Emerging Markets : Mixed Fortunes In Bank Sector


The Indian banking sector saw the first collapse of a new-generation bank in July. The Global Trust Bank was one of the new private banks set up 10 years ago when the Reserve Bank of India (RBI) issued licenses to a handful of private sector organizations and individuals as part of its financial sector reforms.

The bank suffered from huge non-performing loans as a result of excessive advances made to stockbrokers and companies that in turn made dubious equity investments. Its total exposure to the stock market was 52% of its advances. The bank was unable to fulfill its time-bound commitment made to the RBI to plug losses in its balance sheet and recapitalize itself. The RBIs annual review of the bank in 2002 threw up vast discrepancies between the banks accounts and the RBIs audit, following which it was put under close watch. The banks assets and liabilities will be taken over by the state-owned, New Delhi-based Oriental Bank of Commerce.

While some banks are folding, others are going on an aggressive resource-raising spree. ICICI Bank, Indias secondlargest bank, is raising $1 billion through a medium-term note (MTN). This is one of the biggest ever fund mobilization programs by corporate India. The program will fund expansion of the banks overseas subsidiaries. The bank will file a shelf prospectus with the Luxemburg exchange to raise the money over a period of time.

It had raised $300 million through a eurobond issue in October 2003 and raised $700 million through a local equity issue in April this year for its Indian operations. Deutsche Bank and Merrill Lynch are lead managers to this issue. ICICI Bank has subsidiaries in Canada and the United Kingdom, branch operations in Bahrain and Singapore and representative offices in New York, Shanghai and Dubai. The MTN would not be a liability on the books of its local operations and to that extent would be outside the purview of the external commercial borrowings regulations.

Aaron Chaze