ICICI Bank Limited. February 09, [ICRA]AAA(hyb) (Stable); reaffirmed Basel III Compliant Additional Tier

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1 Summary of rated instruments Instrument ICICI Bank Limited Previous Rated mount (Rs. crore) February 09, 2018 Current Rated mount (Rs. crore) Rating ction Basel III Compliant Tier II Bonds 10, , [ICR] (Stable); reaffirmed Basel III Compliant dditional Tier [ICR] (Stable); 13, , I Bonds reaffirmed 14, , [ICR] (Stable); reaffirmed Redeemable Bonds 35, , [ICR] (Stable); reaffirmed (Infrastructure Bonds ) Subordinated Debt * [ICR] (Stable); reaffirmed Bonds # [ICR] (Stable); reaffirmed Fixed deposit - - M (Stable); reaffirmed Certificate of deposits 50, , [ICR]1; reaffirmed 7, [ICR] (Stable); withdrawn Subordinated Debt [ICR] (Stable); withdrawn Bonds # [ICR] (Stable); withdrawn Total 131, , *taken over from erstwhile Bank of Rajasthan Limited #from erstwhile ICICI Limited; mount outstanding as on November 30, 2016 including accrued interest on zero coupon bonds Rating action ICR has reaffirmed the rating of [ICR] (pronounced as ICR triple hybrid) for the Rs. 10, crore Basel III Compliant Tier II Bonds and the rating of [ICR] (pronounced as ICR double plus hybrid) for the Rs. 13,500 crore Basel III Compliant dditional Tier I (T-I) Bonds of ICICI Bank Limited (IBL). ICR has also reaffirmed rating of [ICR] (pronounced as ICR triple ) for the Rs. 35,000 crore Infrastructure Bonds, Rs. 14,451 crore of, Rs crore Subordinated Debt (taken over from erstwhile Bank of Rajasthan Limited) and Rs crore of Bonds (from erstwhile ICICI Limited). ICR has also reaffirmed rating of M (pronounced as M triple ) for the Fixed Deposit and rating of [ICR]1 (ICR one plus) for the Rs. 50,000 crore Certificate of Deposits of IBL. The outlook on the long-term ratings is Stable. ICR has also withdrawn the rating of [ICR] for the Rs. 7, crore lower tier II bonds of IBL, Rs crore subordinated debt of erstwhile Bank of Rajasthan and Rs crore of long term bonds of erstwhile ICICI Ltd. The ratings were withdrawn since there is no amount outstanding against them (either redeemed or unutilised). The outlook on the long-term ratings is Stable. 1

