ICRA Lanka affirms issuer rating of AAA of ICICI Bank Sri Lanka branch

ICRA Lanka, a wholly owned subsidiary of ICRA, an associate of Moody’s Investors Service, has reaffirmed the Issuer Rating of (SL) AAA (pronounced SL triple A) of ICICI Bank (Sri Lanka branch). This is the highest-credit-quality rating assigned by ICRA Lanka and the rated entity carries the lowest credit risk. The rating in Sri Lanka is assigned on an eight-point scale developed specifically for the country, and ranges from ‘(SL) AAA’ to ‘(SL) D’. This rating scale ranks the relative default risk associated with issuers in Sri Lanka.

The rating factors in strong financial and operational support from the parent ICICI Bank (rated [ICRA] AAA/stable), comfortable capitalisation levels with a large proportion of the assets being deployed into Sovereign Securities/cash equivalents. The credit strengths are partially offset by small scale of the Sri Lankan operations, modest profitability and high credit concentration in the advances book.

ICICI Bank (Sri Lanka branch) commenced operations in January 2006 with focus on retail lending and remittance business. Subsequently, in line with the bank’s global strategy, retail assets operations were curtailed CY2008 onwards. The bank’s focus remains on corporate lending for India linked local cooperates and reputed local companies. The current retail portfolio is less than 1% of total advances running down from business carried out till 2008. Total assets stood at LKR. 10,831 million as on 30 June, 2012 with the loan book accounting to LKR 2,643 million, while bulk of the remainder of the assets were deployed in liquid investments (Government securities and inter-bank lending).

On the liability front, apart from LKR 3,253 million net worth as on 30 June, 2012, the Sri Lankan operations has access to funds from the ICICI group to manage its operations. In addition it has built a local franchise that enables it to raise deposits from corporate and retail segments.

ICRA Lanka notes that the banks funding continues to be predominantly from ICICI group borrowings, accounting for more than 73% of total funding as at Q1FY13 (79% as at FYE Mar-12).

The Bank is comfortable in the capitalisation front with regulatory capital adequacy ratio reported at 43.31% as at Q1FY13 (36.76% as at FYE Mar-12), however would be dependent on the head office for support to meet regulatory capital requirements in FY 2013.

Interest income on loans and advances grew from LKR 103.42 Mn recorded in FYE Mar-11 to LKR 142.24 Mn in FYE Mar-12 mainly on account of the increase in advances base. The sharp increase in profitability with net profits of LKR 125.34 Mn recorded as at FYE Mar-12 up from LKR 17.84 Mn recorded as at FYE Mar-12 was mainly due to the increase in lending and the one-time loan related receipt of LKR 59.57 Mn. For Q1FY13 the Bank has reported net profits of LKR 72.91 Mn on a total income of LKR 211.08 Mn, supported by improved margins.

ICICI Bank is the largest private sector bank and the second largest commercial bank in India. For the year ended 31 March, 2012, ICICI bank reported net profits of INR  64.65 billion on assets of INR 4,736 billion and had a regulatory capital adequacy of 18.52% (Tier I:12.68%). For the six months period ended 30 September, 2012, ICICI bank reported net profits of INR 37.71 billion on total assets of INR 4,970 billion and a regulatory capital adequacy of 18.28% (Tier1: 12.83%). With a presence in the banking, insurance, asset management, investment banking and private equity sectors, the ICICI Group is an important and large player in the Indian financial system. (1 INR= 2.37 LKR as on 10 Dec, 2012)