amortized unrealized unrealized Fair
gain loss value Cost gain loss value
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(in millions)
Available for sale
Corporate debt Rs. 3,851 Rs. 12 Rs. -- Rs. 3,863 Rs. 3,308 Rs. 34 Rs. -- Rs. 3,342
Government of India
Securities........... -- -- -- -- 914 89 -- 1,003
------------------------------------------------------------------------------------------------
Total debt securities. 3,851 12 -- 3,863 4,222 123 -- 4,345
Equity securities(1).. 19,226 1,178 (9,227) 11,177 17,654 1,203 (4,976) 13,881
-------------------------------------------------------------------------------------------------
Total available for
sale.................. Rs.23,077 Rs. 1,190 Rs. (9,227) Rs.15,040 Rs.21,876 Rs. 1,326 Rs. (4,976) Rs.18,226
================================================================================================
Held to maturity
Corporate debt Rs -- Rs. -- Rs. -- Rs. -- Rs. 84 Rs. -- Rs. -- Rs. 84
Government of India
securities.......... -- -- -- -- 560 54 -- 614
Other debt securities. 1 -- -- 1 1 -- -- 1
------------------------------------------------------------------------------------------------
Total held to maturity. Rs. 1 Rs. -- Rs. -- Rs. 1 Rs. 645 Rs. 54 Rs. -- Rs. 699
================================================================================================
---------------------
(1) Includes non-marketable equity securities that are carried at cost, less any provision for 'other than
temporary' diminution. The fair value of these securities cannot be ascertained. At March 31, 2000, the
carrying amount of these securities was Rs. 8,479 million (1999: Rs. 4,877 million), which is reported in
both the amortized cost and fair value columns.
</TABLE>
Income from available for sale securities
2.2.9 A listing of interest and dividends on available for sale securities
is set out below:
Year ended March 31,
------------------------------------------------------
1998 1999 2000
------------------------------------------------------
(in millions)
Interest................ Rs. 182 Rs. 245 Rs. 388
Dividends .............. 553 676 1,502
------------------------------------------------------
Total................... Rs. 735 Rs. 921 Rs. 1,890
======================================================
F-15
<PAGE>
ICICI LIMITED
NOTES TO US GAAP CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Maturity profile of debt securities
2.2.10 A listing of each category of available for sale and held to maturity
debt securities at March 31, 2000, by original contractual maturity
is set out below:
<TABLE>
Available for sale Held to maturity
------------------------------------------------------------
Amortized Amortized
cost Fair value cost Fair value
------------------------------------------------------------
<S> <C> <C> <C> <C>
(in millions)
Corporate debt securities
Less than one year..................... Rs. 399 Rs. 403 Rs. 84 Rs. 84
One to five years...................... 1,566 1,581 -- --
Five to 10 years....................... 1,343 1,358 -- --
------------------------------------------------------------
Total.................................. Rs. 3,308 Rs. 3,342 Rs. 84 Rs. 84
------------------------------------------------------------
Government of India securities
Less than one year..................... Rs. -- Rs. -- Rs. -- Rs. --
One to five years ..................... 914 1,003 -- --
Five to 10 years....................... -- -- -- --
Greater than 10 years.................. -- -- 560 614
------------------------------------------------------------
Total.................................. Rs. 914 Rs. 1,003 Rs. 560 Rs. 614
------------------------------------------------------------
Other debt securities
Less than one year..................... Rs. -- Rs. -- Rs. -- Rs. --
One to five years...................... -- -- -- --
Five to 10 years....................... -- -- 1 1
------------------------------------------------------------
Total.................................. Rs. -- Rs. -- Rs. 1 Rs. 1
------------------------------------------------------------
Total debt securities.................. Rs. 4,222 Rs. 4,345 Rs. 645 Rs. 699
============================================================
</TABLE>
Investment in affiliate
2.2.11 The Company has accounted for its 45% interest in Prudential ICICI
Asset Management Company Limited (Pru-ICICI) by the equity method.
The carrying value of the investment in Pru-ICICI at March 31, 2000,
was Rs. 264 million (1999: Rs. 244 million). The Company's equity in
the income of Pru-ICICI for the year ended March 31, 2000, was Rs. 20
million (1999: loss of Rs. 34 million, 1998: loss of Rs. 9 million).
Loans
2.2.12 A listing of loans by category is set out below:
At March 31,
----------------------------------
1999 2000
----------------------------------
(in millions)
Project finance.......................... Rs. 424,846 Rs. 505,453
Working capital finance.................. 22,696 31,576
Leasing and related activities........... 51,704 46,766
Others................................... 5,630 12,710
----------------------------------
Gross loans.............................. 504,876 596,505
Aggregate allowance for credit losses.... (28,524) (34,085)
----------------------------------
Net loans................................ Rs.476,352 Rs.562,420
==================================
2.2.13 Project finance loans are generally secured by property, plant and
equipment and other tangible assets. Normally, the working capital
loans are secured by a first lien on current assets, principally
comprising inventory and receivables. Additionally, in certain cases
ICICI may
F-16
<PAGE>
ICICI LIMITED
NOTES TO US GAAP CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
obtain additional security for working capital loans through a first
or second lien on property and equipment, a pledge of financial
assets like marketable securities and corporate/personal guarantees.
2.2.14 During the year ended March 31, 2000, ICICI purchased certain unquoted
equity securities from a corporate with a `put' and `call' option.
Under the terms of the transfer, ICICI has a put option to sell the
securities to the corporate at a predetermined consideration.
Additionally, the corporate has a call option to repurchase the
transferred securities at a predetermined consideration. ICICI cannot
transfer the securities to a third party within the period of the
option. The call and the put option can be exercised between 13
months and 18 months. As ICICI has not obtained control over the
transferred assets, it has recorded the transfer as a secured loan
with pledge of collateral. At March 31, 2000, `Others' include Rs.
994 million representing such loan.