2 The rating for the Basel III Compliant T-I Bonds is one notch lower than the rating for the Basel III Compliant Tier II Bonds of the bank as these instruments have the following loss absorption features that make them riskier. payments are non-cumulative and discretionary and the bank has the full discretion at all times to cancel coupon payments. Cancellation of discretionary payments shall not be an event of default. can be paid out of current year profits. However, if current year profit is not sufficient, or, if the payment of coupon is likely to result in a loss, the coupon payment can be done through reserves and surpluses created through appropriation of profits (including statutory reserves). However, the coupon payment is subject to the bank meeting the minimum regulatory requirements for CET I, Tier I and total capital ratios (including capital conservation buffer, CCB) at all times as prescribed by the Reserve Bank of India (RBI) under Basel III regulations. These T-I bonds are expected to absorb losses through a write-down mechanism at the objective pre-specified trigger point fixed at the bank s Common Equity Tier-I (CET-1) ratio as prescribed by the RBI, 5.5% till March 2019 and thereafter 6.125% of the total risk weighted assets (RW) of the bank or when the point of non-viability trigger is breached in the RBI s opinion. The letters hyb in parenthesis suffixed to a rating symbol stand for hybrid, indicating that the rated instrument is a hybrid subordinated instrument with equity-like loss-absorption features; such features may translate into higher levels of rating transition and loss severity vis-à-vis conventional debt instruments. Rationale The ratings are supported by IBL s strong position in the Indian financial system with a 6.3% share in banking sector advances as on September 30, 2017, its sound capitalisation levels (CRR: 18.10%; CET I capital of 14.19% and Tier I capital: 15.04% as on December 31, 2017), healthy resource profile (CS of 50.4% as on December 31, 2017) and retail franchise (4,860 branches and 14,262 TMs as on December 31, 2017). ICR takes note of the bank s high slippages during FY2017 and 9MFY2018 (with fresh NP generation rate of ~7.9% during FY2017and ~3.8% annualised in Q3FY2018). With increased slippages the credit costs for the company was high in FY2017 and 9MFY2018, however, the value creation in its subsidiaries and the monestisation of its investments support its ability to absorb credit provisions and its internal capital generation. In light of the stressed exposures identified by bank (~1.9% of total exposures to companies internally rated below investment grade in key sectors as on December 31, 2017), the pace of fresh NP generation remains monitorable. dditionally, the credit provisions are likely to remain elevated over next few quarters given the existing stock of NPs. The bank s stable operating profit and additional buffers in terms of high capital levels provide comfort. Outlook: Stable In ICR s opinion, ICICI will continue to maintain a strong position in the financial system, sound capitalisation and healthy resource profile. The outlook may be revised to negative in case of sharp deterioration in operating profitability or capitalisation levels. 2

3 Key rating drivers Credit strengths Established track record and strong market position in the financial services sector The bank had a market share of ~6.3% in banking sector advances as on September 30, While the bank reported a domestic growth of 16.0 % (YoY) as on December 31, 2017, its overall growth in advances was moderate at 10.5% to Rs. 5,05,387 crore on account of a degrowth in overseas advances by 14.5% (largely following FCNR (B) redemptions). s on December 31, 2017, domestic wholesale advances constituted 26.9% of the bank s overall advances, retail advances constituted 54.2%, overseas advances constituted 14.0% and the SME advances accounted for 4.9%. Driven by growth in retail advances, ICR expects a credit growth of 10-12% for IBL during FY2018 which will be higher than the estimated industry growth of 7-8%. Healthy resource profile with a large share of CS deposits IBL s CS ratio remains one of the highest in its peer group and a significant credit positive in light of the granularity in the depositor base and the lower cost of borrowings. The bank s top 20 deposits stood at only 7.03% of the total deposits as on March 31, 2017 (7.35% as on March 31, 2016). IBL s CS ratio stood at 50.4% as on December 31, 2017 (49.9% as on December 31, 2016). IBL s cost of interest bearing funds stood at 4.8% in 9MFY2018 which is lower than the private sector bank average. With credit growth of the banking system picking up and the deposit growth lagging, ICR believes the deposit costs for banks, including IBL to have bottomed out during Q3FY2018, however the funding cost is not likely to rise materially in the near term. Robust capitalisation levels IBL s capitalisation ratios remained strong in comparison to the regulatory requirements with CET1, Tier 1 and CRR (as % of risk weighted assets) at 14.19%, 15.04%, and 18.10% 1 respectively as on December 31, 2017 (13.74%, 14.36% and 17.39% as on March 31, 2017). Due to elevated NPs, the bank s solvency remains weaker as compared to private bank peers with net NPs/net worth of 22.8% as on December 31, 2017 (25.5% as on March 31, 2017). s per ICR estimates, the bank is comfortably placed to meet the Basel III capital ratios even in a scenario of growth in RWs based on past CGRs. ICR also expects IBL to maintain a healthy cushion over and above the regulatory capital levels. Profitability supported by high treasury and fee income - Despite a decline in its yield on advances, the bank s lower cost of funds resulted in marginal decline in its net interest margins (NIMs) to 2.9% of average assets during FY2017 from 3.1% during FY2016. The non interest income for the bank is contributed largely by the fee income (transaction based income and forex income). Historically, fee income (transaction based income and forex income) has been a strong source of income for the bank at ~1.45% of average assets till FY2016. While fee income growth was muted with fee income to T at 1.26% during FY2017, this was offset by the gains in treasury income primarily driven by a stake sale in the life insurance subsidiary. In FY2017, with the decline in NIMs and muted fee income growth, IBL s operating profitability declined to 2.4% of T from 2.6% in FY2016. However, the bank s operating profitability is comparable with peers and private sector banks apart from being better than the banking sector average of 1.6% of T during FY2017. With an increase in NP levels, IBL s credit costs stood at 2.1% during FY2017 as against 1.7% during FY2016; however, the impact on net profitability was largely offset by the treasury income of 1.2% of T during FY2017 as against 1.0% of T during FY2016. Overall, the bank reported PT to T of 1.3% in FY2017 (1.4% in FY2016) and RoE of 10.7% (10.6% in FY2016). Further, while the NIMs and fee income remained stable during 9MFY2018, the lower trading profits partially offset by lower credit costs resulted into the bank reporting lower PT to T of 1.0% in 9MFY2018 with RoE of 7.6%. ICR expects the pressure on profitability to continue in the near term given the pressure on asset quality and 1 Includes profits for 9MFY2018 3

