Exhibit 2.5
As filed with the Securities and Exchange Commission on July 29, 2022
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
| □ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended March 31, 2022.
OR
| □ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
OR
| □ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
Commission file number: 001-15002
ICICI BANK LIMITED
(Exact name of Registrant as specified in its charter)
India
(Jurisdiction of incorporation or organization)
ICICI Bank Towers
Bandra-Kurla Complex
Mumbai 400051, India
(Address of principal executive offices)
Name: Anindya Banerjee / Abhinek Bhargava
Telephone: +91 22 3366 7777
Email: anindya.banerjee@icicibank.com / abhinek.bhargava@icicibank.com
Office address: ICICI Bank Towers, Bandra-Kurla Complex, Mumbai – 400051, India
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Equity Shares of ICICI Bank Limited(1) | IBN | The New York Stock Exchange |
| American Depositary Shares, each representing two Equity Shares of | ||
| ICICI Bank Limited, par value | ||
| Rs. 2 per share |
(1) Not for trading, but only in connection with the registration of American Depositary Shares representing such Equity Shares pursuant to the requirements of the Securities and Exchange Commission.
[None]
Securities registered or to be registered pursuant to Section 12(g) of the Act:
[None]
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
[None]
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
The number of outstanding Equity Shares of ICICI Bank Limited as of March 31, 2022 was 6,948,771,375.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☒ No ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ☐ No ☒
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☐ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company See definition of “large accelerated filer”, “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer ☒ Accelerated Filer ☐ Non-accelerated Filer ☐ Emerging Growth Company ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on the attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| ☐ | U.S. GAAP |
| ☐ | International Financial Reporting Standards as issued by the International Accounting Standards Board |
| ☒ | Other |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
☐ Item 17 ☒ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Page
|
Form 20-F |
Item Number and Caption |
Location |
|
| Part – I | |||
| 1 | Identity of Directors, Senior Management and Advisers | Not applicable | |
| 2 | Offer Statistics and Expected Timetable | Not applicable | |
| 3 | Key Information | Risk Factors | 6 |
| 4 | Information on the Company | Business | 62 |
| Selected Statistical Information | 123 | ||
| Operating and Financial Review and Prospects | 144 | ||
| Supervision and Regulation | 230 | ||
| Business—Subsidiaries, Associates and Joint Ventures | 105 | ||
| Business—Properties | 115 | ||
| Schedule 18A Note 10 to Consolidated Financial Statements | F-67 | ||
| Schedule 18A Note 12 to Consolidated Financial Statements | F-72 | ||
| 4A | Unresolved Staff Comments | None | |
| 5 | Operating and Financial Review and Prospects |
Operating and Financial Review and Prospects | 144 |
| Business—Risk Management | 78 | ||
| Selected Statistical Information—Funding | 130 | ||
| 6 | Directors, Senior Management and Employees |
Management | 210 |
| Business—Employees | 114 | ||
| 7 | Major Shareholders and Related Party Transactions | Major Shareholders | 54 |
| Related Party Transactions | 56 | ||
| Management—Compensation and Benefits to Directors and Officers—Loans | 228 | ||
| Schedule 18 Note 2 in Notes to Consolidated Financial Statements | F-46 | ||
| 8 | Financial Information | Report of Independent Registered Public Accounting Firm | F-2 |
| Consolidated Financial Statements and the Notes thereto | F-10 | ||
| Operating and Financial Review and Prospects—Executive Summary | 144 | ||
| Business—Legal and Regulatory Proceedings | 115 | ||
| Dividends | 304 | ||
| 9 | The Offer and Listing | Market Price Information | 5 |
| 10 | Additional Information | Additional Information | 315 |
| Exchange Controls | 297 | ||
| Taxation | 305 | ||
| Restriction on Foreign Ownership of Indian Securities | 299 | ||
| Dividends | 304 | ||
| Business—Subsidiaries, Associates and Joint Ventures | 105 | ||
| 11 | Quantitative and Qualitative Disclosures About Market Risk | Business—Risk Management—Market Risk | 85 |
| Selected Statistical Information–Risk Management | 131 | ||
| 12 | Description of Securities Other than Equity Securities | Business—American Depository Receipt Fees and Payments | 121 |
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|
Form 20-F |
Item Number and Caption |
Location |
|
| Part – II | |||
| 13 | Defaults, Dividend Arrearages and Delinquencies | Not applicable | |
| 14 | Material Modifications to the Rights of Security Holders and Use of Proceeds | Not applicable | |
| 15 | Controls and Procedures |
Management–Summary Comparison of Corporate Governance Practices–Controls and Procedures |
223 |
| 16A | Audit Committee Financial Expert | Management—Corporate Governance—Audit Committee | 218 |
| 16B | Code of Ethics | Management—Corporate Governance—Code of Ethics | 221 |
| 16C | Principal Accountant Fees and Services | Management—Corporate Governance—Principal Accountant Fees and Services | 221 |
| 16D | Exemptions from the Listing Standards for Audit Committees | Not applicable | |
| 16E | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | Not applicable | |
| 16F | Change in Registrant’s Certifying Accountant | Not applicable | |
| 16G | Corporate Governance | Management—Summary Comparison of Corporate Governance Practices | 222 |
| 16H | Mine Safety Disclosure | Not applicable | |
| 16I | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | Not applicable | |
| Part – III | |||
| 17 | Financial Statements | See Item 18 | |
| 18 | Financial Statements | Report of Independent Registered Public Accounting Firm | F-2 |
| Consolidated Financial Statements and Notes thereto | F-10 | ||
| 19 | Exhibits | Exhibit Index and Attached Exhibits | 317 |
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In this annual report, all references to “we”, “our”, and “us” are to ICICI Bank Limited and its consolidated subsidiaries and other consolidated entities under generally accepted accounting principles in India (“Indian GAAP”). In the financial statements contained in this annual report and the notes thereto, all references to “the Company” are to ICICI Bank Limited and its consolidated subsidiaries and other consolidated entities under Indian GAAP.
References to specific data applicable to particular subsidiaries or other consolidated entities are made by reference to the name of that particular entity. References to the “amalgamation” are to the amalgamation of ICICI, ICICI Personal Financial Services and ICICI Capital Services with ICICI Bank. References to “Sangli Bank” are to The Sangli Bank Limited prior to its amalgamation with ICICI Bank, effective April 19, 2007. References to “Bank of Rajasthan” are to the Bank of Rajasthan Limited prior to its amalgamation with ICICI Bank, effective from the close of business at August 12, 2010.
References to “ICICI Bank” and “the Bank” are to ICICI Bank Limited on an unconsolidated basis. References to “ICICI” are to ICICI Limited and its consolidated subsidiaries and other consolidated entities under Indian GAAP prior to the amalgamation of ICICI Limited, ICICI Personal Financial Services Limited and ICICI Capital Services Limited with ICICI Bank Limited, which was effective March 30, 2002 under Indian GAAP. References to a particular “fiscal” year are to the year ended on March 31 of such a year. Unless otherwise indicated, all references to the “Board of Directors” and the “Board” are to the board of directors of ICICI Bank.
All references to the “Companies Act”, the “Banking Regulation Act” and the “Reserve Bank of India Act” are to the Companies Act, 2013, the Banking Regulation Act, 1949 and the Reserve Bank of India Act, 1934 as passed by the Indian Parliament and as amended from time to time. All references to “RBI” and the “Reserve Bank of India” are to the central banking and monetary authority of India.
Pursuant to the issuance and listing of our securities in the United States under registration statements filed with the United States Securities and Exchange Commission, we file annual reports on Form 20-F which must include financial statements prepared under generally accepted accounting principles in the United States (U.S. GAAP), or financial statements prepared according to a comprehensive body of accounting principles with a reconciliation of net income and stockholders’ equity to U.S. GAAP. When we first listed our securities in the United States, Indian GAAP was not considered a comprehensive body of accounting principles under the United States securities laws and regulations. Accordingly, our annual reports on Form 20-F for fiscal years 2000 through 2005 included U.S. GAAP financial statements. However, pursuant to a significant expansion of Indian accounting standards, Indian GAAP constitutes a comprehensive body of accounting principles. Accordingly, we have included in this annual report, as in the annual reports for fiscal years 2020 through 2022, consolidated financial statements prepared according to Indian GAAP, with a reconciliation of net income and stockholders’ equity to U.S. GAAP and a description of significant differences between Indian GAAP and U.S. GAAP.
Our annual report prepared and distributed to our shareholders under Indian law and regulations include unconsolidated Indian GAAP financial statements, management’s discussion and analysis of the Bank’s results of operations and financial condition based on the Bank’s unconsolidated Indian GAAP financial statements and our consolidated Indian GAAP financial statements.
The economic and industry data and information presented in this document are sourced from government statistical releases, press releases and notifications by the Government of India, the Reserve Bank of India and other regulators, data available on the websites of the Government of India, Reserve Bank of India, other regulators and industry bodies.
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We have included statements in this annual report which contain words or phrases such as “will”, “would”, “aim”, “aimed”, “will likely result”, “is likely”, “are likely”, “believe”, “expect”, “expected to”, “will continue”, “will achieve”, “anticipate”, “estimate”, “estimating”, “intend”, “plan”, “contemplate”, “seek to”, “seeking to”, “trying to”, “target”, “propose to”, “future”, “objective”, “goal”, “project”, “should”, “can”, “could”, “may”, “will pursue” and similar expressions or variations of such expressions that may constitute “forward-looking statements”. These forward-looking statements involve a number of risks, uncertainties and other factors that could cause actual results, opportunities and growth potential to differ materially from those suggested by the forward-looking statements. These risks and uncertainties include, but are not limited to, impact of Covid-19 pandemic on the global and Indian economy, including the impact on the Bank’s results, the actual growth in demand for banking and other financial products and services in the countries in which we operate or where a material number of our customers reside; future levels of non-performing and restructured loans and any increased provisions and regulatory and legal changes relating to those loans; our exposure to securities of asset reconstruction companies; our ability to successfully implement our strategies, including our growth strategy, our strategic use of technology and the internet and our strategy for resolution of non-performing assets; the continued service of our senior management; the outcome of any legal, tax or regulatory proceedings in India and in other jurisdictions in which we are or become a party to; the outcome of any internal or independent enquiries or regulatory or governmental investigations; our rural expansion; our exploration of merger and acquisition opportunities; our ability to integrate recent or future mergers or acquisitions into our operations and manage the risks associated with such acquisitions to achieve our strategic and financial objectives; our ability to manage the increased complexity of the risks that we face following our international growth; our growth and expansion in domestic and overseas markets; our status as a systemically important bank in India; our ability to maintain enhanced capital and liquidity requirements; the adequacy of our allowance for credit and investment losses; our ability to market new products; investment income; cash flow projections; the impact of any changes in India’s credit rating; the impact of any new accounting standards or new accounting framework; our ability to implement our dividend payment practice; the impact of changes in banking and insurance regulations and other regulatory changes in India and other jurisdictions on us, including changes in regulatory intensity, supervision and interpretations; the state of the global financial system and systemic risks; the bond and loan market conditions and availability of liquidity amongst the investor community in these markets; the nature of credit spreads and interest spreads from time to time, including the possibility of increasing credit spreads or interest rates; our ability to roll over our short-term funding sources and our exposure to credit, market, liquidity and reputational risks. We undertake no obligation to update forward-looking statements to reflect events or circumstances after the date thereof.
In addition, other factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this annual report include, but are not limited to, uncertainty on the trajectory of Covid-19 pandemic on the Bank’s results, including credit quality and provisions, the monetary and interest rate policies of India and the other markets in which we operate, general economic and political conditions in India, southeast Asia, and the other countries which have an impact on our business activities or investments, , political or financial instability in India or any other country caused by any factor including regional hostilities ,terrorist attacks or social unrest, man-made or natural disasters and catastrophes, climate change events, inflation, deflation, unanticipated turbulence in interest rates, changes or volatility in the value of the rupee, foreign exchange rates, equity prices or other rates or prices, the performance of the financial markets in general, changes in domestic and foreign laws, regulations and taxes, changes in competition and the pricing environment in India and regional or general changes in asset valuations. For a further discussion of the factors that could cause actual results to differ, see the discussion under “Risk Factors” contained in this annual report.