Net investment in leasing and related activities
2.2.15 Contractual maturities of ICICI's net investment in receivables from
leasing and related activities and its components, which are included
in loans are set out below:
At March 31,
----------------------------
1999 2000
------------ ------------
(in millions)
Gross finance receivables for the year ended
or ending March 31,
2000..............................................Rs. 19,807 Rs. 17,173
2001.............................................. 11,889 11,548
2002.............................................. 11,240 9,051
2003.............................................. 9,114 8,918
2004 and beyond................................... 29,383 20,799
------------ -----------
81,433 67,489
Less: Unearned income............................. (26,513) (17,403)
Security deposits....................... (3,216) (3,320)
------------ -----------
Investment in leasing and related activities...... 51,704 46,766
Less: Aggregate allowance for credit losses....... (1,630) (1,448)
------------ -----------
Net investment in leasing and related activities..Rs. 50,074 Rs. 45,318
============ ===========
Maturity profile of loans
2.2.16 A maturity profile of loans, other than net investment in receivables
from leasing and related activities, is set out below:
At March 31,
-----------------------------
1999 2000
------------ ------------
(in millions)
Less than one year............................... Rs. 130,346 Rs. 149,023
One to five years .............................. 234,687 273,606
Greater than five years.......................... 88,139 127,110
------------ ------------
Total............................................ Rs. 453,172 Rs. 549,739
------------ ------------
F-17
<PAGE>
ICICI LIMITED
NOTES TO US GAAP CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Interest and fees on loans
2.2.17 A listing of interest and fees on loans (net of unearned income) is
set out below:
Year ended March 31,
-----------------------------------------
1998 1999 2000
-----------------------------------------
(in millions)
Project finance.......................Rs. 44,418 Rs. 54,486 Rs. 60,154
Working capital finance............... 1,370 2,567 2,666
Leasing and related activities ....... 4,392 5,670 5,950
Others................................ 633 592 1,061
----------------------------------------
Total ................................Rs. 50,813 Rs. 63,315 Rs. 69,831
----------------------------------------
Non-performing loans
2.2.18 A listing of non-performing loans is set out below:
At March 31,
---------------------------
1999 2000
---------------------------
(in millions)
Project finance...................................Rs. 54,782 Rs. 64,456
Working capital finance........................... 1,158 1,127
Leasing and related activities ................... 2,360 2,965
Others............................................ 187 572
---------------------------
Total............................................. 58,487 69,120
===========================
Gross non-performing loans........................ 58,487 69,120
Aggregate allowances for credit losses............ (28,524) (34,085)
---------------------------
Non-performing loans, net.........................Rs. 29,963 Rs. 35,035
===========================
Non-performing loans with a valuation allowance...Rs. 58,021 Rs. 68,957
Non-performing loans without a valuation
allowance...................................... 466 163
---------------------------
Gross non-performing loans........................Rs. 58,487 Rs. 69,120
===========================
Interest recognized on non-performing
loans on cash basis............................. 803 1,035
Average non-performing loans ..................... 51,805 63,804
Changes in the allowance for credit losses
2.2.19 A listing of the changes in the allowance for credit losses is set out
below:
Year ended March 31,
-----------------------------
1999 2000
-----------------------------
(in millions)
Aggregate allowance for credit losses at the
beginning of the year..........................Rs. 22,457 Rs. 28,524
Additions
Provisions for credit losses, net of releases of
result of cash collection...................... 6,067 6,363
----------------------------
28,524 34,887
Write-offs........................................ -- (802)
----------------------------
Aggregate allowance for credit losses at the end
of the year.....................................Rs. 28,524 Rs 34,085
============================
F-18
<PAGE>
ICICI LIMITED
NOTES TO US GAAP CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Troubled debt restructuring
2.2.20 Loans at March 31, 2000 included loans aggregating Rs. 10,795 million
(1999: Rs. 6,749 million), which are currently under a scheme of debt
restructuring and which have been identified as non-performing loans.
The gross recorded investment in these loans is Rs. 18,546 million
(1999: Rs. 13,171 million) against which an allowance for credit
losses aggregating Rs. 7,751 million (1999: Rs. 6,422 million) has
been established. Income on restructured loans would have been Rs.
2,501 million (1999: Rs. 1,771 million, 1998: Rs. 1,112 million)
based on original terms. Income of Rs. 485 million has been
recognized on such loans for the year ended March 31, 2000 (1999: Rs.
402 million, 1998: Rs. 229 million) on a cash basis.
2.2.21 There are no commitments to lend incremental funds to any borrower who
is party to a troubled debt restructuring.
Concentration of credit risk
2.2.22 Concentrations of credit risk exist when changes in economic, industry
or geographic factors similarly affect groups of counterparties whose
aggregate credit exposure is material in relation to ICICI's total
credit exposure. ICICI's portfolio of financial instruments is
broadly diversified along industry, product and geographic lines
within the country.
Unearned income
2.2.23 A listing of unearned income is set out below:
At March 31,
-----------------------------
1999 2000
------------ -------------
(in millions)
Unearned income on receivables from leasing and
related activities..............................Rs. 26,513 Rs. 17,403
Unamortized loan origination fees.................. 1,632 1,595
Unamortized discount on acquired loans............. 503 267
Unearned fees on guarantees and letters of credit.. 209 228
Deposits
2.2.24 Deposits include demand deposits, which are non-interest-bearing and
savings and time deposits, which are interest-bearing. A listing of
deposits is set out below:
At March 31,
-----------------------------
1999 2000
------------ ------------
(in millions)
Interest bearing
Savings deposits...................................Rs. 2,271 Rs. 5,332
Time deposits...................................... 54,147 77,495
------------ -------------
56,418 82,827
Non-interest bearing
Demand deposits.................................... 4,187 13,855
------------ -------------
Total.............................................. Rs. 60,605 Rs. 96,682
============ =============
2.2.25 At March 31, 2000, time deposits of Rs. 71,319 million (1999:
Rs. 48,720 million) have a residual maturity of less than one year.
The balance of time deposits have a residual maturity ranging between
one to seven years.
F-19
<PAGE>
ICICI LIMITED
NOTES TO US GAAP CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Trading account liabilities
2.2.26 Trading account liabilities represent borrowings from banks in the
inter-bank call money market and borrowings from banks and corporates
in the course of trading operations.
Short-term borrowings
2.2.27 Short-term borrowings represent non-trading borrowings with an
original maturity of less than one year.
Repurchase transactions
2.2.28 ICICI has undertaken repurchase and reverse repurchase transactions in
Government of India securities. The average level of repurchase
transactions outstanding during the year ended March 31, 2000, was
Rs. 652 million (1999: Rs. 307 million). The average level of reverse
repurchase transactions outstanding during the year ended March 31,
2000, was Rs. 662 million (1999: Rs. 401 million). At March 31, 2000,
outstanding repurchase and reverse repurchase transactions were Rs.
2,664 million (1999: Rs. Nil) and Rs. 565 million (1999: Rs. Nil)
respectively.
Long-term debt
2.2.29 A listing of long-term debt at March 31, 2000, by maturity is set out
below:
<TABLE>
At March 31, 1999
---------------------------------------------------------
Various Various
fixed-rate floating-rate
obligations obligations Total (%)
---------------------------------------------------------
<S> <C> <C> <C> <C>
(in millions, except percentages)
Residual maturity
Less than one year......................... Rs. 42,555 Rs. 12,421 Rs. 54,976 13
One year to five years..................... 235,015 51,230 286,245 65
Five years to 10 years..................... 61,284 8,400 69,684 16
Greater than 10 years...................... 24,545 3,712 28,257 6
---------------------------------------------------------
Total...................................... Rs. 363,399 Rs. 75,763 Rs. 439,162 100
=========================================================
</TABLE>
2.2.30 Long-term debt represents debt with an original maturity of greater
than one year. The segregation between fixed rate and floating rate
obligations is based on the contractual terms. Long-term debt is
primarily denominated in Indian rupees and US dollars. A significant
portion of the debt bears a fixed rate of interest. Interest rates on
floating rate debt are generally linked to the London Interbank Offer
Rate or similar money market rates. An analysis of interest rates on
long-term debt is set out below:
At March 31,
--------------------------------
1999 2000
-------------- --------------
(in percentage)
Range
Foreign currency debt........................... 5.25 to 8.00% 5.21 to 8.00%
Rupee debt...................................... 6.50 to 16.00 7.25 to 16.00
Weighted average
Foreign currency debt........................... 5.93 5.55
Rupee debt...................................... 13.61 13.38
2.2.31 Long-term debt at March 31, 2000, includes interest-free borrowings
from the Government of India aggregating Rs. 927 million (1999: Rs.