4 consequent credit costs; however, IBL s operating profits are likely to remain stable and the bank has additional buffers in terms of high capital levels and an ability to monetize its investments. Credit challenges Weak asset quality, credit provisions likely to remain elevated for next few quarters - The bank reported gross NPs and net NPs 2 of 7.82% and 4.20% respectively as on December 31, 2017 (7.89% and 4.89% as on March 31, 2017 and 7.87% and 4.43% as on December 31, 2016) with the increase in gross NPs moderating during 9MFY2018 on account of upgradations and write-offs. The fresh NP generation rate remained high at ~7.9% during FY2017 and 4.3% (annualised) during 9MFY2018. Consequently, IBL s provisioning cover (excluding prudential and technical write-offs) stood at ~48.3% as on December 31, 2017 (40.2% as at March 31, 2017 and 50.2% as at March 31, 2016). With ~1.9% of exposures December 31, 2017 being to companies internally rated below investment grade in key sectors as identified by the management, ICR expects the asset quality pressure to continue for next few quarters. The bank had a total exposure of ~Rs. 7,240 crore as on June 30, 2017 towards the accounts identified by RBI in first list for insolvency proceedings against which bank has provision cover of ~56.5% as on September 30, For the second list, the bank has exposure to 18 accounts amounting to Rs. 10,061 crore on which the bank has provision cover of 36.4% as on December 31, The credit provisioning is likely to remain elevated over next few quarters because of the ageing of the existing NPs as well exposure to NCLT accounts. Slippages from the companies internally rated below investment grade in key sectors may further add to the credit provisioning requirements. The bank s stable operating profit and additional buffers in terms of high capital levels provide comfort. Lower income earning assets results in NIMs being lower than peer group - IBL s NIMs (as % of assets) remained stable on a YoY basis at 2.9% during Q3FY2018 (2.9% during Q3FY2017 and 2.9% during FY2017), however these are lower in relation to other peer banks because of relatively weak asset quality. The bank s yield on advances declined to 8.3% during Q3FY2018 (8.7% during Q3FY2017 and 8.8% during FY2017) with a concurrent decline in the cost of funds to 4.8% during Q3FY2018 (5.3% during Q3FY2017 and 5.3% during FY2017). With expectations of a limited decline in cost of funds going forward, ICR expects the NIMs to remain under pressure during medium term due to the weak asset quality and the lower level of income earning assets on account of continued slippages. Consequently, despite the expected credit growth, ICR expects IBL s NII growth to remain moderate because of the pressure on NIMs. nalytical approach: For arriving at the ratings, ICR has applied its rating methodologies as indicated below. Links to applicable criteria: ICR Rating Methodology for Banks ICR Rating Methodology for Basel III Compliant Non-Equity Capital Instruments 2 Gross NPs and Net NPs have been calculated as a % of Gross Customer ssets and Net Customer ssets respectively 4