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Equity Shares
Our outstanding equity shares are currently listed and traded on the BSE Limited, and the National Stock Exchange of India Limited.
At June 30, 2022, total 6,956,354,896 equity shares were outstanding. The prices for equity shares as quoted in the official list of each of the Indian stock exchanges are in Indian rupees.
At June 30, 2022, there were 2,031,334 holders of record of our equity shares, of which 2,521 had registered addresses in the United States and held an aggregate of 1,934,183 equity shares.
ADSs
Our ADSs, each representing two equity shares, were originally issued in March 2000 in a public offering and are listed and traded on the New York Stock Exchange under the symbol IBN. The equity shares underlying the ADSs are listed on the BSE Limited and the National Stock Exchange of India Limited.
At June 30, 2022, we had 580 million ADSs, equivalent to about 1,160 million equity shares, outstanding. At June 30, 2022, there were 126,178 record holders of our ADSs, out of which 85 have registered addresses in the United States.
See also “Risk Factors—Risks Relating to ADSs and Equity Shares—Conditions in the Indian securities market may adversely affect the price or liquidity of our equity shares and ADSs”.
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You should carefully consider the following risk factors as well as other information contained in this annual report in evaluating us and our business.
Summary
Our business is subject to various risks and uncertainties. These risks include, but are not limited to, the following:
Risks Relating to India and Other Economic and Market Risks
| · | A prolonged slowdown in economic growth in India could cause our business to suffer. |
| · | Financial instability in other countries, particularly countries where we have established operations, could adversely affect our business. |
| · | Any downgrade of India’s debt rating or the rating of our senior unsecured foreign currency debt by an international rating agency could adversely affect our business, liquidity and the prices of our equity shares and ADSs. |
| · | Any adverse impact on India’s external position due to an increase in the price of crude oil or the current account deficit or outflow of foreign capital or exchange rate volatility could adversely affect the Indian economy, which could adversely affect our business. |
| · | The banking and financial markets in India are still evolving, and the Indian financial system could experience difficulties which could adversely affect our business and the prices of our equity shares and ADSs. |
| · | A significant change in the Indian government’s policies, including economic policies, fiscal policies and structural reforms, could adversely affect our business and the prices of our equity shares and ADSs. |
| · | Natural calamities, climate change and health epidemics could adversely affect the Indian economy, or the economy of other countries where we operate, our business and the prices of our equity shares and ADSs. |
| · | If regional hostilities, terrorist attacks, or social unrest in India or elsewhere increase, our business and the prices of our equity shares and ADSs could be adversely affected. |
Risks that arise as a result of our presence in a highly regulated sector
| · | The enhanced supervisory and compliance environment in the financial sector increases the risk of regulatory action against us, whether formal or informal. |
| · | We may be subject to fines, restrictions or other sanctions for past instances of regulatory failures, which may adversely affect our financial position or our ability to expand our activities. |
| · | We are at increased risk for inquiries or investigations by regulatory and enforcement authorities, which may adversely affect our reputation, lead to increased regulatory scrutiny, cause us to incur additional costs or adversely affect our ability to conduct business. |
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| · | We are subject to the directed lending requirements of the Reserve Bank of India, which may also involve buying related certificates at a premium to meet the annual targets, and any shortfall in meeting these requirements may be required to be invested in Government of India schemes that yield low returns, thereby impacting our profitability. We may also experience a higher level of non-performing assets in our directed lending portfolio, which could adversely impact the quality of our loan portfolio, our business and the prices of our equity shares and ADSs. |
| · | We are subject to capital adequacy requirements stipulated by the Reserve Bank of India, including Basel III, as well as general market expectations regarding the level of capital adequacy large Indian private sector banks should maintain, and any inability to maintain adequate capital due to changes in regulations, a lack of access to capital markets, or otherwise may impact our ability to grow and support our businesses. |
| · | We are subject to liquidity requirements of the Reserve Bank of India, and any inability to maintain adequate liquidity due to changes in regulations, a lack of access to capital markets, or otherwise may impact our ability to grow and support our businesses. |
| · | Changes in the regulation and structure of the financial markets in India may adversely impact our business. |
| · | The opportunities for growth in our international operations and our ability to repatriate capital from these operations may be limited by the local regulatory environments. |
| · | The board of directors of the Bank has, pursuant to an independent enquiry, taken action against the former Managing Director and CEO. In the event the Bank is found by any of the enquiries in the matter by government and regulatory agencies to have violated applicable laws or regulations, the Bank could become subject to legal and regulatory sanctions that may materially and adversely affect our results of operations, financial condition and reputation. |
| · | Our asset management, private equity, insurance and securities broking subsidiaries and affiliates have retail and corporate customers and are subject to extensive regulation and supervision which can lead to increased costs or additional restrictions on their activities that adversely impact the Bank. |
| · | The transition from LIBOR to other alternative reference rates may adversely affect our income from exposures or transactions currently referenced to LIBOR and also bring about the vagaries that such alternative reference rates may have. |
| · | Adoption of a different basis of accounting or new accounting standards may result in changes in our reported financial position and results of operations for future and prior periods. |
Risks Relating to Our Business
| · | The future trajectory of the Covid-19 pandemic is uncertain and could adversely affect our business, the quality of our loan portfolio and our financial performance. |
| · | If the level of our non-performing assets increases and the overall quality of our loan portfolio deteriorates, our business will suffer. |
| · | We have a high concentration of loans to certain customers, borrower groups and sectors and if a substantial portion of these loans become non-performing, the overall quality of our loan portfolio, our business and the prices of our equity shares and ADSs could be adversely affected. |
| · | The value of our collateral may decrease or we may experience delays in enforcing our collateral when borrowers default on their obligations to us which may result in failure to recover the expected value of collateral security exposing us to a potential loss. |
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| · | Our banking and trading activities are particularly vulnerable to interest rate risk and volatility in interest rates could adversely affect our net interest margin, the value of our fixed income portfolio, our income from treasury operations, the quality of our loan portfolio and our financial performance. |
| · | Our inability to effectively manage credit, market and liquidity risk and inaccuracy of our valuation models and accounting estimates may have an adverse effect on our earnings, capitalization, credit ratings and cost of funds. |
| · | Our funding is primarily short-term and if depositors do not roll over deposited funds upon maturity, our business could be adversely affected. |
| · | Negative publicity could damage our reputation and adversely impact our business and financial results and the prices of our equity shares and ADSs. |
| · | The exposures of our international branches and banking subsidiaries could generally affect our business, financial condition and results of operations. |
| · | Entry into new businesses or rapid growth in existing loan portfolios may expose us to increased risks that may adversely affect our business. |
| · | Our loan portfolio includes long-term project finance loans, which are particularly vulnerable to completion and other risks. |
| · | Commission, exchange and brokerage income, profit on foreign exchange transactions and other sources of fee income are important elements of our profitability, and regulatory changes and market conditions could cause these income streams to decline and adversely impact our financial performance. |
| · | Our industry is very competitive and our strategy depends on our ability to compete effectively. |
| · | There is operational risk associated with the financial industry which, when realized, may have an adverse impact on our business. |
| · | We and our customers are exposed to fluctuations in foreign exchange rates. |
| · | We may seek opportunities for growth through acquisitions, divest our existing businesses, or be required to undertake mergers by the Reserve Bank of India and could face integration and other acquisitions risks. |
| · | We depend on the accuracy and completeness of information about customers and counterparties. |
| · | A determination against us in respect of disputed tax assessments may adversely impact our financial performance. |
| · | We are involved in various litigations. Any final judgment awarding material damages against us could have a material adverse impact on our future financial performance and our stockholders’ equity. |
| · | Our exposure to the securities of asset reconstruction companies could generally affect our business, financial condition and results of operations. |
| · | We continue to expand our branch network and any inability to use these branches productively may have an adverse impact on our growth and profitability. |
| · | We depend on the knowledge and skills of our senior management. Any inability to attract and retain them and other talented professionals or any loss of senior management or other talented professionals may adversely impact our business. |
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Risks relating to technology
| · | The growing use of technology in banking and financial services creates additional risks of competition, reliability and security. |
| · | We face security risks, including denial of service attacks, hacking, social engineering attacks targeting our colleagues and customers, malware intrusion or data corruption attempts, and identity theft that could result in the disclosure of confidential information, adversely affect our business or reputation, and create significant legal and financial exposure. |
| · | System failures or system downtime could adversely impact our business. |
| · | Our business may be adversely affected by computer, internet and telecommunications fraud. |
Risks relating to our insurance subsidiary and affiliate
| · | Additional capital requirements of our insurance entities or our inability to monetize a part of our shareholding in these entities may adversely impact our business and the prices of our equity shares and ADSs. |
| · | While our insurance businesses are an important part of our business, there can be no assurance of their future rates of growth or levels of profitability. |
| · | Actuarial experience and other factors could differ from assumptions made in the calculation of life actuarial reserves and other actuarial information. |
| · | Loss reserves for our affiliate’s general insurance business are based on estimates as to future claims liabilities and adverse developments relating to claims could lead to further reserve additions and materially adversely affect the operation of our general insurance affiliate. |
| · | The financial results of our insurance companies could be materially adversely affected by the occurrence of a catastrophe. |
Risks Relating to ADSs and Equity Shares
| · | You will not be able to vote your ADSs and your ability to withdraw equity shares from the depositary facility is subject to delays and legal restrictions. |
| · | Your holdings may be diluted by additional issuances of equity and any dilution may adversely affect the market prices of our equity shares and ADSs. |
| · | You may be unable to exercise pre-emptive rights available to other shareholders. |
| · | Your ability to sell in India any equity shares withdrawn from the depositary facility, the conversion of rupee proceeds from such sale into a foreign currency and the repatriation of such foreign currency may be subject to delays if specific approval of the Reserve Bank of India is required. |
| · | Restrictions on deposit of equity shares in the depositary facility could adversely affect the price of our ADSs. |
| · | Certain shareholders own a large percentage of our equity shares and their actions could adversely affect the prices of our equity shares and ADSs. |
| · | Conditions in the Indian securities market may adversely affect the price or liquidity of our equity shares and ADSs. |
9
| · | Settlement of trades of equity shares on Indian stock exchanges may be subject to delays. |
| · | Changes in Indian regulations on foreign ownership, a change in investor preferences or an increase in the number of ADSs outstanding could adversely affect the prices of our equity shares and ADSs. |
| · | Because the equity shares underlying ADSs are quoted in rupees in India, you may be subject to potential losses arising out of exchange rate risk on the Indian rupee. |
| · | You may be subject to Indian taxes arising out of capital gains. |
| · | There may be less company information available in Indian securities markets than in securities markets in the United States. |
Risks Relating to India and Other Economic and Market Risks
A prolonged slowdown in economic growth in India could cause our business to suffer.
We are heavily dependent upon the state of the Indian economy, and a slowdown in growth in the Indian economy could adversely affect our business, our borrowers, our counterparties and other constituents, especially if such a slowdown was to be prolonged. India’s gross domestic product grew by 3.7% in fiscal 2020. In fiscal 2021, India’s gross domestic product declined by 6.6% as the outbreak of the Covid-19 pandemic and consequent lockdowns and other containment measures negatively impacted economic activity during the year. In fiscal 2022, India’s gross domestic product grew by 8.7%.
The Covid-19 pandemic resulted in a nation-wide lockdown in India in April-May 2020, which substantially impacted economic activity. The easing of lockdown measures subsequently led to gradual improvement in economic activity and progress towards normalcy from the second half of fiscal 2021. The second wave of the Covid-19 pandemic in April-May 2021 and the third wave of Covid-19 pandemic in December 2021-January 2022 led to the re-imposition of localised/regional lockdown measures in various parts of the country.
