Mumbai: India’s biggest private lender ICICI Bank is open to buying loan portfolios of European banks, its chief executive officer (CEO) said, as banks in the region look to deleverage and offload loans to shore up capital base.
“The opportunity to pick up some good assets at good pricing clearly exists. So, that’s what we are looking at all the time and exercising it whenever we see the right opportunity,” Chanda Kochhar told the Reuters India Investment Summit on Wednesday.
“We have picked up some which are India-related assets, but I would say not very large number, because given the fact that on the other hand the ability to raise funds currently has also become more expensive,” she said.
Chanda Kochhar, CEO, ICICI Bank. Photo: PTI
European banks are struggling to raise their capital cushions to become more resilient against future shocks, which they can do by increasing equity they hold or by shrinking their asset base.
The European Banking Authority has said banks need more than €100 billion of new capital, but the International Monetary Fund (IMF) warned in September European Union (EU) banks faced possible losses of €300 billion as a result of sovereign and interbank lending risks.
Kochhar, who was ranked fifth in Fortune’s 50 most powerful women in business, ruled out the acquisition of any European bank.
India on sound footing
ICICI sees good credit momentum in India from car loans, mortgages and working capital, Kochhar said.
However, credit demand for new corporate projects was slow, she said, and warned of slowing overall loan growth in the fiscal year 2014 if new projects do not start over the next six to 12 months.
Indian companies have been delaying investment plans as rising interest rates make projects expensive. Indian policy interest rates are at their highest since the global financial crisis in 2008.
Earlier this month, ratings agency Moody’s Investor Service downgraded its outlook for India’s banking system to “negative” from “stable,” as it warned of slowing growth at home and overseas hitting asset quality, capitalization and profitability.
Kochhar expects asset quality to remain mostly stable for ICICI, although debt restructuring may increase.
“Some projects, some large corporate may need some handholding but I don’t see sudden NPA (non-performing assets) shocks coming in the portfolio. I think broadly the credit quality is quite satisfactory,” she said.
India’s number two lender last month beat street estimates with a 21% rise in quarterly net profit, led by higher income and lower provisions for bad loans.
Bad loans accounted for 0.93% of ICICI’s loan book, down from 1.62% a year earlier, which the bank attributed to loan recoveries in its once-battered retail portfolio.
The lender expects net interest margins - a key gauge of profitability - to rise by 20 basis points in the financial year starting April, she added.
ICICI is looking to push retail lending after lying low for about two years, Kochhar said, as it has cleared its unsecured loan portfolio.
The lender, which had aggressively sold unsecured credit cards and personal loans in the heady days before the 2008 crisis, saw its non-performing loans rise more than 5% in 2010 as a large number of customers defaulted.
ICICI was also India’s most prolific card issuer during the boom but halved its cards portfolio to about Rs 48 billion ($1.08 billion) at end-March 2011 from 2008.
“From here on, you will actually see a net increase in retail business taking place because we are done with the reduction that we needed to do. Our unsecured lending will be very, very selective compared to what it has been in the past,” she said.
The bank has not cut off lending to any particular sector, but is selective about real estate and power projects.
Shares of ICICI Bank, which the market values at nearly $16.5 billion, closed down 2.5% at Rs 726.7 on Wednesday.
They are down more than a third in 2011 compared with a nearly 28% fall in the bank index. The benchmark BSE index fell over 23% in the period.