5 bout the company: ICICI Bank Limited (IBL) is a large private sector bank in India with a 6.3% market share of the banking sector advances as on September 30, With a presence in banking, insurance, asset management, securities broking, investment banking and private equity, the ICICI group is a large player in the Indian financial system. s at December 31, 2017, the bank had 4,860 branches and 14,262 TMs. IBL was originally promoted in 1994 by ICICI Limited, an Indian financial institution, and was its wholly-owned subsidiary. In 1998, ICICI Limited's shareholding in IBL reduced to 46% following a public offering of shares. Further in 2002, ICICI Limited and IBL were merged, consequent to which the ICICI group's financing and banking operations, both wholesale and retail, were integrated in a single entity. For FY2017, IBL reported a net profit of Rs. 9,801 crore on total assets of Rs lakh crore and a regulatory capital adequacy of 17.39% (Tier I of 14.36% and CET I of 13.74%) as on March 31, 2017 as compared with a net profit of Rs. 9,726 crore on total assets of Rs lakh crore and a regulatory capital adequacy of 16.64% (Tier I of 13.09% and CET I of 13.00%) as on March 31, For 9MFY2018, IBL reported a net profit of Rs. 5,757 crore on total assets of Rs lakh crore and a regulatory capital adequacy of 18.10% (Tier I of 15.04% and CET I of 14.19%) as on December 31, The bank reported gross NPs of 7.82% and net NPs of 4.20% as on December 31, Key financial indicators (audited) (standalone) FY2016 FY2017 9MFY2017 9MFY2018 Net interest income 21,224 21,737 15,775 17,004 Profit before tax 12,196 11,279 9,064 6,546 Profit after tax 9,726 9,801 7,776 5,757 Net advances 435, , , ,387 Total assets 717, , , ,340 % CET 13.00% 13.74% 13.33% 14.19% % Tier % 14.36% 13.33% 15.04% % CRR 16.64% 17.39% 16.73% 18.10% % Net interest margin / verage total assets 3.11% 2.92% 2.86% 2.87% % Net profit / verage total assets 1.43% 1.32% 1.41% 0.97% % Return on net worth 11.62% 10.66% 11.42% 7.63% % Gross NPs 5.21% 7.89% 7.20% 7.82% % Net NPs 2.67% 4.89% 3.96% 4.20% % Provision coverage excl. technical write offs 50.24% 40.19% 47.08% 48.28% % Net NP/ Net worth 14.91% 26.26% 21.00% 23.51% mount is Rs. crore Source: IBL; ICR research ll ratios are as per ICR calculations Status of non-cooperation with previous CR: Not applicable ny other information: None 5

6 Sr. No. Rating history for last three years: Name of Instrument 1 Basel III Compliant Tier II Bonds 2 Basel III Compliant Tier I Bonds 3 Lower Tier II Bonds Current Rating (FY2018) Type Rated amou nt (Rs. crore) mount Outstan ding (Rs. Crore) Feb ,000 - [ICR] 13,500 4,980 [ICR] 14,451 14,451 [ICR] Chronology of Rating History for the past 3 years FY2018 FY2017 FY2016 FY2015 Sep ug Feb 2017 Dec Feb Dec [ICR] ; assigned [ICR] [ICR] [ICR] [ICR] [ICR] upgrade d [ICR] [ICR] [ICR] [ICR] [ICR] July 2014 [ICR] 4 Redeemable Bonds 35,000 20,597 [ICR] [ICR] [ICR] [ICR] [ICR] [ICR] [ICR] [ICR] 5 Subordinated Debt [ICR] [ICR] [ICR] [ICR] [ICR] [ICR] [ICR] [ICR] 6 Bonds # * [ICR] [ICR] [ICR] [ICR] [ICR] [ICR] [ICR] [ICR] 7 Deposits N N M M M M M M M M 8 Certificate of Deposits Short 50,000 N [ICR]1 [ICR]1 [ICR]1 [ICR]1 [ICR]1 [ICR]1 [ICR]1 [ICR]1 *mount outstanding as on November 30, 2016 including accrued interest on zero coupon bonds Complexity level of the rated instrument: ICR has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The classification of instruments according to their complexity levels is available on the website 6