927 million). This long term debt is recorded at its
F-20
<PAGE>
ICICI LIMITED
NOTES TO US GAAP CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
fair value based on the then prevailing interest rate of 16% for
borrowings of a similar term and risk. This interest rate is being
used to impute interest for each reporting period.
2.2.32 All long-term debt is unsecured, except for debt aggregating
Rs. 44,419 million (1999: Rs. 47,300 million) guaranteed by the
government of India.
2.2.33 Long-term debt includes convertible instruments issued by ICICI as
given below:
12.5% convertible debentures
2.2.34 The debentures were convertible into common stock by July 18, 1999,
either at par or at a premium not exceeding Rs. 5 per common stock,
to be decided by the Board of Directors of ICICI. During the year
ended March 31, 2000, the debentures were converted into 34.5 million
equity shares at a premium of Rs. 5 per share aggregating Rs. 518
million. These shares will rank pari passu in all respects with
existing equity shares of the Company except that they will be
entitled to participate in the dividend in respect of the year ended
March 31, 2000, on a pro rata basis.
2.5% US dollar convertible bonds
2.2.35 The US dollar convertible bonds were convertible to common stock at
the option of the bondholders before March 3, 2000. The conversion
was at a fixed price of Rs. 220 per share. No bondholder exercised
the option to convert the bonds. Subsequent to March 31, 2000, ICICI
has redeemed these bonds at par.
3.5% US dollar convertible bonds
2.2.36 The US dollar convertible bonds were convertible to common stock at
the option of the bondholder on or before April 1, 1999. The
conversion was at a fixed price of Rs. 193 per share. If the bonds
were not converted by the bondholders, the bondholders had the right
to seek redemption at a predetermined price on April 1, 1999.
Alternatively, ICICI can seek redemption at par from April 1, 1999 to
April 1, 2004.
2.2.37 During the year ended March 31, 2000, 63,398 shares were issued to
bondholders at Rs. 193 per share. The remaining bonds were redeemed
at the predetermined price.
Redeemable preferred stock
2.2.38 Preferred stock issued by companies incorporated in India carries a
preferential right to be repaid on liquidation over common stock. In
line with the existing regulatory requirements in India, preferred
stock issued by ICICI must be compulsorily redeemed within specified
time periods. Accordingly, all series of preferred stock issued by
ICICI are redeemable in accordance with the terms of the issue.
Authorized preferred stock was 5,000 million shares at March 31, 2000
(1999: 1,000 million shares). At March 31, 2000, 958 million shares
(1999: 999 million shares) of redeemable preferred stock were issued
and outstanding, amounting to Rs. 9,577 million (1999: Rs. 9,989
million). Further, redeemable preferred stock at March 31, 2000
includes an amount of Rs. Nil (1999: Rs. 338 million) representing
application money pending allotment. These instruments bear dividends
ranging from 9.30% to 13.25%.
F-21
<PAGE>
ICICI LIMITED
NOTES TO US GAAP CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2.2.39 A listing of redeemable preferred stock at March 31, 2000 by maturity
is set out below:
Residual maturity (in millions)
2001............................................................ Rs. 1,038
2002............................................................ 1,772
2003............................................................ 832
2004............................................................ 3,303
2005 and beyond................................................. 2,632
-----------
Total........................................................... Rs. 9,577
===========
2.2.40 Additionally, ICICI issued preferred stock of the face value of
Rs. 3,500 million in the year ended March 31, 1998 under the scheme
of business combination with ITCCFL. This preferred stock bears a
dividend yield of 0.001% and is redeemable at face value after 20
years. This preferred stock was initially recorded at its fair value
of Rs. 466 million. Subsequently, interest has been, and is being
imputed for each reporting period. The imputed interest rate of 10.6%
was determined based on the then prevailing interest rate for
government of India securities of similar maturity. The carrying
amount of this redeemable preferred stock at March 31, 2000 was Rs.
630 million (1999: Rs. 570 million).
2.3 Off-balance sheet financial instruments
Foreign exchange and derivative contracts
2.3.1 ICICI enters into foreign exchange forwards, options, swaps and other
derivative products with inter-bank participants and customers, which
enable customers to transfer, modify or reduce their foreign exchange
and interest rate risks. In addition, ICICI uses foreign exchange
contracts and other instruments as a part of its own balance sheet
and risk management. These instruments are used to manage foreign
exchange and interest rate risk relating to specific groups of
on-balance sheet assets and liabilities.
2.3.2 Forward exchange contracts are commitments to buy or sell at a future
date, a currency at a contracted price. Swap contracts are
commitments to settle in cash at a future date or dates, based on
differentials between specified financial indices, as applied to a
notional principal amount. Option contracts give the purchaser, for a
fee, the right, but not the obligation, to buy or sell within a
limited time, a financial instrument or currency at a contracted
price that may also be settled in cash, based on differentials
between specified indices.
2.3.3 The market and credit risks associated with these products, as well as
the operating risks, are similar to those relating to other types of
financial instruments. Market risk is the exposure created by
potential fluctuations in interest rates, foreign exchange rates and
other values, and is a function of the type of product, the volume of
transactions, the tenor and terms of the agreement and the underlying
volatility. Credit risk is the exposure to loss in the event of
non-performance by the other party to the transaction. The extent of
loss on account of a counterparty default will depend on the
replacement value of the contract at the current market rates. The
recognition in earnings of unrealized gains on these transactions is
subject to management's assessment of collectibility.
F-22
<PAGE>
ICICI LIMITED
NOTES TO US GAAP CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2.3.4 The following table presents the aggregate notional principal amounts
of ICICI's outstanding foreign exchange and derivative contracts
together with the related balance sheet credit exposure:
<TABLE>
Particulars Balance sheet credit
Notional principal amounts exposure1
---------------------------------------------------
At March 31, At March 31,
---------------------------------------------------
1999 2000 1999 2000
---------------------------------------------------
<S> <C> <C> <C> <C>
(in millions)
Interest rate products
Swap agreements (hedge contracts)........... Rs. 28,731 Rs. 40,201 Rs. -- Rs. --
---------------------------------------------------
Total....................................... Rs. 28,731 Rs. 40,201 Rs. -- Rs. --
===================================================
Foreign exchange products
Forward contracts (hedge contracts)......... Rs 5,232 Rs. 48,355 Rs. -- Rs. --
Forward contracts (traded contracts)........ 35,175 56,159 425 309
Swap agreements (hedge contracts).. 17,494 30,552 -- --
---------------------------------------------------
Total....................................... Rs. 57,901 Rs.135,066 Rs. 425 Rs. 309
===================================================
</TABLE>
------------------------
(1) Balance sheet credit exposure denotes the mark-to-market impact of the
derivative and foreign exchange products on the reporting date.