Following the outbreak of the first wave of the Covid-19 pandemic, the Reserve Bank of India announced several measures during fiscal 2021, including a moratorium on loan repayments for certain borrowers and an asset classification standstill benefit for overdue accounts where a moratorium had been granted, restructuring of loans to small borrowers including individuals, small businesses and micro, small and medium enterprises, and funding under the Emergency Credit Line Guarantee Scheme for micro, small and medium enterprises and other stressed sectors. The impact of such measures on our borrowers, our business and the Indian credit market remains uncertain, and may lead to an increase in the level of our non-performing assets, and there could be an adverse impact on our business, our future financial performance, our stockholders’ equity and the prices of our equity shares and ADSs. While there has been a significant improvement in economic conditions during fiscal 2022, and significant progress in the vaccination programme in India, with 1.84 billion vaccine doses administered till March 31, 2022, including 23 million precaution doses, the emergence of another wave of the Covid-19 pandemic or its variant or any other economic challenges could require renewed or additional measures, impacting the pace of recovery of the Indian economy and consequently have an adverse affect on our results of operations and financial condition. See also “Risks Relating to Our Business—The future trajectory of the Covid-19 pandemic is uncertain and could adversely affect our business, the quality of our loan portfolio and our financial performance”.
An economic slowdown and a general decline in business activity in India could impose stress on our borrowers’ financial soundness and profitability and thus expose us to increased credit risk.
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Economic growth in India is also influenced by inflation, interest rates, external trade and capital flows. The level of inflation or depreciation of the Indian rupee may limit monetary easing or cause monetary tightening by the Reserve Bank of India. Any increase in inflation, due to increases in domestic food prices or global prices of commodities, including crude oil, the impact of currency depreciation on the prices of imported commodities and additional pass through of higher fuel prices to consumers, or otherwise, may result in a tightening of monetary policy. During the three months ended June 30, 2022, uncertainties in the global environment increased following geo-political tensions, uncertainties around global growth recovery, increase in commodity prices and an increase in inflation in developed and emerging economies. In India, the Reserve Bank of India increased the repo rate by 90 basis points in May-June 2022 in response to the rise in inflation. A return to high rates of inflation with a resulting rise in interest rates, and any corresponding tightening of monetary policy, may have an adverse effect on economic growth in India.
Adverse changes to global liquidity conditions, comparative interest rates and risk appetite could lead to significant capital outflows from India, which could adversely affect our business. For instance, the increased uncertainties and risk aversion caused by the Covid-19 pandemic led to significant outflows of net investments by foreign portfolio investors from Indian equity and debt markets in an aggregate amount of approximately US$ 14.7 billion during the three months ended March 31, 2020. There has been an outflow of net investments by foreign portfolio investors during the six months ended March 31, 2022 of US$ 19.0 billion, and further during the three months ended June 30, 2022 of approximately US$ 14.0 billion. A slowdown in global growth may impact India’s exports. While currently commodities have experienced a significant increase in prices, sharp and sustained price reductions of globally traded commodities such as metals and minerals in the event of a global slowdown may negatively impact our borrowers in these sectors. Global trade disputes and protectionist measures and counter-measures could impact trade and capital flows and negatively affect the Indian economy, which could adversely affect our business.
Adverse economic conditions in India due to the Covid-19 pandemic or otherwise and movements in global capital, commodity and other markets could result in reduction of demand for credit and other financial products and services, increased competition, and higher defaults among corporate, retail and rural borrowers, which could adversely impact our business, our financial performance, our stockholders’ equity, our ability to implement our strategy and the prices of our equity shares and ADSs.
Financial instability in other countries, particularly countries where we have established operations, could adversely affect our business.
There is a history of financial crises and boom-bust cycles in multiple markets in both the emerging and developed economies, which increase risks for all financial institutions, including for our business and results of operations.
Global economic changes, such as developments in the Eurozone, including the United Kingdom’s relationship with the European Union following the United Kingdom’s exit from the European Union (“Brexit”); concerns related to the impact of tightening monetary policy in the U.S.; the war between Russia and Ukraine and the sanctions imposed on the former; elevated inflation levels; supply and demand imbalances relating to the Covid-19 pandemic and the Russia-Ukraine conflict; high global energy prices; potential trade wars between large economies; and the economic consequences of the Covid-19 pandemic may lead to increased risk aversion and volatility in global capital markets and foreign exchange rate movements, which could impact global liquidity and adversely affect our business.
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Uncertainty around these and related issues could lead to adverse effects on the economy of the United Kingdom and the other economies in which we operate. Our subsidiary in the United Kingdom has made changes to its operations in the European Union due to Brexit, which could adversely affect our business in the United Kingdom and Europe if the changes are not implemented effectively. In addition, China is one of India’s major trading partners and the border dispute between India and China could have an adverse impact on economic relations between the two countries. Further, India has trade ties with both Russia and Ukraine. These factors may also result in a slowdown in India’s trade growth. The effect of any legislative and regulatory efforts to address these risks is uncertain, and they may not have the intended positive effects. Such volatility and negative economic developments could, in turn, materially adversely affect our business, prospects, financial conditions or results of operations.
A loss of investor confidence in the financial systems of India or other markets and countries or any financial instability in India or any other market may cause increased volatility in the Indian financial markets and, directly or indirectly, adversely affect the Indian economy and financial sector, our business and our future financial performance. We remain subject to the risks posed by the indirect impact of adverse developments in the global economy and the global banking environment, some of which cannot be anticipated and the vast majority of which are not under our control. We also remain subject to counterparty risk to financial institutions that fail or are otherwise unable to meet their obligations to us.
Any downgrade of India’s debt rating or the rating of our senior unsecured foreign currency debt by an international rating agency could adversely affect our business, liquidity and the prices of our equity shares and ADSs.
Any adverse revisions to India’s credit ratings by international rating agencies may adversely impact our business and limit our access to capital markets and adversely impact our liquidity position and market perception of the Bank.
In June 2020, Moody’s had lowered the sovereign rating for India from Baa2 to Baa3, with a negative outlook due to the impact of the Covid-19 pandemic on the Government of India’s fiscal position and the stress in the financial sector. We are rated by Moody’s and Standard and Poor’s. In April 2020, following the onset of the Covid-19 pandemic, both rating agencies revised the outlook on our rating from stable to negative, while maintaining the rating on our senior unsecured foreign currency debt at BBB- by Standard and Poor’s and Baa3 by Moody’s. Further, in June 2020, Standard and Poor’s maintained the rating on our senior unsecured debt while downgrading certain other banks on the expectation that we would structurally improve our capital position over the next few months. In June 2021, Standard and Poor’s revised our outlook from negative to stable and reaffirmed our rating at BBB-, and in October 2021, Moody’s revised our outlook from negative to stable and reaffirmed our rating at Baa3. In June 2022, Moody’s revised our baseline credit assessment upwards from ba1 to baa3 citing improvements in asset quality, capital and profitability.
Rating agencies may also change their methodology for rating banks or their assessment of specific parameters which may impact our ratings. In April 2020, Moody’s revised its assessment of government support for Indian private sector banks in view of the mechanism of resolution for a stressed private sector bank. Such revisions in assessment methodologies could adversely impact the rating of private sector banks compared to public sector banks.
The rating of our foreign branches is impacted by the sovereign rating of the country in which the branch is located, particularly if the rating is below India’s rating. Any revision to the sovereign rating of the countries in which we operate to below India’s rating could impact the rating of our foreign branch in the jurisdiction and the bonds issued from these branches. Our subsidiary in the United Kingdom is rated by Moody’s and any change in our rating or outlook or in the financial position of the subsidiary could impact the rating or outlook of our subsidiary.
Given the significant uncertainties caused by the ongoing pandemic and other global economic changes, there can be no assurance that rating agencies will change their views on India’s sovereign rating or that we and our subsidiaries and affiliates will be able to meet the expectations of rating agencies and maintain our credit ratings. See also “—Risks Relating to Our Business—Our inability to effectively manage credit, market and liquidity risk and inaccuracy of our valuation models and accounting estimates may have an adverse effect on our earnings, capitalization, credit ratings and cost of funds”.
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Any adverse impact on India’s external position due to an increase in the price of crude oil or the current account deficit or outflow of foreign capital or exchange rate volatility could adversely affect the Indian economy, which could adversely affect our business.
India is vulnerable to developments in the trade account. India imports a majority of its requirements of petroleum oil and petroleum products. The decline in the oil import bill in fiscal 2021 was largely due to a decline in global crude oil prices and weak demand conditions in the Indian economy caused by the Covid-19 pandemic. However, global crude oil prices have been rising since November 2020 and recently experienced a sharp increase following the hostilities between Russia and Ukraine. Elevated oil price levels or volatility in oil prices, as well as the impact of currency depreciation, which makes imports more expensive in local currency, and the pass-through of such increases to Indian consumers or an increase in subsidies (which would increase the fiscal deficit) could have a material adverse impact on the Indian economy and the Indian banking and financial system, including through a rise in inflation and market interest rates, higher trade and fiscal deficits and currency depreciation.
India’s trade relationships with other countries and its trade deficit, may adversely affect Indian economic conditions and the exchange rate for the rupee. The current account deficit as a proportion of India’s gross domestic product was 0.9% of India’s gross domestic product in fiscal 2020 and there was a surplus in the current account of 0.9% in fiscal 2021. In fiscal 2022, the current account deficit was 1.2% of India’s gross domestic product. If current account and trade deficits increase, or are no longer manageable because of factors impacting the trade deficit like a significant rise in global crude oil prices or otherwise, the Indian economy, and therefore our business, our financial performance and the prices of our equity shares and ADSs could be adversely affected. Any reduction of or increase in the volatility of capital flows may impact the Indian economy and financial markets and increase the complexity and uncertainty in monetary policy decisions in India, leading to volatility in inflation and interest rates in India, which could also adversely impact our business, our financial performance, our stockholders’ equity, and the prices of our equity shares and ADSs.
See also “—Risks Relating to Our Business—We and our customers are exposed to fluctuations in foreign exchange rates”.
The banking and financial markets in India are still evolving and the Indian financial system could experience difficulties which could adversely affect our business and the prices of our equity shares and ADSs.
We continue to be categorized as a domestic systemically important bank in India by the Reserve Bank of India. We are not treated as a globally systemically important bank, either by the Financial Stability Board or the Reserve Bank of India. As a systemically important Indian bank, we are exposed to the risks of the Indian financial system which may be affected by the financial difficulties faced by certain Indian financial institutions because the commercial soundness of many financial institutions may be closely related as a result of credit, trading, clearing or other relationships. This risk, which is sometimes referred to as systemic risk, may adversely affect financial intermediaries, such as clearing agencies, banks, securities firms and exchanges with which we interact on a daily basis. Any such difficulties or instability of the Indian financial system in general could create an adverse market perception about Indian financial institutions and banks and adversely affect our business. For instance, in March 2020, the Reserve Bank of India imposed a moratorium restricting deposit withdrawals from a private sector bank, followed by implementation of a scheme of reconstruction involving change in management and equity capital infusion by several Indian banks, including us. The private sector bank also wrote down additional tier-1 bonds. The overall impact of such developments on credit markets is uncertain and there could be an adverse impact on the loan portfolios of banks, including us, if customers are no longer able to access financing or refinancing from these entities or replace such financing or refinancing from other sources, thereby impacting their ability to conduct operations or meet their financial obligations. Our transactions with these financial institutions expose us to credit risk in the event of default by the counterparty, which can be exacerbated during periods of market illiquidity. See also “—Risks Relating to Our Business—There is operational risk associated with the financial industry which, when realized, may have an adverse impact on our business”.
