By Sachin Agarwal,
tellsachin@yahoo.com 02.12.2005
ICICI is again set to create history by brining out a very large public offering of equity shares. The issue will be made near about the prevailing market price (Price Band Rs. 505 - 545). The company had in past left a landmark in the history of Indian financial and banking sector by the reverse merger of parent ICICI Ltd (originally a development financial institution - DFI) into its subsidiary ICICI Bank. The reverse merger set a new trend called the Universal Bank, in Indian banking industry and left an indelible impression in the entire Indian financial space. In fact the reverse merger has changed the rules of the banking industry with ICICI being the trend setter in a large number of things and having to its credit the tag of ‘first in banking.’ Aggressive selling of both asset and liability products, being just one such citation.
Since the reverse merger, the company (or rather bank) has been growing steadily from strengths to strengths. It has now made presence in a large part of India. The bank has a very diversified portfolio and has really lived up to its target of being a universal bank catering from small and retail clients to large corporations, SMEs and recently even branching into agriculture credit. The banks appetite for growth and expansion is impeccable and can be compared to none in the industry. Even the closest competition HDFC Bank has not been able to become what ICICI has become in last couple of years “janta ka bank” (The common man’s bank). Large part of its success in retail space can be attributed to the image of being a PSU bank that it inherited because of its erstwhile DFI status. No wonder person on the street or even some of my students still suggesting that ICICI Bank is a government company.
In my perception the large issue size will fuel the growth engines of the bank and its ever increasing appetite for expansion. Reports of its branches overflowing with customers (especially retail) are already doing their rounds in the market. As the bank expands its rural (read agricultural) portfolio, the money from the issue apart from targeting urban –up market consumers, can be used to expand into upcoming B and C grade towns of the country. These are the places, where people have till now heard about private, technology oriented banking setting in the economy due to liberalization.
Co-related with the ‘India growth story’ and specially the rural growth in spending and consumption being reported by NCEAR and other like economic surveys present a good signals for the bank’s coffers in the years to come by. In fact, on this line of thinking, the IPO seems to be a timely move to tap this B-C town market, which no private sector bank is still thinking about. May be, ICICI turns out a numero-uno again. For sure, if this happens the bank can be out to give a good number of PSU banks a run for their money.
Already franchisees of its subsidiaries like ICICI Web Trade (commonly known as ICICI Direct Dot Com) can be seen even in not so happening places. Jaunpur, a small town near Varanasi in eastern UP is just one such example where ICICI Web Trade is existing since quite sometime and even ICICI bank is testing waters by doing a bit of vehicle financing through dealer tie ups. Un-doubtedly a vast market awaits the bank in this demographic and economic segment.
This might not be very significant to total volume of ICICI bank but just read on. With SEBI pressing for T+1 trade and settlement system on stock exchanges the presence of high tech banks in sub-urban areas is much needed as despite the depository system doing all good to the market our far flung and remote area investor are not participating in the capital markets due to lack of fast and reliable methods of fund transfer. Investors in the smaller towns have just begun to take interests in the capital markets and its movements, as dedicated channels like NDTV Profit & CNBC’s Awaaz (in Hindi) have made stock markets surging new heights a talk at many new families’ dinner. Something unheard off, five years ago.
One more angle to look at the ICICI issue is that recently some circles have also started stating that due to very aggressive selling of loans (read housing and vehicle loans) some not-so-worthy lending has also been made by the bank and this may cause the bank’s NPA to rise in the coming quarters. With recoveries poor and the Allahabad High Court’s Advocate’s case just being fresh, the use of strong men and muscle men to recover bank’s money is also taking a beating. As per media reports, in the cited case at Allahabad, a defaulting Advocate’s car was literally looted by the ICICI bank’s strongmen in broad day light. The advocate filed case in the court and as a result the entire ICICI branch remained close for a few days as the staff was running around to safe their butt from legal action. Some ended up behind the bars for using illegal methods of recovery.
This can have effect of the NPAs rising with relation to their total advances. A time tested technique to hide NPAs, that the bankers have followed in this country is – extend more loans. So that NPAs as a percentage of total advances come down and appear under permissible limits. This reflects in the balance sheet as strong point and all concerned including the investors continue to think that bank is going great.
The bank’s legendary CEO, KV Kamath has already played very long innings with the institution turned bank. Who knows he may be headed for new and brighter innings elsewhere and thus IPO has all the more significance for him and his career. Didn’t we hear about personal aspirations growing taller in the new economic order.
(The views expressed by the writer are his own and has no affiliation to the organization he works with.)
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