Loan commitments
2.3.5 ICICI has outstanding undrawn commitments to provide loans and
financing to customers. These loan commitments aggregated Rs. 80,280
million at March 31, 2000 (1999: Rs. 80,072 million). The interest
rate on these commitments is dependent on the lending rates on the
date of the loan disbursement. Further, the commitments have fixed
expiration dates and are contingent upon the borrower's ability to
maintain specific credit standards.
2.3.6 Loan commitment fees are deferred and amortized over the period of the
loan.
Guarantees
2.3.7 As a part of its industrial financing and commercial banking
activities, ICICI has issued guarantees to enhance the credit
standing of its customers. These generally represent irrevocable
assurances that ICICI will make payments in the event that the
customer fails to fulfill its financial or performance obligations.
Financial guarantees are obligations to pay a third party beneficiary
where a customer fails to make payment towards a specified financial
obligation. Performance guarantees are obligations to pay a third
party beneficiary where a customer fails to perform a non-financial
contractual obligation. The guarantees are generally for a period not
exceeding 10 years.
2.3.8 The credit risk associated with these products, as well as the
operating risks, are similar to those relating to other types of
financial instruments. Fees are recognized over the term of the
facility.
F-23
<PAGE>
ICICI LIMITED
NOTES TO US GAAP CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2.3.9 Details of guarantees outstanding are set out below:
At March 31,
----------------------------
1999 2000
---------- ----------
(in millions)
Financial guarantees........................Rs. 39,455 Rs. 46,253
Performance guarantees...................... 9,059 11,811
----------------------------
Total.......................................Rs. 48,514 Rs. 58,064
============================
2.4 Estimated fair value of financial instruments
2.4.1 ICICI's financial instruments include financial assets and liabilities
recorded on the balance sheet, as well as off-balance sheet
instruments such as foreign exchange and derivative contracts. A
listing of the fair value of these financial instruments is set out
below:
<TABLE>
At March 31, 1999 At March 31, 2000
-----------------------------------------------------------------------------------
Particulars Estimated Estimated
fair value fair value
in excess of in excess of/
/(less than) (less than)
Carrying Estimated carrying Carrying Estimated carrying
value fair value value value fair value value
----------- ---------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
(in millions)
Financial assets................Rs. 598,215 Rs.597,245 Rs. (970) Rs. 722,117 Rs. 731,204 Rs. 9,087
Financial liabilities........... 569,300 566,615 (2,685) 645,376 662,315 16,939
</TABLE>
2.4.2 Fair values vary from period to period based on changes in a wide
range of factors, including interest rates, credit quality, and
market perception of value and as existing assets and liabilities
run-off and new items are generated.
F-24
<PAGE>
ICICI LIMITED
NOTES TO US GAAP CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2.4.3 A listing of the fair values by category of financial assets and
financial liabilities is set out below:
<TABLE>
At March 31, 1999 At March 31, 2000
------------------------------------------------------------------------------------
Particulars Estimated Estimated
fair value fair value
in excess of in excess of/
/(less than) (less than)
Carrying Estimated carrying Carrying Estimated carrying
value fair value value value fair value value
----------- ---------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>>
(in millions) (in millions)
Financial assets
Securities......................Rs. 15,041 Rs. 15,041 Rs. -- Rs. 18,871 Rs. 18,925 Rs. 54
Trading assets.................. 35,926 35,926 -- 57,396 57,396 --
Loans(1)........................ 476,352 475,382 (970) 562,420 571,453 9,033
Other financial assets(2)....... 70,896 70,896 -- 83,430 83,430 --
----------- ---------- ------------- ----------- ----------- -----------
Total...........................Rs. 598,215 Rs.597,245 Rs. (970) Rs. 722,117 Rs. 731,204 Rs. 9,087
=========== ========== ============= =========== =========== ===========
Financial liabilities
Interest-bearing deposits.......Rs. 56,418 Rs. 57,590 Rs. 1,172 Rs. 82,827 Rs. 82,217 Rs. 390
Non-interest-bearing deposits... 4,187 4,187 -- 13,855 13,855 --
Trading account liabilities..... 14,791 14,791 -- 20,684 20,684 --
Short -term borrowings.......... 35,794 35,794 -- 66,308 66,308 --
Long-term debt.................. 438,440 434,575 (3,865) 439,162 455,604 16,442
Redeemable preferred stock...... 10,897 10,905 8 10,207 10,314 107
Other financial liabilities(3).. 8,773 8,773 -- 12,333 12,333 --
----------- ---------- ------------- ----------- ----------- -----------
Total...........................Rs. 569,300 Rs.566,615 Rs. (2,685) Rs. 645,376 Rs. 662,315 Rs 16,939
=========== ========== ============= =========== =========== ===========
Derivatives (4)
Interest rate swaps............. -- -- Rs. 740 -- -- Rs. 63
Currency swaps.................. -- -- 188 -- -- (342)
</TABLE>
(1) The carrying value of loans is net of the allowance for credit
losses.
(2) Includes cash, due from banks, deposits at interest with banks,
short-term highly liquid securities and customers acceptance
liability for which the carrying value is a reasonable estimate
of fair value.
(3) Represents acceptances outstanding, for which the carrying value
is a reasonable estimate of the fair value.
(4) Represents the gains/losses on fair valuation of the end-user
derivative products.
2.4.4 The above data represents the management's best estimates based on a
range of methodologies and assumptions. Quoted market prices are used
for most securities. For performing loans, contractual cash flows are
discounted at current market origination rates for loans with similar
terms and risk characteristics. For impaired loans, the impairment is
considered while arriving at the fair value. For liabilities, market
borrowing rates of interest of similar instruments are used to
discount contractual cash flows.
2.4.5 The estimated fair value of securities, loans, interest-bearing
deposits, long-term debt and redeemable preferred stock largely
reflect changes in market rates since the securities were purchased
loans were given, deposits were taken or debt or preferred stock were
issued.
3 Property and equipment
3.1.1 Property and equipment are stated at cost less accumulated
depreciation. Generally, depreciation is computed over the estimated
useful life of the asset.
3.1.2 A listing of property and equipment by asset category is set out
below:
F-25
<PAGE>
ICICI LIMITED
NOTES TO US GAAP CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
At March 31,
--------------------------
1999 2000
---------- ----------
(in millions)
Land......................................... Rs. 1,246 Rs. 1,454
Buildings.................................... 5,831 5,570
Equipment and furniture...................... 1,540 4,238
Construction-in-progress..................... 531 1,867
Others....................................... 208 163
--------------------------
Gross value of property and equipment........ 9,356 13,292
Accumulated depreciation..................... (1,406) (1,517)
--------------------------
Net value of property and equipment.......... Rs. 7,950 Rs. 11,775
==========================
3.1.3 Interest capitalized for the year ended March 31, 2000 was Rs. 19
million (1999: Rs. 231 million).
4 Other liabilities
4.1.1 Other liabilities at March 31, 2000 included Rs. 20,778 million (1999:
Rs. 18,074 million) of interest accrued but not due on borrowed
funds.
4.1.2 Other liabilities at March 31, 2000 also included Rs. 1,519 million
(1999: Rs. 1,772 million) of unamortized negative goodwill arising on
the business combination with SCICI Limited effective April 1, 1996.