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As the Indian financial system operates in an emerging market, we face risks of a nature and extent not typically faced in more developed economies. Our credit risk may be higher than the credit risk of banks in some developed economies. Our access to information about the credit histories of our borrowers, especially individuals and small businesses, may be limited relative to what is typically available for similar borrowers in developed economies. In addition, the credit risk of our borrowers is often higher than borrowers in more developed economies due to the evolving Indian regulatory, political, economic and industrial environment. The directed lending norms of the Reserve Bank of India require us to lend a certain proportion of our loans to “priority sectors”, including agriculture and small enterprises, where we are less able to control the portfolio quality and where economic difficulties are likely to affect our borrowers more severely. We also purchase priority sector lending certificates to meet directed lending requirements, and the cost of purchasing such certificates may increase substantially depending on the demand and supply scenario of the certificates. Any shortfall in meeting the priority sector lending targets and sub-targets may be required to be allocated to investments yielding sub-market returns. See also “—Risks that arise as a result of our presence in a highly regulated sector—We are subject to the directed lending requirements of the Reserve Bank of India, which may also involve buying related certificates at a premium to meet the annual targets, and any shortfall in meeting these requirements may be required to be invested in Government of India schemes that yield low returns, thereby impacting our profitability. We may also experience a higher level of non-performing assets in our directed lending portfolio, which could adversely impact the quality of our loan portfolio, our business and the prices of our equity shares and ADSs” and “Supervision and Regulation—Regulations Relating to Advancing Loans—Directed Lending”.
In addition to credit risks, we face additional risks as compared with banks in developed economies. We may face the risk of deposit runs notwithstanding the existence of a national deposit insurance scheme. For instance, in 2008, following the bankruptcy of Lehman Brothers and the disclosure of our exposure to Lehman Brothers and other U.S. and European financial institutions, negative rumors circulated about our financial position which resulted in concerns being expressed by depositors and higher than normal transaction levels on a few days. We controlled the situation in this instance, but any failure to control such situations in the future could result in high volumes of deposit withdrawals, which would adversely impact our liquidity position, disrupt our business and, in times of market stress, undermine our financial strength.
We pursue our banking, insurance and other activities in India in a developing economy with all of the risks that come with operating in a developing economy. Our activities in India are widespread and diverse and involve employees, contractors, counterparties and customers with widely varying levels of education, financial sophistication and wealth. Although we seek to implement policies and procedures to reduce and manage marketplace risks as well as risks within our own organization, some risks remain inherent in doing business in a large, developing country. We cannot eliminate these marketplace and operational risks, which may lead to or exacerbate legal, regulatory or judicial actions, negative publicity or other developments that could reduce our profitability. See also “—Risks that arise as a result of our presence in a highly regulated sector—The enhanced supervisory and compliance environment in the financial sector increases the risk of regulatory action against us, whether formal or informal.”, “—Risks that arise as a result of our presence in a highly regulated sector—We are at increased risk for inquiries or investigations by regulatory and enforcement authorities, which may adversely affect our reputation, lead to increased regulatory scrutiny, cause us to incur additional costs or adversely affect our ability to conduct business” and “-Risks Relating to Our Business -Entry into new businesses or rapid growth in existing loan portfolios may expose us to increased risks that may adversely affect our business”.
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A significant change in the Indian government’s policies, including economic policies, fiscal policies and structural reforms, could adversely affect our business and the prices of our equity shares and ADSs.
Our business and customers are predominantly located in India or are related to and influenced by the Indian economy. The Indian government has traditionally exercised, and continues to exercise, a dominant influence over many aspects of the economy. The Indian government’s policies could adversely affect business and economic conditions in India, our ability to implement our strategy, the operations of our subsidiaries and affiliates and our future financial performance. Successive Indian governments have pursued policies of economic liberalization, including significantly relaxing restrictions on the private sector and encouraging the development of the Indian financial sector. While a single party achieved majority in the general elections in fiscal 2015 and fiscal 2020, India has been governed by coalition governments in previous years. The leadership of India and the composition of the government are subject to change, and election results are not predictable. It is difficult to predict the economic policies that will be pursued by governments in the future. In addition, investments by the corporate sector in India may be impacted by government policies and decisions including judicial decisions, including with respect to awards of licenses and resources, access to land and natural resources and policies with respect to protection of the environment. Such policies and decisions may result in delays in execution of projects, including those financed by us, and also limit new project investments, and thereby impact economic growth.
The pace of economic liberalization could change, and specific laws and policies affecting banking and finance companies, foreign investment, currency exchange and other matters affecting investment in our securities could change as well. Decisions by the Government of India could impact our business and financial performance. For instance, the Indian government’s decision in fiscal 2017 to withdraw legal tender status of high denomination currency notes led to an increase in costs due to measures such as the reduction or waiver of transaction charges for ATM and card transactions for the specified period. The surge in low cost deposits resulted in a significant increase in liquidity in the banking system and a reduction in cost of funds. The Indian government announced the introduction of central bank digital currency by the Reserve Bank of India in the Union Budget for fiscal 2023, and the impact of the introduction of digital currency on the banking system, including us, is uncertain. Any such changes in regulations or significant change in India’s economic policies or any market volatility as a result of uncertainty surrounding India’s macroeconomic policies or the future elections of its government could adversely affect business and economic conditions in India generally and our business in particular and the prices of our equity shares and ADSs could be adversely affected.
Natural calamities, climate change and health epidemics could adversely affect the Indian economy, or the economy of other countries where we operate, our business and the prices of our equity shares and ADSs.
India has experienced natural calamities such as earthquakes, floods and droughts in the past few years. The extent and severity of these natural disasters determine their impact on the Indian economy. In particular, climatic and weather conditions, such as the level and timing of monsoon rainfall, impact the agricultural sector, which constituted approximately 15% of India’s gross value added in fiscal 2022. Prolonged spells of below or above normal rainfall or other natural calamities, or global or regional climate change, could adversely affect the Indian economy and our business, especially our rural portfolio. Similarly, global or regional climate change in India and other countries where we operate could result in change in weather patterns and frequency of natural calamities like droughts, floods and cyclones, which could affect the economy of India, the countries where we operate and our operations in those countries.
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Health epidemics could also disrupt our business, our borrowers, our counterparties and other constituents. The emergence of disease pandemics like Covid-19 since the first quarter of calendar year 2020, the more recent outbreak of monkeypox or other earlier outbreaks like the nipah virus in 2018 in certain regions of southeast Asia, including India, have caused, and could in the future cause, economic and financial disruptions. Such disruptions in India and other areas of the world in which we operate could lead to operational difficulties, including travel restrictions, that could impact our business and our ability to manage or conduct our business. The Covid-19 pandemic and any future outbreak of health epidemics may impact the quality of our portfolio and result in an increase in our non-performing loans, and restrict the level of business activity in affected areas, which may in turn adversely affect our business and the prices of our equity shares and ADSs. See also “—Risks Relating to Our Business—The future trajectory of the Covid-19 pandemic is uncertain and could adversely affect our business, the quality of our loan portfolio and our financial performance”.
If regional hostilities, terrorist attacks, or social unrest in India or elsewhere increase, our business and the prices of our equity shares and ADSs could be adversely affected.
India has from time to time experienced social and civil unrest and hostilities both internally and with neighboring countries. In the past, there have been military confrontations between India and Pakistan, and border disputes with neighboring countries, including China. In June 2020, Indian and Chinese troops engaged in physical conflict in the Galwan River valley. Both Indian and Chinese governments have undertaken protective measures, such as, in relation to the presence of Chinese businesses in India. We cannot predict how such geopolitical events will develop in the future and how it may impact our business, operations, reputation and financial condition.
India has also experienced terrorist attacks in some parts of the country, including in Mumbai, where our headquarters are located. India could also be impacted by intensifying border disputes with its neighbors, trade wars between large economies like the U.S. increasing trade tariffs on goods imported from China, or possible import restrictions on Indian goods by trading partners that could have an adverse impact on India’s trade and capital flows, exchange rate and macroeconomic stability. In addition, geopolitical events in the Middle East, Asia and Europe or terrorist or military action in other parts of the world, including the ongoing military conflict between Russia and Ukraine, may impact prices of key commodities, financial markets and trade and capital flows, including by leading to restrictions on countries which are among India’s significant trading partners. These factors and any political or economic instability in India could adversely affect our business, our future financial performance and the prices of our equity shares and ADSs.
Risks that arise as a result of our presence in a highly regulated sector
The enhanced supervisory and compliance environment in the financial sector increases the risk of regulatory action against us, whether formal or informal.
We are subject to a wide variety of banking, insurance and financial services laws, regulations and regulatory policies and a large number of regulatory and enforcement authorities in each of the jurisdictions in which we operate. Regulators in India and in the other jurisdictions in which we operate subject financial sector institutions, including us, to intense review, supervision and scrutiny. This heightened level of review and scrutiny or any changes in the existing regulatory supervision framework, increases the possibility that we will face adverse legal or regulatory actions. In the face of difficulties in the Indian banking sector, the Reserve Bank of India has been increasing the intensity of its scrutiny of Indian banks and has been imposing fines and penalties that are larger than the historic norms on Indian banks. The Reserve Bank of India and other regulators regularly review our operations, and there can be no guarantee that all regulators will agree with our internal assessments of asset quality, provisions, risk management, capital adequacy and management functioning, other measures of the safety and soundness of our operations or compliance with applicable laws, regulations, accounting and taxation norms, listing norms or regulatory policies.
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Regulators, including among others the Reserve Bank of India and the Securities and Exchange Board of India, may find that we are not in compliance with applicable laws, regulations, accounting and taxation norms, listing norms or regulatory policies, or with the regulators’ revised interpretations of such laws, regulations or regulatory policies, and may take formal or informal actions against us. Such formal or informal actions might force us to make additional provisions for our non-performing assets or otherwise, divest our assets, adopt new compliance programs or policies, remove personnel including senior executives, reduce dividend or executive compensation, provide remediation or refunds to customers or undertake other changes to our business operations. In fiscal 2021, pursuant to judicial orders, the Reserve Bank of India has provided copies of its supervisory inspection reports for certain banks, including us, for earlier years to an external party. The consequences of these reports, or any future reports, being available in the public domain are uncertain and may result in negative publicity about us. See also “Supervision and Regulation”.
If we fail to manage our legal and regulatory risk in the many jurisdictions in which we operate, our business could suffer, our reputation could be harmed and we would be subject to additional legal and regulatory risks. This could, in turn, increase the size and number of claims and damages asserted against us and/or subject us to regulatory investigations, enforcement actions or other proceedings, or lead to increased supervisory concerns. We may also be required to spend additional time and resources on remedial measures and conducting enquiries, beyond those already initiated and ongoing, which could have an adverse effect on our business.
New regulations and compliance and disclosure requirements relating to environment, social and governance matters, especially climate change, have been recommended or are under consideration by regulators in the jurisdictions where we have our operations. These may require us to review and make changes to the conduct of our business and incur additional costs. Failure to comply with these regulations may result in penalties or regulatory action against us.
Despite our best efforts to comply with all applicable regulations, there are a number of risks that cannot be completely controlled. Our international presence has led to increased legal and regulatory risks. Regulators in every jurisdiction in which we operate or have listed our securities have the power to restrict our operations, stipulate higher capital and liquidity requirements or bring administrative or judicial proceedings against us (or our employees, representatives, agents and third-party service providers), which could result, among other things, in suspension or revocation of one or more of our licenses, cease and desist orders, fines, civil penalties, criminal penalties or other disciplinary action which could materially harm our reputation, results of operations and financial condition.
We may be subject to fines, restrictions or other sanctions for past instances of regulatory failures, which may adversely affect our financial position or our ability to expand our activities.