7 nnexure-1: Instrument Details ISIN No N N INE09008U6 INE09008TZ5 INE09008TW2 INE09008NI4 INE09008SC6 INE09008JW3 INE09008PD0 INE09008PO7 INE09008Q4 INE09008HI6 INE09008QW8 INE09008IF0 INE09008SN3 INE09008QO5 N INE09008SO1 Instrument Name Basel III Compliant Tier II Bonds Basel III Compliant Tier I Bonds Basel III Compliant Tier I Bonds Basel III Compliant Tier I Bonds Basel III Compliant Tier I Bonds Date of Issuance / Sanction Rate Maturity Date mount Rated (Rs. crore) Proposed , Proposed - - 8, Oct % 20-Sep % 17-Mar % Perpetual (Call: ) Perpetual (Call: ) Perpetual (Call: 17- Mar-2022) , , Jan % 21-Jan Mar % 16-Mar-18 1, May % 19-May pr % 22-pr-19 1, Dec % 9-Dec-19 1, pr % 5-pr-20 2, Dec % 30-Dec Jan % 13-Jan-21 2, Feb % 14-Feb Dec % 31-Dec-22 3, Sep % 29-Sep-25 1, Redeemable Bonds Proposed , Redeemable 04-Mar- 04-Jun- 9.00% Bonds , Current Rating and Outlook [ICR] [ICR] [ICR] [ICR] [ICR] [ICR] [ICR] [ICR] [ICR] [ICR] [ICR] [ICR] [ICR] [ICR] [ICR] [ICR] [ICR] [ICR] 7

8 ISIN No INE09008TX0 INE09008TN1 INE09008TO9 INE09008TS0 INE09008TT8 INE09008TX0 INE09008TY8 Instrument Name Redeemable Bonds Redeemable Bonds Redeemable Bonds Redeemable Bonds Redeemable Bonds Redeemable Bonds Redeemable Bonds Subordinated Debt Program Subordinated Debt Program Bonds Bonds Bonds Bonds Bonds Bonds Bonds Date of Issuance / Sanction 07-Oct ug Sep Mar May Jun Jun Rate 7.60% 9.15% 9.25% 8.45% 8.40% 7.42% 7.47% Maturity Date 07-Oct ug Sep Mar May Jun Jun mount Rated (Rs. crore) 4, , , , , Current Rating and Outlook [ICR] [ICR] [ICR] [ICR] [ICR] [ICR] [ICR] INE Jan- 05-Jan- [ICR] 11.50% INE Jun- 08-Jun- [ICR] 10.50% INE pr Jan [ICR] INE ug Jan [ICR] INE00511B8 27-Sep Feb [ICR] INE00511H5 12-Nov pr [ICR] INE00511N3 24-Dec May [ICR] INE00511T0 23-Jan Jun [ICR] INE00511Z7 19-Feb Jul [ICR] INE Bonds 25-ug Jul [ICR] 8