The negative goodwill is being amortized over a period of 10 years.
5 Business combination
5.1 Anagram Finance Limited
5.1.1 Effective April 1, 1998, the business of Anagram Finance Limited
(Anagram) was combined with the business of ICICI. Anagram was a
financial intermediary providing financial services such as leasing,
automobile financing and bill discounting.
5.1.2 Under the terms of the combination, all assets and liabilities of
Anagram were transferred to ICICI. The combination was accounted for
by the purchase method.
5.1.3 The combination was affected through the issue of 1.67 million common
shares of ICICI to the shareholders of Anagram, in the ratio of 1:15
(one common share of ICICI for fifteen shares of Anagram). The amount
assigned to these shares issued as consideration was Rs. 167 million,
being the value derived from the market price of these shares on the
date of announcement of the scheme of business combination. At the
date of the business combination, the fair value of the liabilities
of Anagram exceeded the fair value of assets by Rs. 767 million.
Accordingly, the business combination resulted in a goodwill of Rs.
934 million. The goodwill is being amortized, at a constant rate over
a period of five years.
5.1.4 Goodwill amortization for the current period was Rs. 187 million
(1999: Rs. 187 million), resulting in an unamortized balance at March
31, 2000, of Rs. 560 million (1999: Rs. 747 million).
6 Common stock
6.1.1 At March 31, 2000, the authorized common stock was 1,600 million
shares (1999: 600 million shares) with a par value of Rs. 10 per
share.
F-26
<PAGE>
ICICI LIMITED
NOTES TO US GAAP CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6.1.2 The Company presently has only one class of common stock in the form
of equity shares. During the year ended March 31, 2000, the Company
issued 32 million American Depositary Shares (ADSs) representing 161
million equity shares. The equity shares represented by the ADSs are
similar to other equity shares, except for voting rights. While every
holder of equity shares, as reflected in the records of the Company,
has one vote in respect of each share held, the ADSs have no voting
rights due to a condition contained in the approval of the offering
from the Ministry of Finance of India. Under the deposit agreement,
the depositary of the ADS will vote the equity shares deposited with
it as directed by the board of directors of ICICI Limited.
6.1.3 In the event of liquidation of the affairs of the Company, all
preferential amounts, if any, shall be discharged by the Company. The
remaining assets of the Company, after such discharge shall be
distributed to the holders of common stock in proportion to the
number of shares of common stock held by shareholders.
7 Retained earnings and dividends
7.1.1 Retained earnings at March 31, 2000 included profits aggregating
Rs. 2,149 million (1999: Rs. 1,695 million) which are not
distributable as dividends under Indian company and banking law.
These relate to profits on redemption of preferred stock and
requirements regarding earmarking a part of profits under banking
laws.
7.1.2 Indian statutes mandate that dividends be declared out of
distributable profits only after the transfer of a specified
percentage of net income, computed in accordance with current
regulations, to reserves. Should the Company declare and pay
dividends, such dividends will be paid in Indian Rupees to each
holder of common stock in proportion to the number of shares held to
the total common stock outstanding as on that date. Issuances of
common stock during a period would be entitled to dividend on a pro
rata basis based on the date of issuance. Additionally, the
remittance of dividends outside India is governed by Indian statutes
on foreign exchange transactions. Dividend payments are also subject
to withholding taxes applicable at the time of the payment.
7.1.3 ICICI approved dividends of Rs. 3,182 million during the year ended
March 31, 2000 (1999 and 1998: Rs. 2,930 million). The dividend per
share was Rs. 4.50 for the year ended March 31, 2000 (1999 and 1998:
Rs. 5.50).
8 Issue of shares by ICICI Bank Limited
8.1.1 In March 2000, ICICI Bank Limited, a consolidated subsidiary providing
commercial banking services, issued 15.9 million ADSs representing
31.8 million equity shares at an offering price of US dollar 11 per
ADS to third parties. The proceeds from the offering, after deducting
underwriting discounts and other direct issue costs, were Rs. 7,338
million.
8.1.2 As a result of the issuance, the proportionate ownership interest of
ICICI Limited in ICICI Bank Limited reduced from 74.25% to 62.25%.
8.1.3 The offering price per share exceeded ICICI's carrying amount per
share in ICICI Bank Limited, resulting in an increase in the carrying
value of ICICI's investment in ICICI Bank Limited by Rs. 4,114
million. This change in the carrying value has been recognized in the
statement of stockholders' equity as a capital transaction.
F-27
<PAGE>
ICICI LIMITED
NOTES TO US GAAP CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9 Income taxes
9.1 Components of deferred tax balances
9.1.1 The tax effects of significant temporary differences are reflected
through a deferred tax asset/liability, which is included in the
balance sheet of ICICI.
9.1.2 A listing of the temporary differences is set out below:
At March 31,
----------------------------
1999 2000
----------------------------
(in millions)
Deferred tax assets
Provision for loan losses....................... Rs. 3,599 Rs. 5,168
Unrealized losses on securities
available for sale........................... 1,507 1,135
Unearned income................................. 571 603
Capital loss carry-forward...................... 65 53
Minimum Alternate Tax Credit.................... -- 940
Others.......................................... 123 175
----------------------------
Total deferred tax asset........................ Rs. 5,865 Rs. 8,074
----------------------------
Deferred tax liabilities
Property and equipment.......................... (5,649) (8,424)
Others.......................................... (54) (9)
----------------------------
Total deferred tax liability.................... (5,703) (8,433)
----------------------------
Net deferred tax asset.......................... Rs. 162 Rs. (359)
============================
Current......................................... Rs. 260 Rs. 849
Non-current..................................... (98) (1,208)
9.1.3 Management is of the opinion that the realization of the recognized
deferred tax asset is more likely than not based on an expectation as
to future estimated taxable income.
9.1.4 At March 31, 2000, ICICI had a deferred tax asset for capital loss
carry-forward, of which Rs. 29 million and Rs. 24 million will expire
on March 31, 2005 and 2006, respectively. Further, ICICI has a
deferred tax asset for minimum alternate tax credit which will expire
on March 31, 2005.