Failure to comply with applicable regulations in various jurisdictions, including unauthorized actions by employees, representatives, agents and third parties, suspected or perceived failures and media reports, and ensuing inquiries or investigations or proceedings by regulatory and enforcement authorities, has resulted, and may result in the future, in regulatory actions, including financial penalties and restrictions on or suspension of the related business operations. Whenever we consider it appropriate and the regulatory guidelines so permit, we may seek to settle or compound regulatory inquiries or investigations or proceedings through consensual process with the concerned regulator, which may entail monetary payment by us or agreeing to non-monetary terms. The non-monetary terms may include suspension or cessation of business activities for a specified period; change in key management personnel or restrictions being placed on key management personnel; disgorgement; implementation of enhanced policies and procedures to prevent future violations; appointing or engaging an independent consultant to review internal policies, processes and procedures; providing enhanced training and education; and/or submitting to enhanced internal audit, concurrent audit or reporting requirements. For example, in December 2021, the Reserve Bank of India imposed a penalty of Rs. 3.0 million on the Bank for non-compliance with directions issued by it on charges levied for non-maintenance of minimum balance in savings accounts.
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We are at increased risk for inquiries or investigations by regulatory and enforcement authorities, which may adversely affect our reputation, lead to increased regulatory scrutiny, cause us to incur additional costs or adversely affect our ability to conduct business.
A failure to comply with the applicable regulations in various jurisdictions by our employees, representatives, agents and third-party service providers either in or outside the course of their services, or suspected or perceived failures by them, may result in further inquiries or investigations by regulatory and enforcement authorities and in additional regulatory or enforcement action against either us, or such employees, representatives, agents and third-party service providers. Such additional actions may further impact our reputation, result in adverse media reports, lead to increased or enhanced regulatory or supervisory concerns, cause us to incur additional costs, penalties, claims and expenses or impact adversely our ability to conduct business. See also “—Risks that arise as a result of our presence in a highly regulated sector—The board of directors of the Bank has, pursuant to an independent enquiry, taken action against the former Managing Director and CEO. In the event the Bank is found by any of the enquiries in the matter by government and regulatory agencies to have violated applicable laws or regulations, the Bank could become subject to legal and regulatory sanctions that may materially and adversely affect our results of operations or financial condition and reputation.”
We have also experienced international expansion into banking in multiple jurisdictions which exposes us to a variety of regulatory and business challenges and risks, including cross-cultural risk, and further increases the risk of inquiries or investigations by regulatory and enforcement authorities. Expansion into additional jurisdictions also increases the complexity of our risks in a number of areas including currency risks, interest rate risks, compliance risk, regulatory risk, reputational risk and operational risk. We, or our employees, may from time to time, and as is common in the financial services industry, be the subject of inquiries, examinations or investigations that could lead to proceedings against us or our employees.
We cannot predict the timing or form of any current or future regulatory or law enforcement initiatives, which are increasingly common for international banks and financial institutions.
We are subject to the directed lending requirements of the Reserve Bank of India, which may also involve buying related certificates at a premium to meet the annual targets, and any shortfall in meeting these requirements may be required to be invested in Government of India schemes that yield low returns, thereby impacting our profitability. We may also experience a higher level of non-performing assets in our directed lending portfolio, which could adversely impact the quality of our loan portfolio, our business and the prices of our equity shares and ADSs.
Under the directed lending norms of the Reserve Bank of India, banks in India are required to lend 40.0% of their adjusted net bank credit to certain eligible sectors, categorized as priority sectors. Of this, banks have sub-targets for lending to key segments or sectors. A proportion of 9.0% of adjusted net bank credit is required to be lent to small and marginal farmers and 7.5% to micro-enterprises. The balance of the priority sector lending requirement can be met by lending to a range of sectors, including small businesses, medium-sized enterprises, renewable energy, social infrastructure and residential mortgages satisfying certain criteria. The Reserve Bank of India has directed banks to maintain direct lending to non-corporate farmers at the banking system’s average level for the last three years and has notified a target of 12.73% of adjusted net bank credit for this purpose for fiscal 2022. Loans to identified weaker sections of society must comprise 11.0% of adjusted net bank credit. Starting fiscal 2022, the targets for lending to small and marginal farmers and weaker sections has been increased in a phased manner by the Reserve Bank of India. The target for lending to small and marginal farmers will increase from 9.0% in fiscal 2022 to 9.5% in fiscal 2023 and to 10.0% in fiscal 2024. The target for lending to identified weaker sections of society has been increased from 11.0% in fiscal 2022 to 11.5% in fiscal 2023 and 12.0% in fiscal 2024. These requirements were assessed on a quarterly average basis till fiscal 2021 and failure to comply with these requirements would attract penalties. From fiscal 2022, the priority sector achievements are computed based on the weightage assigned to the incremental priority sector credit in the identified districts. The necessary adjustments for weightage of districts and calculation of achievement will be done by the Reserve Bank of India on the basis of data submitted by banks on a quarterly basis.
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These requirements apply to ICICI Bank on a standalone basis. During fiscal 2022, the Bank met most of the targets, except the average lending to the agriculture sector, which was Rs. 1,226.5 billion constituting 17.8% of adjusted net bank credit against the requirement of 18.0% of adjusted net bank credit.
The Reserve Bank of India allows banks to sell and purchase priority sector lending certificates in the event of excess/shortfall in meeting priority sector targets, which may help in reducing the shortfall in priority sector lending. These instruments are issued by banks that have a surplus in priority sector lending or any of its individual sub-segments and are purchased by banks having a shortfall, through a trading portal, without the transfer of risks or loan assets. The cost of purchasing such certificates may increase substantially depending on the demand and supply scenario. Any shortfall after taking into account transactions in priority sector lending certificates may be required to be allocated to investments yielding sub-market returns. The Bank also purchases priority sector lending certificates to meet directed lending requirements, the cost of which may vary based on the demand for and supply of such certificates. Going forward, the phased increase in sub-segment targets and growth in our domestic loan portfolio could lead to a significant increase in our priority sector lending target amounts. In view of the continuing shortfall in agriculture lending sub-targets and weaker section loans, the Bank may have to significantly increase the purchase of priority sector lending certificates. Shortfalls in priority sector lending achievement, after taking into account the priority sector lending certificates purchased, may increase and may be required to be invested in instruments yielding sub-market returns.
Any shortfall in meeting the priority sector lending requirements may be required to be invested at any time, at the Reserve Bank of India’s request, in Government of India schemes that yield low returns, determined depending on the prevailing bank rate and on the level of shortfall, thereby impacting our profitability. At March 31, 2022, our total investments in such schemes on account of past shortfalls in achieving the required level of priority sector lending were Rs. 264.2 billion. Our investments in Government of India schemes are expected to increase in view of the continuing shortfall in agriculture lending sub-targets. These investments count towards overall priority sector target achievement. Investments at March 31 of the preceding year are included in the adjusted net bank credit which forms the base for computation of the priority sector and sub-segment lending requirements.
The Reserve Bank of India has from time to time issued guidelines on priority sector lending requirements that restrict the ability of banks to meet the directed lending obligations through lending to specialized financial intermediaries, specify criteria to be fulfilled for investments by banks in securitized assets and outright purchases of loans and assignments to be eligible for classification as priority sector lending and regulate the interest rates charged to ultimate borrowers by the originating entities in such transactions. Any revision to the definition or classification of segments eligible for priority sector lending could also impact our ability to meet priority sector lending requirements. See also “Supervision and Regulation—Regulations Relating to Advancing Loans—Directed Lending”.
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As a result of priority sector lending requirements, we may experience a higher level of non-performing assets in our directed lending portfolio, particularly due to loans to the agricultural sector and small enterprises, where we are less able to control the portfolio quality and where economic difficulties are likely to affect our borrowers more severely. The Bank’s gross non-performing assets in the priority sector loan portfolio were 2.3% in fiscal 2020, 3.4% in fiscal 2021 and 2.7% in fiscal 2022. In fiscal 2018 and fiscal 2019, some states in India announced schemes for waiver of loans taken by farmers. While the cost of such schemes is borne by the state governments, such schemes or borrower expectations of such schemes result in higher delinquencies including in the kisan credit card portfolio for banks, including us. Under the Reserve Bank of India’s guidelines, these and other specified categories of agricultural loans are classified as non-performing when they are overdue for more than 360 days, as compared to 90 days for loans in general. Thus, the classification of overdue loans as non-performing occurs at a later stage in respect of such loans than the loan portfolio in general. Any future changes by the Reserve Bank of India to the directed lending norms may result in our continued inability to meet the priority sector lending requirements as well as require us to increase our lending to relatively riskier segments and may result in an increase in non-performing loans.
We have participated in the financial inclusion mission of the Government of India, which involves opening a bank account for every household along with credit and insurance facilities. The expansion into these markets involves significant investments and recurring costs. The profitability of these operations depends on our ability to generate business volumes in these centers and from these customers, and the level of non-performing loans in the portfolio of loans to such customers.
We are subject to capital adequacy requirements stipulated by the Reserve Bank of India, including Basel III, as well as general market expectations regarding the level of capital adequacy large Indian private sector banks should maintain, and any inability to maintain adequate capital due to changes in regulations, a lack of access to capital markets, or otherwise may impact our ability to grow and support our businesses.
Banks in India are subject to the Basel III capital adequacy framework as stipulated by the Reserve Bank of India. The Basel III guidelines, among other things, require a minimum common equity Tier 1 risk-based capital ratio of 5.5% and a minimum Tier 1 risk-based capital ratio of 7.0%, a minimum total risk-based capital ratio of 9.0%, and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets above the minimum requirements to avoid restrictions on capital distributions and discretionary bonus payments. The Bank is also required to maintain a capital surcharge of 0.20% on account of being designated a domestic systemically important bank.
The guidelines also establish eligibility criteria for capital instruments in each tier of regulatory capital, require adjustments to and deductions from regulatory capital, and provide for limited recognition of minority interests in the regulatory capital of a consolidated banking group. The Basel III guidelines were to be fully implemented by year-end fiscal 2019. However, the Reserve Bank of India deferred the implementation of the last tranche of 0.625% of capital conservation buffer from March 31, 2019 to March 31, 2020. The full implementation was further deferred to October 1, 2021 due to the Covid-19 pandemic. Accordingly, the last tranche of 0.625% of the capital conservation buffer became applicable from October 1, 2021. Applying the Basel III guidelines, our capital ratios on a consolidated basis at March 31, 2022 were: common equity Tier 1 risk-based capital ratio of 17.3%; Tier 1 risk-based capital ratio of 18.0%; and total risk-based capital ratio of 18.9%.
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The Reserve Bank of India has released guidelines on implementation of counter cyclical capital buffers, which propose higher capital requirements for banks, ranging from 0% to 2.5% of risk-weighted assets, during periods of high economic growth. This capital requirement would be determined based on certain triggers such as deviation of long-term average credit-to-GDP ratio and other indicators. While these guidelines are already effective, the Reserve Bank of India has stated that current economic conditions do not warrant activation of the counter cyclical capital buffer. The Reserve Bank of India has also issued a leverage ratio framework which is measured as the ratio of a bank’s Tier 1 capital and total exposure. Since October 1, 2019, the Reserve Bank of India has required maintenance of a minimum leverage ratio of 4.0% for domestic systemically important banks, including us, and 3.5% for other banks. In April 2018, the Reserve Bank of India advised banks to create an Investment Fluctuation Reserve from fiscal 2019 with the aim of building adequate reserves to protect against sudden increase in Government of India bond yields. A minimum amount equal to either the net profit on sale of investments during the year or net profit for the year excluding mandatory appropriations, whichever is lower, would have to be transferred to the Investment Fluctuation Reserve and would cover at least 2.0% of the held-for-trading and available-for-sale portfolio of the bank, on a continuing basis. This reserve is eligible for inclusion in tier 2 capital. Regulatory changes may impact the amount of capital that we are required to hold. Our ability to grow our business and execute our strategy is dependent on our level of capitalization and we may be required to raise resources from the capital markets or to divest stake in one or more of our subsidiaries to meet our capital requirements.
