ICICI Bank in withdrawal mode

ICICI Bank was whittled down in early trades following reports that the company may suffer a huge additional tax outgo of Rs 400 crore (Rs 4 billion) in 2002-03.

The reports forced the scrip of the second-largest bank in the country in terms of assets into the deep, and, by 10:20 IST, it shed 2.05% to Rs 133.95. However, by then, it had recovered some amount at least from an earlier low of Rs 125. A total of 18,996 ICICI Bank shares changed hands on BSE so far.

Reports warned that ICICI Bank may be facing an additional tax liability of up to Rs 400 crore (Rs 4 billion) with the Mumbai income-tax department reopening the bank's assessment. This is the second time in the last one month that ICICI Bank is facing tax trouble. In the last week of March 2003, the private bank paid up Rs 100 crore (Rs 1 billion) in additional taxes .

According to reports the IT department has reopened the assessment under the provisions of section 36(1) (VIII) of the Income-Tax Act. This section provides for 40% exemption for investments in infrastructure projects by financial institutions. The trigger for reopening the case was another provision under section 41 (4A), in effect from 1 April 1998, stipulating that any withdrawal from the reserve meant for investment in infrastructure under section 36 (I) (VIII) should be offered for taxation. The tax authorities have also applied provisions of section 36 (1)(III) of the Act, which stipulates that provisions for bad and doubtful debt are not entitled for deduction. Deduction is allowed if and when bad and doubtful debts are written off. As of now, ICICI Bank's bad and doubtful debts attract tax liability.

Therefore including the interest from assessment year 1998-99, the potential additional tax demand comes to Rs 400 crore (Rs 4 billion).

Analysts said the fall in the scrip is due to the initial reaction to the news. however, they feel it is premature to take any decision on the stock, as it not right to comment on legal matters till the final outcome. it has been quite a while now that the stock has been subdued (an immediate impact of the merger with ICICI), as the bank's margins are under pressure. Gradually, however, the company should bounce back (with it focus on retail), it is felt.

Meanwhile, ICICI Bank is expected to witness major improvement in performance following the passage of the Securitisation Bill. As on 31 December 2002, the bank's net non-performing assets were Rs 3,012 crore (Rs 30.12 billion). The Securitisation Bill allows banks to seize defaulters' assets and hasten recovery from defaulting borrowers without additional court procedures. The bill also paves the way for setting up asset reconstruction companies. Analysts say even partial recovery of NPAs should enhance debt recovery and improve asset quality and profitability.

For the quarter ended 31 December 2002, ICICI Bank earned a net profit of Rs 330.3 crore (Rs 3.3 billion) on a total income of Rs 2,826.53 crore (Rs 28.26 billion). The results for the quarter ended 31 December 2002 include the results of the erstwhile ICICI and its subsidiaries, amalgamated with the bank wef 30 March 2002. The financials for the quarter are therefore not comparable.

As on 31 December 2002, the bank's non-performing customer assets were Rs 3012 crore (Rs 30.12 billion), constituting 4.90% of customer assets. The bank continues to focus on restructuring of intrinsically viable companies as well as recovery actions, including the institution of proceedings under the Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act 2002. It also plans to focus on retail banking, and is expected to declare better dividends to its shareholders in the near future. Retail operations contributed 40% to the total revenues of ICICI Bank for the full year ended 31 March 2002.

The bank's capital adequacy as on 31 December 2002 was 12.6% (including Tier-1 capital adequacy of 8.2%).

The promoters' holding in ICICI Bank stands at 16.5%, while the public, domestic and foreign institutions hold 10%, 22.5% and 45.8%, respectively.

BSE code: 532174