F-28
<PAGE>
ICICI LIMITED
NOTES TO US GAAP CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9.2 Reconciliation of tax rates
9.2.1 The following is the reconciliation of estimated income taxes at
Indian statutory income tax rate to income tax expense as reported:
<TABLE>
Year ended March 31,
---------------------------------------
1998 1999 2000
----------- -------------- ------------
<S> <C> <C> <C>
(in millions)
Income before taxes .................................... Rs. 10,236 Rs. 8,420 Rs. 11,115
Statutory tax rate...................................... 35% 35% 38.5%
Income tax expense at the statutory tax rate............ 3,583 2,947 4,279
Increases/(reductions) in taxes on account of:
Accelerated/specific tax deductions..................... (1,657) (1,184) (1,218)
Income exempt from taxes................................ (377) (706) (1,625)
Income charged at rates other than statutory tax rate... (332) 28 (239)
Changes in the statutory tax rate....................... (178) -- 16
Expenses disallowed for tax purposes.................... 57 405 419
Others.................................................. 350 (296) 401
---------- ----------- ---------
Income tax expense reported............................. Rs. 1,446 Rs. 1,194 Rs. 2,033
========== =========== =========
</TABLE>
9.3 Components of income tax expense
9.3.1 The components of income tax expense are set out below:
<TABLE>
Year ended March 31,
--------------------------------------
1998 1999 2000
--------- ----------- ------------
<S> <C> <C> <C>
(in millions)
Current.......................................... Rs. 1,284 Rs. 1,125 Rs. 2,136
Deferred......................................... 162 69 (103)
--------- --------- ---------
Income tax expense reported...................... Rs. 1,446 Rs. 1,194 Rs. 2,033
========= ========= =========
</TABLE>
10 Retirement benefits
Gratuity
10.1.1 In accordance with Indian statute, ICICI provides for gratuity, a
defined benefit retirement plan covering all employees. The plan
provides a lump sum payment to vested employees at retirement or
termination of employment based on the respective employee's salary
and the years of employment with ICICI. The gratuity benefit
conferred by ICICI on its employees is equal to or greater than the
statutory minimum.
10.1.2 In respect of ICICI Limited, the gratuity benefit is provided to the
employees through a fund set up by ICICI. ICICI is responsible for
settling the gratuity obligation through contributions to the fund.
Such contributions are actuarially determined after considering
appropriate discount rates, expected long term return on plan assets
and increases in compensation levels. Contributions to the plan
amounted to Rs. 4 million for the year ended March 31, 2000 (1999:
Rs. 17 million, 1998: Rs. 27 million). The plan is fully funded and
out of the total plan assets of Rs. 134 million at March 31, 2000,
Rs. 14 million has been invested in securities of ICICI Limited.
F-29
<PAGE>
ICICI LIMITED
NOTES TO US GAAP CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
10.1.3 In respect of the remaining entities, the gratuity benefit is
provided by ICICI through annual contributions to a fund administered
and managed by the Life Insurance Corporation of India. Under this
scheme, the settlement obligation remains with ICICI, although the
Life Insurance Corporation of India administers the scheme and
determines the contribution premium required to be paid by ICICI.
ICICI contributed and expensed Rs. 14 million for the year ended
March 31, 2000 (1999: Rs. 5 million, 1998: Rs. 3 million).
10.1.4 The impact of the above schemes is not material or expected to become
material to the financial condition or operations of ICICI.
Superannuation
10.1.5 The permanent employees of ICICI are entitled to receive retirement
benefits under the superannuation scheme operated by ICICI.
Superannuation is a defined contribution plan under which ICICI
contributes annually a sum equivalent to 15% of the employee's
eligible annual salary to the manager of the fund, the Life Insurance
Corporation of India that undertakes to pay the lumpsum and annuity
payments pursuant to the scheme. ICICI contributed Rs. 62 million to
the superannuation plan for the year ended March 31, 2000 (1999: Rs.
46 million, 1998: Rs. 42 million).
Provident fund
10.1.6 In accordance with Indian statute, all employees of ICICI are entitled
to receive benefits under the provident fund through a defined
contribution plan in which both the employee and ICICI contribute
monthly at a determined rate. These contributions are made to a fund
set up by ICICI and administered by a Board of Trustees. Further, in
the event the return on the fund is lower than 12% (current
guaranteed rate of return to the employees) such difference will be
contributed by ICICI and charged to the statement of income. ICICI
contributed Rs. 52 million to the provident fund plan in the year
ended March 31, 2000 (1999: Rs. 45 million, 1998: Rs. 38 million).
11 Voluntary retirement scheme
11.1.1 During the year ended March 31, 2000, the Company terminated the
employment of 223 employees through a Voluntary Retirement Scheme
(Scheme). The Scheme covered several levels of employees, who met
specific conditions relating to age and period of employment with the
Company. Costs of employee termination under the Scheme aggregating
Rs. 299 million have been expensed as employee costs in the statement
of income for the year ended March 31, 2000. Costs aggregating Rs. 81
million have been paid during the year. The unpaid amounts will be
paid in accordance with the terms of the Scheme.
12 Extraordinary gains
12.1.1 During the year ended March 31, 1999, ICICI extinguished debt by
repurchasing foreign currency bonds from the international markets.
The bonds were repurchased at discounts to their face values
resulting in a gain of Rs. 449 million. This gain, net of the related
income tax effect of Rs. 157 million is disclosed as an extraordinary
gain.
F-30
<PAGE>
ICICI LIMITED
NOTES TO US GAAP CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13 Change in accounting principle
13.1.1 Effective April 1, 1999, ICICI Limited changed the method of
accounting for depreciation of property and equipment from the
written-down value method to the straight-line method. The new method
of depreciation was adopted to provide an improved measure of the
Company's capital investment and is consistent with industry
practices. The new method has been applied retroactively for all
prior periods.
13.1.2 The effect of the change on the net income for the year ended March
31, 2000, was Rs.226 million. The cumulative effect of the change
aggregating Rs. 405 million, net of the related income tax effect of
Rs. 156 million, applied retroactively as per the new method has been
included in the statement of income for the year ended March 31,
2000.
13.1.3 The previously reported amounts and pro forma amounts assuming the new
depreciation method is applied retroactively are set out below:
<TABLE>
Year ended March 31,
-----------------------------------------------
1998 1999
-----------------------------------------------
(in millions)
-----------------------------------------------
Actual Pro forma Actual Pro forma
-----------------------------------------------
<S> <C> <C> <C> <C>
Income before extraordinary items.. Rs. 8,790 Rs. 8,851 Rs. 7,226 Rs. 7,347
Earnings per share -- Basic (in Rs.)................. 18.39 18.52 15.05 15.31
-- Diluted (in Rs.)................ 15.74 15.85 13.01 13.21
Net income............................................ Rs. 8,790 Rs. 8,851 Rs. 7,518 Rs. 7,639
Earnings per share -- Basic (in Rs.).................. 18.39 18.52 15.66 15.91
-- Diluted (in Rs.)................ 15.74 15.85 13.52 13.72
</TABLE>
F-31
<PAGE>
ICICI LIMITED
NOTES TO US GAAP CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14 Earnings per share
14.1.1 A computation of the earnings per share is set out below:
<TABLE>
Year ended March 31,
----------------------------------------------------------------
1998 1999 2000
----------------------------------------------------------------
(in millions, except earnings per share data)
----------------------------------------------------------------
Fully Fully Fully
Basic diluted Basic diluted Basic diluted
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings
Net income before extraordinary items and
effect of change in accounting principle
(before dilutive impact)................... Rs.8,790 Rs.8,790 Rs.7,226 Rs.7,226 Rs. 9,082 Rs. 9,082
Interest on convertible debt instruments.... -- 260 -- 276 -- 132
Net income before extraordinary items and
effect of change in accounting principle
(adjusted for full dilution...............- 8,790 9,050 7,226 7,502 9,082 9,214
Extraordinary items, net of tax............. -- -- 292 292 -- --
Cumulative effect of change in accounting
----------------------------------------------------------------
Net income (adjusted for full dilution)..... Rs.8,790 Rs.9,050 Rs.7,518 Rs.7,794 Rs. 9,331 Rs. 9,463
================================================================
Shares
Weighted-average common shares outstanding.. 478 478 480 480 646 646
Dilutive effect of convertible debt instruments -- 97 -- 97 -- 41
----------------------------------------------------------------
Total....................................... 478 575 480 577 646 687
================================================================
Earnings per share
Net income before extraordinary items and
Extraordinary items......................... -- -- 0.61 0.51 -- --
Effect of change in accounting principle.... -- -- -- -- 0.39 0.36
----------------------------------------------------------------
Net income.................................. Rs.18.39 Rs.15.74 Rs.15.66 Rs.13.52 Rs.14.45 Rs.13.77
================================================================
</TABLE>
14.1.2 For the purpose of calculating diluted earnings per share, the net
income is adjusted for interest (after tax) on convertible
instruments.