Any reduction in our regulatory capital ratios, changes to the capital requirements applicable to us on account of regulatory changes or otherwise, our inability to access capital markets or otherwise increase our capital base and our inability to meet stakeholder expectations of the appropriate level of capital for us, while also meeting expectations of return on capital may limit our ability to maintain our market standing and grow our business, and adversely impact our future performance and strategy. Debt and equity investors, rating agencies, equity and fixed income analysts, regulators and others would likely expect us to maintain capital adequacy ratios well above the regulatory stipulations, reflecting our position as a large private sector bank. Following the outbreak of the Covid-19 pandemic, a number of banks and other financial companies globally and in India raised capital. In August 2020, we raised Rs. 150.0 billion of equity capital through a Qualified Institutions Placement. We may seek to access the equity capital markets in the future, or make additional divestments of our investments in our subsidiaries and affiliates. Increases in our equity shares would dilute the shareholding of existing shareholders. There can be no assurance that we will be successful in raising the capital when required or that the timing for accessing the market or the terms of the capital raised would be attractive, and these may be subject to various uncertainties including liquidity conditions, market stability, or political or economic conditions. If we are unable to raise enough capital to satisfy our regulatory capital requirements, we will be subject to restrictions on capital distributions and discretionary bonus payments, as well as other potential regulatory actions.
In fiscal 2021, the Reserve Bank of India prohibited banks from making any dividend payouts from the profit pertaining to fiscal 2020 in order to conserve capital and to maintain their capacity to support the economy and absorb losses in an environment of heightened uncertainty caused by the Covid-19 pandemic. Accordingly, we have not declared any dividend for fiscal 2020. We cannot guarantee that we will not be subject to similar restrictions in the future. The Reserve Bank of India’s Prompt Corrective Action framework for banks defines risk thresholds for indicators like capital adequacy, asset quality and leverage, and stipulates actions like restriction on dividend distribution/remittance of profits, restriction on branch expansion, domestic and/or overseas expansion, and restrictions on capital expenditure other than for technological upgradation. At year-end fiscal 2022, the Bank’s financial indicators did not breach the risk thresholds prescribed by the Reserve Bank of India. There can be no assurance that we will always remain within the thresholds prescribed by the Reserve Bank of India in the future.
Our insurance, banking and home finance subsidiaries and affiliate are also subject to solvency and capital requirements imposed by their respective regulators. While we currently do not expect these entities to require significant additional equity capital or that we would make additional equity investments in these entities, any requirement for ICICI Bank to make additional equity investments in these entities in the event of an increase in their capital requirements due to regulation or material stress would impact our capital adequacy.
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We are subject to liquidity requirements of the Reserve Bank of India, and any inability to maintain adequate liquidity due to changes in regulations, a lack of access to capital markets, or otherwise may impact our ability to grow and support our businesses.
The Reserve Bank of India has released guidelines on liquidity coverage ratio requirements under the Basel III liquidity framework that require banks to maintain and report the Basel III liquidity coverage ratio, which is a ratio of the stock of high quality liquid assets and total net cash outflows over the next 30 calendar days. The Reserve Bank of India has also defined categories of assets qualifying as high quality liquid assets and mandated a minimum liquidity coverage ratio, which has been 100.0% since January 1, 2019. Further, the Reserve Bank of India has issued final guidelines on the net stable funding ratio for banks and would require banks to maintain sufficient funds that are considered as reliable to cover the liquidity requirements and asset maturities coming up over the next one year on an ongoing basis. The guidelines on net stable funding ratio are applicable from October 1, 2021. These liquidity requirements together with the existing liquidity and cash reserve requirements may result in Indian banks, including us, holding higher amounts of liquidity, thereby impacting profitability. Any sudden increase in the demand for liquidity by banks to meet these regulatory liquidity requirements could have an adverse impact on the financial markets, and result in a sharp increase in short-term borrowing costs and a sudden increase in the cost of funding for banks, including us.
Any reduction in our liquidity coverage or net stable funding ratios, increase in liquidity requirements applicable to us on account of regulatory changes or otherwise, changes in the composition of liquidity and any inability to access capital markets may limit our ability to grow our business or adversely impact our profitability and our future performance and strategy.
In addition, as we and other banks manage these various liquidity requirements, there could be a sudden increase in demand for liquidity in the banking system, which could have an adverse impact in the financial markets, and result in an increase in our short term borrowing costs and a sudden increase in the bank’s cost of funds. Further, any tightening of liquidity and volatility in international markets may limit our access to international bond markets and result in an increase in our cost of funding for our international business. Continued volatility in international markets could constrain and increase the cost of our international market borrowings and our ability to replace maturing borrowings and fund new assets. Our overseas banking subsidiaries are also exposed to similar risks.
Changes in the regulation and structure of the financial markets in India may adversely impact our business.
The Indian financial markets have in recent years experienced, and continue to experience, changes and developments aimed at reducing the cost and improving the quality of service delivery to users of financial services. We may experience an adverse impact on the cash float and fees from our cash management business resulting from the development and increased usage of payment systems, as well as other similar structural changes. The Reserve Bank of India, from time to time, imposes limits on transaction charges levied by banks on customers, including those on cash and card transactions. The Reserve Bank of India has announced the introduction of an electronic trading platform for buying and selling foreign currencies by retail customers of banks, aimed at enhancing transparency and competition and lowering costs for retail customers. In August 2020, the Reserve Bank of India issued rules for opening current account of customers having credit facilities from the banking system. Such developments may adversely impact the profitability of banks, including us, by reducing float balances and fee incomes, and increasing costs. See also “—Risks that arise as a result of our presence in a highly regulated sector—The enhanced supervisory and compliance environment in the financial sector increases the risk of regulatory action against us, whether formal or informal”.
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Our subsidiaries and affiliates are also subject to similar risks. For instance, the Indian government has permitted a dual tax regime for personal income tax, with the option for individuals to have a lower tax rate if no additional tax exemptions are taken. This could impact insurance companies, including our insurance subsidiary and affiliate, where a part of their retail premium is driven by tax exemptions for individuals. See also “—Risks relating to our insurance subsidiary and affiliate—While our insurance businesses are an important part of our business, there can be no assurance of their future rates of growth or levels of profitability”.
The Reserve Bank of India has been permitting the entry of new players in the financial sector, including through issuance of licenses for universal banks and small finance banks in the private sector under the continuous licensing policy and allowing fintechs and technology companies to offer payment and other financial services. The entry of new players has intensified competition which could impact our ability to capture business opportunities if we are not able to adapt our business strategy to new developments. See also “—Risks Relating to Our Business—Our industry is very competitive and our strategy depends on our ability to compete effectively.”
The Reserve Bank of India has announced a review of the guidelines pertaining to ownership, governance and corporate structure of private sector banks in India and set up an internal working group to consider, among other things, holding of financial subsidiaries through a non-operative financial holding company. The Reserve Bank of India released the report of the internal working group in November 2020, and sought feedback on the recommendations by January 15, 2021. In November 2021, the Reserve Bank of India accepted few recommendations made by the internal working group including a non-operative financial holding company structure for all new licenses issued for universal banks. The outcome of this report may result in changes to our group structure, the nature and impact of which cannot be predicted currently.
In addition, changes in laws, regulations or regulatory policies, including changes in the interpretation or application of such laws, regulations and regulatory policies, may adversely affect the products and services we offer, the value of our assets or the collateral or contractual comforts available for our loans or our business in general. For example, in August 2020, the Reserve Bank of India issued rules linking opening and maintaining current accounts with banks by companies having credit facilities from the banking system. As per the guidelines, banks are allowed to open current account of customers who have not availed any credit from the banking system. Current account cannot be opened for customers who have availed only cash credit or overdraft facility, through which all their transactions must be routed; only a lending bank meeting specified credit exposure thresholds is eligible for opening a current account of the borrower. Banks will be required to monitor all current accounts on a periodic basis to comply with the rules. This may impact the low-cost current account deposits held by companies with banks that do not have the requisite level of exposure to such companies which may in turn impact the growth of our current account deposits. Changes currently under review by the Reserve Bank of India and other regulators, such as those relating to ownership, governance and corporate structure of private sector banks; management compensation, board governance, consumer protection, sustainable finance and risk management, are expected to have an impact on our business and our future strategy. These changes could require us to reduce or increase our business in specific segments, increase competition, impact our overall growth and return on capital. We cannot predict future legal or regulatory changes. Any such regulatory or structural changes may result in increased expenses, including enhanced compliance costs, operational restrictions, increased competition or revisions to our business operations, which may reduce our profitability or force us to forego potentially profitable business opportunities.
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The opportunities for growth in our international operations and our ability to repatriate capital from these operations may be limited by the local regulatory environments.
Our banking subsidiaries in the United Kingdom and Canada have in the past focused primarily on leveraging their deposit franchises in these markets to extend financing to Indian companies for their operations in India and globally, including the financing of overseas acquisitions by Indian companies through structured transactions. In view of regulatory limitations on cross-border financing of this nature, these subsidiaries have experienced a reduction in their business, impacting their profitability and resulting in a sharp reduction in the return on the capital invested in these businesses. While both these subsidiaries are focused on growing their business within the current regulatory framework, the opportunities to do so may be limited. Further, while both these subsidiaries are focused on optimizing their capital base and have repatriated capital and made dividend payments to ICICI Bank in the past, such actions are subject to regulatory approvals. There can be no assurance regarding the timing or grant of such approvals in the future. We are repositioning our international business strategy to sharpen our focus on the non-resident Indian community and on India-linked trade. There can be no assurance of the successful execution of this strategy and the future growth and profitability of our international operations. Our international branches are also subject to respective local regulatory requirements, including any requirements related to liquidity, capital and asset classification and provisioning.
The board of directors of the Bank has, pursuant to an independent enquiry, taken action against the former Managing Director and CEO. In the event the Bank is found by any of the enquiries in the matter by government and regulatory agencies to have violated applicable laws or regulations, the Bank could become subject to legal and regulatory sanctions that may materially and adversely affect our results of operations or financial condition and reputation.
In fiscal 2019, the Audit Committee under direction given by the Board of Directors of the Bank had instituted an independent enquiry to consider various allegations relating to the former Managing Director and Chief Executive Officer, Ms. Chanda Kochhar. The enquiry was supported by an external counsel and a forensic firm. The allegations levelled against Ms. Kochhar included nepotism, quid pro quo and claims that Ms. Kochhar, by not disclosing conflicts of interest caused by certain transactions between certain borrowers of the Bank and entities controlled by Ms. Kochhar’s spouse, committed infractions under applicable regulations and the Bank’s Code of Conduct. While the enquiry was underway, the Board accepted Ms. Kochhar’s request for early retirement, while noting that the enquiry would remain unaffected by this and certain benefits would be subject to the outcome of the enquiry. Subsequently, on consideration of the enquiry report and its conclusions, the Board of Directors decided to treat the separation of Ms. Chanda Kochhar from the Bank as a ‘Termination for Cause’ under the Bank’s internal policies, schemes and the Code of Conduct, with all attendant consequences.
In January 2020, the Bank instituted a recovery suit against Ms. Kochhar for inter alia the clawback of bonus paid from April 2009 to March 2018. Ms. Kochhar also filed a suit before Bombay High Court in January 2022 contending that the termination of her employment is invalid and she is entitled to all the Employee Stock Options, which were originally allocated to her. An alternative claim has been made for damages of Rs. 17.3 billion against the Bank. Both these suits are being heard by the Bombay High Court.
