Sunday, October 12, 2008

Don't Panic, ICICI Bank is in Great Shape

This SMS was sent a few days back to all ICICI Bank (IBN) customers. In it, the bank has simply stated the basic facts: its UK arm lost some money to subprime loans, but that amount is insignificant. Besides, its Indian arm has no such toxic debt from the US (all Indian banks have toxic debt in the form is farmer loans though).

Now, the Reserve Bank of India has come out with more data: ICICI Bank has more capital adequacy that any public sector bank. According to its report for 2007-08, ICICI Bank has a Capital to Risk Weighted Assets Ratio (CRAR) of 13.97%, well above the industry average and that of SBI (SBI) (12.64%) and HDFC (HDFC) (13.60%). CRAR reflects the ability of a bank to manage your money in case it faces loan defaults. The higher the CRAR, the more chances you have of getting your deposits back in case something goes wrong with the bank.

Overall, the CRAR of private banks stood at 14.30%, compared to 12.10% for nationalised banks and 13.10% for foreign banks. What does that mean? It means you MUST NOT PANIC! Nothing can happen to your money as long as it is in an Indian bank. For more safety, and most of you probably don't know this, the government guarantees Rs. 1 lakh worth of deposits in any bank, private or public.

If you have money in ICICI or any other private bank, leave it there! It is perfectly safe. If you have an investment that is nearing maturity, consider investing in bonds or gold. But don't take away your money and hide it in your almari (cupboard) or under the mattress. Inflation will cut in it half anyway. Read the papers, think rationally and don't do anything rash. Just because American and European banks are going under, that does not mean Indian banks are in danger.

And lastly, don't blindly rush to public sector banks. Yes, I know those who belong to Indira Gandhi's era will look upon public sector banks as infallible financial houses. That is not true. Go by the facts, check the Capital Adequacy Ratio (CAR) of the bank, surf some reliable websites for understanding what makes a bank good. Private banks are not as dangerous as you might think. Some of them are more reliable than nationalised banks. And lastly, avoid Co-operative banks at all costs.

ICICI Bank has filed a complaint with the police against a borker/sub-broker in Mumbai, who spread incorrect rumours that the bank had filed for insolvency. Read more.

[Data from NDTV Profit]

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