Saturday, April 26, 2008

"No, thanks Ms.Kochchar"

Chanda Kochchar, JMD and CFO of ICICI Bank put up a brave face while announcing her bank’s Q4 results.

This is how she defended additional provisions (in Q4 accounts) because of her bank’s MTM losses in the US – “"We have no sub-prime assets but only exposure to CDOs and CLNs. We have seen no deterioration of our portfolio. The provisioning is only for the MTM losses due to widening of credit spreads. In fact, post March 31, the credit spreads have tightened and we have made a saving of $16 million (Rs 64 crore)….”

In lay terms that means – We haven’t directly make any loans to risky homeless borrowers in US. But we financed some of their crafty lenders by buying their CDO and CLN. Our losses are already deep, so no scope for further plunging. Still we see only a mild recovery, so we prepare you for the worst now so that our shareholders don’t get mass cardiac arrests later. We never hoped the market will improve, but there is a little blip on the screen which we sincerely pray isn’t a dead cat bounce.

ICICI Bank's total exposure to CLNs and CDOs was estimated at $1.6 billion (Rs 4,240 crore), comprising 70 per cent of Indian corporates. The bank has seen an 8 per cent rise in provisions during the fourth quarter to Rs 948 crore, as against Rs 876 crore during January-March 2007. Most of the other private sector banks, such as Axis Bank and HDFC Bank, have seen significant rise in non-tax provisions and contingencies mainly due to provisions for derivatives. ICICI Bank, however, did not disclose the details of its derivative deals.

The bank's net interest margin (NIM) stood at 2.40 per cent as against 2.28 per cent in the corresponding quarter last year. Its cost of funds (COF) has eased to 7.4 per cent from 7.5 per cent. Net non-performing assets to advances increased to 1.55 per cent from 1.02 per cent. Its capital adequacy ratio stood at 13.97 per cent.

Now wait a minute. That NIM pricks me. If the bank’s COF is 7.4% and NIM is 2.4%, why do they choke my mail box with personal loan offers at 15% + processing charges of 1.5%? That means their overheads are unusually high at 5.2% (15% - 7.4% - 2.4%). I can live with their administrative costs of say 2% more, so it should come to me at a cost of 12% (COF 7.4% + NIM 2.4% + 2% admn. cost) at the most. ICICI marketing should have an enormous resilience to resist its CRM analytics that signals “here’s a good credit risk. Lend to him at 12%”

Poor chaps at ICICI marketing can't do much if their super intelligent bosses decide to screw it all up by financing bad lenders in the US and thought they could pass on the cost of such hits to low risk clients in India. That explains the 3% loadings (offered interest of 15% - optimal interest of 12% at which I would’ve taken the loan) they try to push down my throat.

I say “No Thanks!!!”

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