14.1.3 For the purpose of determining the impact of dilution, it is assumed
that convertible instruments are converted to common stock at the
beginning of the year, at prices which are most advantageous to the
holders of the instruments. Shares assumed to be issued have been
weighted for the period the convertible instruments are outstanding.
All series of convertible instruments are dilutive.
14.1.4 Options issued to employees pursuant to the Employee Stock Options
Plan are antidilutive and have not been included in the computation
of diluted earnings per share.
14.1.5 A consolidated subsidiary has issued stock options. These issuances
have no impact on the earnings per share of the Company.
15 Employee Stock Option Plan
ICICI Limited
15.1.1 In August 1999, ICICI Limited approved an Employee Stock Option Plan
(ESOP). Under the ESOP, ICICI is authorized to issue up to 7.85
million shares of common stock to eligible employees. Employees are
granted an option to purchase shares subject to vesting and
performance conditions. The options vest in installments over 3 years
with 20%, 30% and 50% of the grants vesting at the end of each year.
In the event that an employee does not meet the
F-32
<PAGE>
ICICI LIMITED
NOTES TO US GAAP CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
performance condition specified for an individual year, the grant
vesting during that year would be forfeited. The options can be
exercised within 10 years from the date of the grant.
15.1.2 ICICI Limited has elected to use the intrinsic value based method of
APB Opinion No.25 to account for the ESOP. Due to the performance
condition, the ESOP has been accounted for as a variable plan. During
the year ended March 31, 2000, ICICI Limited has recorded deferred
compensation cost of Rs. 97 million based on the quoted market price
of the stock at March 31, 2000. The deferred compensation is
amortized over the vesting period. Compensation expense for the year
ended March 31, 2000 was Rs. 27 million.
ICICI Bank (the Bank)
15.1.3 In February 2000, ICICI Bank, a consolidated subsidiary, approved an
ESOP. Under the ESOP, the Bank is authorized to issue up to 9.84
million shares of its common stock to its employees and employees of
the parent company. Eligible employees are granted an option to
purchase shares subject to vesting conditions. The options vest in a
graded manner over 3 years with 20%, 30% and 50% of the grants
vesting at the end of each year. The options can be exercised within
10 years from the date of the grant.
15.1.4 In the consolidated financial statements of ICICI, the options
granted by ICICI Bank have been accounted for using the intrinsic
value based method of APB Opinion No.25. During the year ended March
31, 2000, ICICI has not accounted any deferred compensation on these
grants as the exercise price was equal to the quoted market price of
the underlying common stock on the grant date.
Stock option activity
15.1.5 Stock option activity under the ESOP of ICICI Limited and ICICI Bank
is set out below:
<TABLE>
ICICI Limited ICICI Bank
--------------------------------------------------------
Exercise Exercise
Shares price and Shares price and
arising out grant date arising out grant date
of options fair value of options fair value
---------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at the beginning of the year..... -- Rs. -- -- Rs. --
Granted during the year...................... 2,323,750 85.50 1,788,000 171.90
Forfeited during the year.................... -- -- 75,000 171.90
--------------------------------------------------------
Outstanding at the end of the year........... 2,323,750 85.50 1,713,000 171.90
========================================================
Exercisable at the end of the year........... -- -- -- --
</TABLE>
Pro forma disclosure
15.1.6 The Company has adopted the pro forma disclosure provisions of SFAS
No.123. Had compensation cost been determined in a manner consistent
with the fair value approach described in SFAS No.123, the Company's
net income and basic earnings per share as reported would have
changed to the pro forma amounts indicated below:
F-33
<PAGE>
ICICI LIMITED
NOTES TO US GAAP CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
--------------------------
Year ended March 31, 2000
--------------------------
Net income (in millions)
As reported...................................... Rs. 9,331
Adjusted pro forma............................... 9,335
Earnings per share: Basic (in Rs.)
As reported...................................... 14.45
Adjusted pro forma............................... 14.46
Earnings per share: Diluted (in Rs.)
As reported...................................... 13.77
Adjusted pro forma............................... 13.77
15.1.7 The fair value of the options was estimatedthe using the Black Scholes
options pricing model, with the following assumptions:
-----------------------------------
ICICI Limited ICICI Bank
-----------------------------------
Dividend yield............................ 6.5% 0.7%
Expected life............................. 10 years 10 years
Risk free interest rate................... 10.3% 10.3%
Volatility................................ 30.0% 30.0%
16 Segmental disclosures and related information
Segmental disclosures
16.1.1 The varied banking and finance activities of ICICI are carried out by
a number of legal entities. Thus, while the parent company focuses
primarily on medium-term and long-term industrial financing, other
activities such as commercial banking, investment banking, retail
distribution, broking and venture capital activities are conducted by
fully or majority owned subsidiaries. Each subsidiary focuses on
specific activities.
16.1.2 Accordingly, management has identified each of these legal entities as
operating segments. Based on business volumes, revenues, income and
asset size, management considers industrial financing, commercial
banking and investment banking as reportable segments.
16.1.3 The industrial financing segment (ICICI Limited) provides medium-term
and long-term project and infrastructure financing, securitization
and factoring and lease financing. The commercial banking segment
(ICICI Bank Limited) provides working capital finance and foreign
exchange services to clients. Further, it provides deposit and loan
products to retail customers. The investment banking segment (ICICI
Securities and Finance Company Limited) deals in the debt, equity and
money markets and provides corporate advisory products such as
mergers and acquisition advice, loan syndication advice and issue
management services.