Enquiries by government authorities and regulatory agencies in the matter are continuing and the Bank has a cooperative posture for such enquiries and requests emanating from such authorities and agencies. The Securities and Exchange Board of India issued a show-cause notice to Ms. Kochhar and to the Bank in May 2018 in relation to the allegations. In November 2020, Securities and Exchange Board of India, issued a modified show cause notice to the Bank and responses were submitted by the Bank to both the show cause notices. The Central Bureau of Investigation had also initiated a preliminary enquiry and in January 2019, the Central Bureau of Investigation filed a first information report against Ms. Kochhar, her spouse and certain borrowers of the Bank and their promoters, accusing them of cheating the Bank. The first information report states that certain individuals, who were on the board of directors of the Bank and were part of committees (that sanctioned credit facilities to the concerned borrower group when the alleged transactions occurred), may also be investigated. These include the present Managing Director and Chief Executive Officer of the Bank and the present Managing Director of the Bank’s life insurance subsidiary. Authorities such as the Enforcement Directorate and Income-tax authorities are also probing the matter.
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In the event that the Bank is found by Securities and Exchange Board of India or the Central Bureau of Investigation or by any other authority or agency to have violated applicable laws or regulations, the Bank could become subject to legal and regulatory sanctions that may materially and adversely affect our reputation and may impact results of operations or financial condition.
Our asset management, private equity, insurance and securities broking subsidiaries and affiliates have retail and corporate customers and are subject to extensive regulation and supervision which can lead to increased costs or additional restrictions on their activities that adversely impact the Bank.
Our asset management subsidiary, ICICI Prudential Asset Management Company Limited, is subject to supervision and regulation by the Securities and Exchange Board of India. For instance, in fiscal 2019, our asset management subsidiary, based on communication from the regulator, paid compensation with interest to certain schemes of ICICI Prudential Mutual Fund in connection with shares allotted to these schemes in the initial public offering of ICICI Securities Limited in March 2018, and also compensated the investors in these schemes who had redeemed their units since the March 2018 allotment. In the same matter, an adjudication proceeding was initiated by the Securities and Exchange Board of India, which was disposed of pursuant to an application for settlement of proceedings and payment of settlement charges by our asset management subsidiary. Further, certain investors of a real estate investment fund, registered in Mauritius, which is an investor in a real estate fund in India managed by ICICI Venture Funds Management Company Limited, our private equity subsidiary, had initiated legal proceedings in Mauritius alleging, among others, mis-selling and mismanagement. ICICI Bank and ICICI Venture as respondents had denied the allegations and raised objections on jurisdictional maintainability. The court has stayed the proceedings against ICICI Bank and ICICI Venture. The plaintiffs appraised the court of their intention to not pursue vacation of the stay. In view of the stay, application for removal of averments/prayers against ICICI Bank and ICICI Venture was made, which was allowed by the court. However, subsequently the plaintiffs have now filed an appeal against the order permitting removal of averments/prayers against ICICI Bank and ICICI Venture.
In the same matter, ICICI Venture Funds Management Company after receiving a notice from the Securities and Exchange Board of India, settled the matter with the Securities and Exchange Board of India. However, one of the investors in the real estate investment fund, registered in Mauritius has filed a writ petition in the Bombay High Court against, among others, the Securities and Exchange Board of India and ICICI Venture in respect of the settlement order. In the said writ petition, no reliefs have been sought as against ICICI Venture. At present, the writ petition has not been admitted and no notice to ICICI Venture has been issued by the Bombay High Court. See also, “—Risks Relating to Our Business—A determination against us in respect of disputed tax assessments may adversely impact our financial performance.” and “Business – Legal and Regulatory Proceedings”.
Our insurance businesses are also subject to extensive regulation and supervision by India’s insurance regulator. They also have a large number of retail and corporate clients, from whom claims may arise which could be determined in courts or also by regulators and result in determination against our insurance businesses or us or our insurance businesses’ management and employees. The Insurance Regulatory and Development Authority of India has the authority to specify, modify and interpret regulations regarding the insurance industry, including regulations governing products, selling commissions, solvency margins and reserving, which can lead to additional costs or restrictions on our insurance subsidiaries’ activities.
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Further, our insurance and securities broking subsidiaries and insurance affiliate are now publicly listed companies on the Indian stock exchanges, which has resulted in enhanced compliance requirements and regulatory oversight. There can be no assurance that increased regulatory scrutiny of our insurance and securities broking subsidiaries and affiliate along with stringent requirements, including additional disclosures, will not have a material adverse impact on the Bank. There could be instances where the regulator or governmental agency may find that we are not in compliance with applicable laws and regulations pertaining to listed companies or their relationship with the parent or other group companies, or with their interpretations of laws and regulations, and may take formal or informal actions against us and our subsidiaries or affiliates.
The transition from LIBOR to other alternative reference rates may adversely affect our income from exposures or transactions currently referenced to LIBOR and also bring about the vagaries that such alternative reference rates may have.
The Chief Executive of the United Kingdom Financial Conduct Authority, which regulates the London Interbank Offered Rate or LIBOR, has stopped persuading or compelling banks to submit rates for the calculation of LIBOR to the administrator of LIBOR tenors, except for certain tenors of USD LIBOR, which will cease from June 30, 2023. While alternate reference rates for the different currencies have been identified and are in force, there is still lack of clarity about the use of these rates for all types of transactions that have referenced LIBOR. The impact of the transition to alternative reference rates in USD therefore has some uncertainty and could adversely affect loans, securities and other instruments that reference, or are indirectly affected by LIBOR. Currently, the manner and impact of the pending transition and related developments, as well as the effect of these developments on our funding costs, investment and trading securities portfolios and business, is unclear.
In India, the Mumbai Inter-bank Forward Outright Rate (MIFOR) is calculated using rolling forward premia in percentage terms along with the USD LIBOR for the respective tenors up to 12 months. The Financial Benchmark India Private Limited has commenced publishing an Adjusted MIFOR from June 15, 2021, which will be used for legacy contracts and has also started publishing Modified MIFOR from June 30, 2021, which is being used for new contracts.
On July 8, 2021, the Reserve Bank of India issued a roadmap for LIBOR transition advising banks to use alternate benchmarks instead of LIBOR/MIFOR benchmarks from December 31, 2021 except for managing risks pertaining to pre-existing exposures.
The Bank has number of contracts referencing LIBOR/MIFOR including derivative and loans. While alternate reference rates for LIBOR in different currencies have been identified and are in force, there is still lack of clarity about the use of these rates for all types of transactions that have referenced LIBOR. The impact of the transition to alternative reference rates in USD therefore has some uncertainty and could adversely affect loans, securities and other instruments that reference, or are indirectly affected by USD LIBOR. The potential for reduced liquidity of these different LIBOR/ MIFOR contracts could adversely impact the Bank’s business and future financial performance. Currently, the manner and impact of the pending transition and related developments, as well as the effect of these developments on our funding costs, investment and trading securities portfolios and business, is unclear.
We have identified our LIBOR transition exposures, including existing financial agreements that do not contain fallback provisions that adequately contemplate cessation of benchmark reference rates and that would require additional negotiation with the counterparties. The Bank has a program for its LIBOR transition, which includes governance framework, exposure assessment, tracking of fallback provisions and contract remediation programs and tracking of global developments. In addition, the Bank has been using alternate reference rates in new contracts after December 31, 2021 and had incorporated suitable benchmark replacement provisions in contracts linked to LIBOR originated prior to December 31, 2021. For further details, see “Business—Risk Management—Market Risk—Interest Rate Risk”. The Bank has implemented and continues to implement changes to the technology systems and infrastructure as part of the transition to the new benchmark regime. The Bank has conducted and continues to conduct information sharing sessions with clients on the LIBOR transition. However, the transition to alternative reference rates is complex, could bring about unanticipated challenges and vagaries, and could adversely impact our business, our future financial performance and the prices of our equity shares and ADSs. There can be no guarantee that any efforts by the Bank will successfully mitigate the operational risks associated with the transition away from LIBOR to alternative reference rates.
Adoption of a different basis of accounting or new accounting standards may result in changes in our reported financial position and results of operations for future and prior periods.
The financial statements and other financial information included or incorporated by reference in this annual report are based on our unconsolidated and consolidated financial statements under Indian GAAP. Indian corporations have transitioned to Ind AS, a revised set of accounting standards, which largely converges the Indian accounting standards with International Financial Reporting Standards, as per the roadmap provided to the Ministry of Corporate Affairs, which is the law making authority for adoption of accounting standards in India. Some of our group non-banking finance companies have transitioned to Ind AS. For banking and insurance companies, the implementation of Ind AS has been deferred until further notice.
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Ind AS 109 - Financial Instruments (Standard equivalent to International Financial Reporting Standard 9) would have a significant impact on the way financial assets and liabilities are classified and measured, resulting in volatility in profit or loss and equity. See also “Operating and Financial Review and Prospects—Convergence of Indian accounting standards with International Financial Reporting Standards”.
Risks Relating to Our Business
The future trajectory of the Covid-19 pandemic is uncertain and could adversely affect our business, the quality of our portfolio and our financial performance.
The Covid-19 pandemic has impacted, and is likely to continue to impact most countries, including India, and has resulted in substantial volatility in global financial markets, increased unemployment and operational challenges, such as the temporary closures of businesses, sheltering-in-place directives and increased remote work protocols, which have significantly slowed down economic activity. The Government of India initiated a nation-wide lockdown from March 25, 2020 until May 31, 2020, which substantially impacted economic activities. The easing of lockdown measures subsequently led to gradual improvement in economic activity and progress towards normalcy. For the banking sector, these developments resulted in lower demand for loans and fee-based services and regulatory measures like moratorium on payment of dues and standstill in asset classification to mitigate the economic consequences on borrowers. The second wave of the Covid-19 pandemic in April-May 2021 and the third wave of Covid-19 pandemic in December 2021-January 2022 led to the re-imposition of localized/regional lockdown measures in various parts of the country. During fiscal 2022, there was significant progress in the vaccination programme in India, and significant improvement in economic conditions. However, the emergence of new waves of the Covid-19 pandemic or its variants may require renewed or additional mitigation measures and impact the pace of recovery of the Indian economy. Operationally, although we have established a work-from-home protocol and restricted business travel of our workforce, if significant portions of our workforce, including key personnel, are unable to work effectively because of illness, government actions, or other restrictions in connection with the pandemic, the impact of the pandemic on our businesses could be adverse.
The economic disruption caused by the pandemic, and related lockdowns could impact our business in a number of ways, including by increasing our number of non-performing loans due to the reduction in cash flows of businesses, income levels and the value of savings of households, as well as increased levels of unemployment.
In response to the Covid-19 pandemic, the Reserve Bank of India has permitted lenders to implement a resolution plan, along with asset classification benefits, for eligible corporate and individual borrower segments. Restructuring of loans was also allowed for micro, small and medium enterprises subject to specific requirements. The impact of these measures on borrowers, our business and the Indian credit market is uncertain. The Bank had made Covid-19 related provisions of Rs. 27.3 billion during the three months ended March 31, 2020 and a further net provision of Rs. 47.5 billion during fiscal 2021, towards standard assets, which was higher than the requirement stipulated by the Reserve Bank of India. The Bank held a total contingency provision of Rs. 74.5 billion, including the Covid-19 related contingency provision of Rs. 64.3 billion, at March 31, 2022. Our subsidiaries in the United Kingdom and Canada have also made Covid-19 related provisions. There can be no assurance of the adequacy of these provisions, or the level of additional provisions that will be required.
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The framework for resolution of stressed assets is still evolving which may create challenges for banks in suitably invoking a resolution plan. Additional provisions are required in the absence of a resolution plan or initiation of insolvency proceedings. Further, the Reserve Bank of India guidelines require banks to identify borrowers in financial difficulty, indications of which may include defaults, and projections of cash-flows, among other things. Further, as a result of the Covid-19 pandemic, the Reserve Bank of India has allowed restructuring for specific borrower segments and invoking a resolution plan within specified timelines in order to provide temporary relief to eligible borrowers impacted by the pandemic. Considering the uncertainties with regard to economic growth and the trajectory of the Covid-19 pandemic, there is no assurance that such resolution plans will be successful.