9 ISIN No Instrument Name Date of Issuance / Sanction Rate Maturity Date mount Rated (Rs. crore) Current Rating and Outlook INE Bonds 23-Sep ug [ICR] INE00511BE0 Bonds 27-Mar Oct [ICR] INE Bonds 30-Nov Oct [ICR] INE Bonds 19-Jan Jan [ICR] INE00511BJ9 Bonds 23-pr Feb [ICR] INE Bonds 25-pr Feb [ICR] INE00508BM9 Bonds 22-Mar Mar [ICR] INE00508BV0 Bonds 26-pr pr [ICR] INE00508CF1 Bonds 24-Jul Jul [ICR] INE09008SQ6 Bonds 22-Jan ug [ICR] INE Bonds 22-Mar ug [ICR] INE Bonds 14-Nov Oct [ICR] INE Bonds 5-Oct-00 5-Jan [ICR] INE Bonds 13-Dec Mar [ICR] INE Bonds 24-Jul pr [ICR] INE Bonds 19-Jan Jun [ICR] INE Bonds 26-pr Jul [ICR] INE Bonds 28-ug ug [ICR] INE Bonds 24-Dec Sep [ICR] INE00511C6 Bonds 27-Sep Sep [ICR] INE00511I3 Bonds 12-Nov Nov [ICR] INE Bonds 5-Oct-98 5-Dec [ICR] 9

10 ISIN No INE00511O1 INE INE00511U8 INE00511B8 INE00511BF7 INE INE INE INE00511BK7 INE09008SP8 N N Source: IBL Instrument Name Bonds Bonds Bonds Bonds Bonds Bonds Bonds Bonds Bonds Bonds Medium Deposits Certificate of Deposits Date of Issuance / Sanction 24-Dec Jan Jan Feb Mar Jun-99 1-Dec Jan pr Jan-98 Rate Maturity Date mount Rated (Rs. crore) Current Rating and Outlook 24-Dec [ICR] 19-Jan [ICR] 23-Jan [ICR] 19-Feb [ICR] 27-Mar [ICR] 16-pr [ICR] 1-May [ICR] 11-Jun [ICR] 23-Jul [ICR] 21-Jul [ICR] M days 50,000 [ICR]1 10

11 NLYST CONTCTS Karthik Srinivasan Neha Parikh nil Gupta kshay Kumar Jain RELTIONSHIP CONTCT L. Shivakumar MEDI ND PUBLIC RELTIONS CONTCT Ms. Naznin Prodhani Tel: Helpline for business queries: (open Monday to Friday, from 9:30 am to 6 pm) info@icraindia.com bout ICR Limited: ICR Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services companies as an independent and professional investment Information and Credit Rating gency. Today, ICR and its subsidiaries together form the ICR Group of Companies (Group ICR). ICR is a Public Limited Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit Rating gency Moody s Investors Service is ICR s largest shareholder. For more information, visit 11

12 ICR Limited Corporate Office Building No. 8, 2nd Floor, Tower ; DLF Cyber City, Phase II; Gurgaon Tel: info@icraindia.com Website: Registered Office 1105, Kailash Building, 11th Floor; 26 Kasturba Gandhi Marg; New Delhi Tel: Branches Mumbai (91 22) /53/62/74/86/87 Chennai (91 44) /9659/8080, / 3293/3294, Kolkata (91 33) / / / , Bangalore (91 80) /4049 hmedabad (91 79) /5049/2008 Hyderabad (91 40) /7251 Pune (91 20) Copyright, 2018 ICR Limited. ll Rights Reserved. Contents may be used freely with due acknowledgement to ICR. ICR ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. ICR ratings are subject to a process of surveillance, which may lead to revision in ratings. n ICR rating is a symbolic indicator of ICR s current opinion on the relative capability of the issuer concerned to timely service debts and obligations, with reference to the instrument rated. Please visit our website or contact any ICR office for the latest information on ICR ratings outstanding. ll information contained herein has been obtained by ICR from sources believed by it to be accurate and reliable, including the rated issuer. ICR however has not conducted any audit of the rated issuer or of the information provided by it. While reasonable care has been taken to ensure that the information herein is true, such information is provided as is without any warranty of any kind, and ICR in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such information. lso, ICR or any of its group companies may have provided services other than rating to the issuer rated. ll information contained herein must be construed solely as statements of opinion, and ICR shall not be liable for any losses incurred by users from any use of this publication or its contents 12