F-34
<PAGE>
ICICI LIMITED
NOTES TO US GAAP CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
16.1.4 The profit and loss of the reportable segments is set out below:
<TABLE>
Industrial financing Commercial banking Investment banking
----------------------------------------------------------------------------------------------------
Year ended March 31,
----------------------------------------------------------------------------------------------------
1998 1999 2000 1998 1999 2000 1998 1999 2000
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(in millions)
Revenues from external
customers
Interest revenue...............Rs. 51,234 Rs.63,885 Rs.70,603 Rs. 2,62 Rs. 5,471 Rs. 8,434 Rs. 1,001 Rs.1,384 Rs.2,176
Other revenue.................. 4,033 3,987 6,264 635 844 1,718 514 338 722
Revenues from other operating
Interest revenue............... 223 410 498 -- -- -- 36 123 181
Other revenue.................. 210 144 118 24 11 41 27 26 36
----------------------------------------------------------------------------------------------------
Total revenue.................. 55,700 68,426 77,483 3,280 6,326 10,193 1,578 1,871 3,115
Interest expense............... 39,991 52,800 59,840 1,757 4,255 6,656 698 1,103 1,467
Depreciation .................. 181 276 330 145 175 201 24 24 18
Provision for credit losses.... 4,302 5,497 5,847 294 465 427 162 106 76
Other expenses................. 1,752 2,423 3,710 501 625 1,128 457 343 383
----------------------------------------------------------------------------------------------------
Income before taxes............ 9,474 7,430 7,756 583 806 1,781 237 295 1,171
Income tax expense............. 1,194 834 890 171 201 379 60 97 401
Gains on extinguishment of
of debt, net of tax........... -- 292 -- -- -- -- -- -- --
Effect of change in accounting
principle..................... -- -- 249 -- -- -- -- -- --
----------------------------------------------------------------------------------------------------
Net income.....................Rs. 8,280 Rs. 6,888 Rs. 7,115 Rs. 412 Rs. 605 Rs. 1,402 Rs. 177 Rs. 198 Rs. 770
====================================================================================================
</TABLE>
16.1.5 A listing of certain assets of reportable segments is set out below:
<TABLE>
Industrial financing Commercial banking Investment banking
--------------------------------------------------------------------
At March 31,
--------------------------------------------------------------------
1999 2000 1999 2000 1999 2000
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(in millions)
Property and equipment.....................Rs. 6,186 Rs. 8,986 Rs. 1,629 Rs. 2,097 Rs. 152 Rs. 130
Investment in affiliate.................... 244 264 -- -- -- --
</TABLE>
16.1.6 Transactions between reporting segments are at arms-length and are
accounted similar to transactions with external parties.
16.1.7 A reconciliation between the segment revenues and consolidated totals
of ICICI is set out below:
<TABLE>
Total revenue Income before taxes Net income
-----------------------------------------------------------------------------------------------------
Year ended March 31,
-----------------------------------------------------------------------------------------------------
1998 1999 2000 1998 1999 2000 1998 1999 2000
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(in millions)
Industrial financing.....Rs.55,700 Rs.68,426 Rs.77,483 Rs.9,474 Rs. 7,430 Rs. 7,756 Rs.8,280 Rs.6,888 Rs.7,115
Commercial 3,280 6,326 10,193 583 806 1,781 412 605 1,402
Investment banking......... 1,578 1,871 3,115 237 295 1,171 177 198 770
Other operating segments.... .375 748 1,538 97 207 783 76 145 420
Eliminations............... (677) (936) (1,795) (155) (318) (376) (155) (318) (376)
-----------------------------------------------------------------------------------------------------
Total....................Rs.60,256 Rs.76,435 Rs.90,534 Rs.10,236 Rs.8,420 Rs.11,115 Rs.8,790 Rs.7,518 Rs.9,331
=====================================================================================================
</TABLE>
F-35
<PAGE>
ICICI LIMITED
NOTES TO US GAAP CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
16.1.8 A reconciliation between the segment assets and consolidated totals of
ICICI is set out below:
At March 31,
--------------------------------------
1999 2000
--------------------------------------
(in millions)
Industrial financing.............. Rs. 571,579 Rs. 641,994
Commercial banking................ 74,293 130,416
Investment banking................ 15,109 23,254
Other operating segments.......... 3,402 3,907
Eliminations...................... (11,038) (18,887)
--------------------------------------
Total............................. Rs. 653,345 Rs. 780,684
======================================
Geographic distribution
16.1.9 The business operations of ICICI are largely concentrated in India.
Activities outside India are restricted to resource mobilization in
the international markets. Accordingly, the entire revenue, assets
and net income are attributed to Indian operations.
Major customers
16.1.10 ICICI provides banking and financial services to a wide base of
customers. There is no major customer which contributes more than 10%
of total revenues.
17 Related parties
17.1.1 ICICI has advanced housing, vehicle and general purpose loans to
employees, bearing interest ranging from 3.5% to 6%. The tenure of
these loans range from 5 years to 25 years. The loans are generally
secured by the assets acquired by the employees. Further, a
subsidiary has advanced loans at 16% to its employees for purchase of
its equity shares. Employee loan balances outstanding at March 31,
2000, of Rs. 773 million (1999: Rs. 781 million) are included in
other assets.
17.1.2 The estimated fair value of such loans at March 31, 2000 amounts to
Rs. 339 million (1999: Rs. 343 million). These amounts have been
determined using available market information and appropriate
valuation methodologies. Considerable judgement is required to
develop the estimates of fair value. Thus, the estimates provided
herein are not necessarily indicative of the amounts that the Company
could realize in the market.
18 Commitments and contingent liabilities
18.1.1 ICICI is obligated under a number of capital contracts. Capital
contracts are job orders of a capital nature which have been
committed. At the balance sheet date, work had not been completed to
this extent. Estimated amounts of contracts remaining to be executed
on capital account, aggregated Rs. 808 million at March 31, 2000
(1999: Rs. 295 million).
18.1.2 Various tax-related legal proceedings are pending against ICICI.
Potential liabilities, if any, have been adequately provided for, and
management does not estimate any incremental liability in respect of
legal proceedings.
F-36
<PAGE>
ICICI LIMITED
NOTES TO US GAAP CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
18.1.3 ICICI has commitments under long-term operating leases principally
for premises and automated teller machines. Lease terms for premises
generally cover a period of nine years. The following is a summary of
future minimum lease rental commitments at March 31, 2000, for
non-cancelable leases:
Lease rental commitments for the year ending March 31, (in millions)
2001................................................................Rs. 90
2002................................................................ 100
2003................................................................ 108
2004................................................................ 115
2005................................................................ 125
Thereafter.......................................................... 271
--------
Total minimum lease commitments.....................................Rs. 809
========
19 Future impact of new accounting standards
19.1.1 In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Standards (SFAS) No.133, Accounting for
Derivative Instruments and Hedging Activities. In June 1999, the FASB
issued SFAS No.137, Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No.133,
which delayed the effective date of SFAS No.133 to fiscal periods
beginning after June 15, 2000. The future impact of SFAS No.133 on
the financial statements of ICICI is not estimated to be material.
20 Year 2000
20.1.1 To date, the Company has not encountered any material Year 2000 issues
concerning its respective computer programs. The Company's plan for
the Year 2000 included replacing or updating existing systems (which
were not Year 2000 compliant), assessing the Year 2000 preparedness
of customers and counterparties and formulating a contingency plan to
ensure business continuity in the event of unforeseen circumstances.
All costs associated with carrying out the Company's plan for the
Year 2000 problem have been expensed as incurred.
For and on behalf of the Board
N. VAGHUL
Chairman
K.V. KAMATH
Managing Director & CEO
LALITA D. GUPTE
Joint Managing Director & COO
S.H. BHOJANI SHALINI S. SHAH JYOTIN MEHTA
Deputy Managing Director General Manager Joint General Manager &
Company Secretary
Mumbai, April 28, 2000
F-37