If the level of our non-performing assets increases and the overall quality of our loan portfolio deteriorates, our business will suffer.
In recent years, banks, including us, have focused on growing their retail and small business lending portfolios. While we expect the retail and small business segment to remain a key driver of growth, a slowdown in economic growth, investment, consumption or employment or any increase in unemployment, due to a pandemic or otherwise, could have an adverse impact on the quality of our retail loan portfolio. Our portfolio includes lending under a special guarantee scheme introduced by the government to mitigate the adverse impact of Covid-19 pandemic for identified stressed sectors or borrowers that may carry higher risks compared to our portfolio. Our portfolio also includes purchases of retail asset pools of home finance companies and non-banking finance companies, that may expose us to additional risks, including the failure of the underlying borrowers to perform as anticipated, risks arising out of weakness in the financial position or operations of the originators, who are generally responsible for collections and servicing, and additional mark-to-market provisions where the purchases are structured as securitized instruments classified as investments. In addition, challenges in certain sectors like real estate, and the inability of real estate developers to complete and deliver residential properties for which we have provided loans to customers, may impact the repayment behavior of the customers and result in higher delinquencies and non-performing loans. See also “—Risks Relating to India and Other Economic and Market Risks—A prolonged slowdown in economic growth in India could cause our business to suffer” and “—Risks Relating to India and Other Economic and Market Risks—A significant change in the Indian government’s policies, including economic policies, fiscal policies and structural reforms, could adversely affect our business and the prices of our equity shares and ADSs”.
The Reserve Bank of India has substantially expanded its guidance relating to the identification of non-performing assets over the last few years, which has resulted in an increase in our loans classified as non-performing and an increase in provisions. Nevertheless, these provisions may not be adequate to cover further increases in the amount of non-performing loans or further deterioration in our non-performing loan portfolio. In addition, the Reserve Bank of India’s annual supervisory process may assess higher provisions than we have made. In the event that additional provisioning is required by the Reserve Bank of India, our net income, balance sheet and capital adequacy could be affected, which could have a material adverse impact on our business, future financial performance, shareholders’ equity and the price of our equity shares and ADSs. The Reserve Bank of India also requires banks to disclose the divergence in asset classification and provisioning between what banks report and what the Reserve Bank of India assesses through the Reserve Bank of India’s annual supervisory process. There are also disclosures required relating to restructuring. There can be no assurance that such disclosures in the future will not impact us, our reputation, our business and future financial performance. Our subsidiaries and affiliates are also regulated by their respective regulatory bodies. Similar to us, there may arise a requirement for additional disclosures from our subsidiaries and affiliates in the future, which may have an adverse impact on us.
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If the level of our non-performing assets increases and the overall quality of our loan portfolio deteriorates, our provisioning costs could increase, our net interest income and net interest margin could be negatively impacted due to non-accrual of income on non-performing loans, our credit ratings and liquidity may be adversely impacted, we may become subject to enhanced regulatory oversight and scrutiny, and our reputation, our business, our future financial performance and the prices of our equity shares and ADSs could be adversely impacted. The Covid-19 pandemic and any adverse economic, regulatory and legal developments could cause further increases in the level of our non-performing assets and have a material adverse impact on the quality of our loan portfolio and business.
See also “—Risks Relating to Our Business—Our loan portfolio includes long-term project finance loans, which are particularly vulnerable to completion and other risks” and “—Risks Relating to Our Business—We have a high concentration of loans to certain customers, borrower groups and sectors and if a substantial portion of these loans become non-performing, the overall quality of our loan portfolio, our business and the prices of our equity shares and ADSs could be adversely affected”.
We have a high concentration of loans to certain customers, borrower groups and sectors and if a substantial portion of these loans become non-performing, the overall quality of our loan portfolio, our business and the prices of our equity shares and ADSs could be adversely affected.
Our loans and advances to the retail finance segment constituted 53.2% of our gross advances (gross loans) at March 31, 2022. Our loans and advances to the rural finance segment were 8.4%, services-finance sector were 7.6%, the infrastructure sector (excluding power) were 3.3%, the wholesale/retail trade segment were 3.1%, and the power sector were 2.1% of our gross loans and advances at March 31, 2022.
Since April 1, 2019, banks have been subject to the Reserve Bank of India’s framework for large exposures with limits on exposure of banks to single counterparty and a group of connected counterparties. As per this framework, the sum of all the exposure values of a bank to a single counterparty must not be higher than 20% of the bank’s available eligible capital base at all times and the sum of all the exposure values of a bank to a group of connected counterparties must not be higher than 25% of the bank’s available eligible capital base at all times.
Since April 1, 2019, banks have also been subject to the Reserve Bank of India’s guidelines proposing that large borrowers should reduce reliance on banks for their additional funding and access market borrowings and other funding sources. Borrowers to be considered for this purpose would be those having an aggregate fund-based credit limit of Rs. 250.0 billion at any time during fiscal 2018 and gradually reduced to Rs. 150.0 billion in fiscal 2019 and to Rs. 100.0 billion from fiscal 2020 onwards. Loans from banks in excess of 50.0% of the incremental funds raised by these borrowers attracts higher risk weights and provisioning since April 1, 2018.
Eligible capital base represents the Bank’s Tier I capital as per the last audited balance sheet. Banks may, in exceptional circumstances, with the approval of their boards, consider enhancement of the exposure to a single counterparty further by 5.0% (i.e., 25.0% of the Tier I capital fund). The limit is applicable to total exposure, including off-balance sheet exposures. Off-balance sheet items are required to be converted into credit exposure equivalents through the use of credit conversion factors as per the standardized approach for credit risk for risk based capital requirements, with a floor of 10%. At year-end fiscal 2022, we were in compliance with these guidelines. At year-end fiscal 2022, our largest single counterparty accounted for 16.3% of our Tier I capital fund. The largest group of connected counterparties accounted for 26.5% of our Tier I capital fund.
These guidelines, and our focus on controlling and reducing concentration risk, may restrict our ability to grow our business with some customers, thereby impacting our earnings. Although the Bank has significantly strengthened its enterprise risk management and risk appetite framework since fiscal 2016 for managing concentration risk, including limits/thresholds with respect to single borrower and group exposure, there can be no assurance that our strategy of reducing concentration risk will be successful and that we will be able to successfully grow our operating profits while controlling non-performing loans and provisions through this approach.
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The value of our collateral may decrease or we may experience delays in enforcing our collateral when borrowers default on their obligations to us which may result in failure to recover the expected value of collateral security exposing us to a potential loss.
A substantial portion of our loans to corporate and retail customers is secured by collateral. See also “Business—Loan Portfolio—Collateral—Completion, Perfection and Enforcement”. Changes in asset prices may cause the value of our collateral to decline, and we may not be able to realize the full value of our collateral as a result of delays in bankruptcy and foreclosure proceedings, delays in the creation of security interests, defects or deficiencies in the perfection of collateral (including due to inability to obtain approvals that may be required from various persons, agencies or authorities), fraudulent transfers by borrowers and other factors, including depreciation in the value of the collateral and illiquid market for disposal of and volatility in the market prices for the collateral, current legislative provisions or changes thereto and past or future judicial pronouncements.
In India, foreclosure on collateral consisting of property can be undertaken directly by lenders by fulfilling certain procedures and requirements (unless challenged in courts of law) or otherwise by a written petition to an Indian court or tribunal. An application, when made (or a legal challenge to the foreclosure undertaken directly), may be subject to delays or administrative requirements that may result in, or be accompanied by, a decrease in the value of collateral. These delays can last for several years and might lead to deterioration in the physical condition or market value of the collateral. In the event, a corporate borrower is in financial difficulty and unable to sustain itself, it may opt for the process of voluntary winding up. Corporate borrowers may voluntarily, or by creditor action be admitted to the insolvency resolution process under the Insolvency and Bankruptcy Code, 2016. During the period of resolution under the Insolvency and Bankruptcy Code, 2016, there is a standstill applicable on foreclosure and other recovery proceedings by the lenders. In some cases, we may foreclose on collateral in lieu of principal and interest dues but may experience delays in liquidating the collateral.
The Insolvency and Bankruptcy Code enacted in 2016 provides for a time-bound mechanism to resolve stressed assets. Further, the new prudential framework for resolution of stressed assets, initially introduced in February 2018 and subsequently amended in June 2019 by the Reserve Bank of India, requires banks to implement a plan to resolve any overdue account within timelines as approved by the board and may include legal proceedings for insolvency or recovery. The process of resolution of accounts referred under the Insolvency and Bankruptcy Code is still evolving, with periodic amendments being incorporated in the framework through both legislation and judicial decisions. A few large accounts were resolved under the Code since fiscal 2019. However, uncertainties continue and there are delays in the resolution of accounts referred under the Code. Should the resolution of accounts not be achieved and the borrowers go into liquidation, the market value of the collateral may come down thus impacting the recovery of dues by lenders. There can be no assurance of the level of recovery even in cases where a resolution is achieved. The Government of India has empowered the Committee of Creditors, which comprises of all financial creditors, to decide on the manner of distribution of resolution proceeds and provided an order of priority for the distribution of assets in case of a liquidation, giving priority to financial creditors ahead of operational creditors.
In addition, for collateral we hold in jurisdictions outside India, the applicable laws and regulations in such jurisdictions may impact our ability to foreclose on collateral and realize its value. Failure to recover the expected value of collateral could expose us to potential losses, which could adversely affect our future financial performance, our stockholders’ equity and the prices of our equity shares and ADSs.
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Our banking and trading activities are particularly vulnerable to interest rate risk and volatility in interest rates could adversely affect our net interest margin, the value of our fixed income portfolio, our income from treasury operations, the quality of our loan portfolio and our financial performance.
Interest rates in India are impacted by a range of factors including inflation, fiscal deficit and government borrowing, monetary policy and market liquidity.
As a result of certain reserve requirements of the Reserve Bank of India, we are more structurally exposed to interest rate risk than banks in many other countries. See also “Supervision and Regulation—Legal Reserve Requirements”. These requirements result in our maintaining a large portfolio of fixed income Government of India securities, and we could be materially adversely impacted by a rise in interest rates, especially if the rise were sudden or sharp. Realized and marked-to-market gains or losses on investments in fixed income securities, including Government of India securities, are an important element of our profitability and are impacted by movements in market yields. A rise in yields on government securities reduces our profits from this activity and the value of our fixed income portfolio. For instance, in fiscal 2019, yields on government securities increased sharply due to tight liquidity conditions between September and December 2018 which resulted in significant losses in the treasury book for most Indian banks, including for us, during the quarter ended December 31, 2018. In April 2018, the Reserve Bank of India advised banks to create an Investment Fluctuation Reserve, equivalent to at least 2.0% of the held-for-trading and available-for-sale portfolio, on a continuing basis, from fiscal 2019 and draw down any balance available in excess of 2.0% of the portfolio. The requirement to maintain a large portfolio of government securities also has a negative impact on our net interest income and net interest margin because we earn interest on a portion of our assets at rates that are generally less favorable than those typically received on our other interest-earning assets.
We are also exposed to interest rate risk through our treasury operations as well as the operations of certain of our subsidiaries and affiliates, including ICICI Prudential Life Insurance Company and ICICI Lombard General Insurance Company, which have a portfolio of fixed income securities, and ICICI Securities Primary Dealership, which is a primary dealer in Government of India securities. In our asset management business, we manage money market, debt and hybrid mutual fund schemes whose performance is impacted by a rise in interest rates, which adversely impacts our revenues and profits from this business. See also “—Risks Relating to India and Other Economic and Market Risks—A prolonged slowdown in economic growth in India could cause our business to suffer.”
If the yield on our interest-earning assets does not increase at the same time or to the same extent as our cost of funds, or if our cost of funds does not decline at the same time or to the same extent as the decrease in yield on our interest-earning assets, our net interest income and net interest margin would be adversely impacted. Any systemic decline in low cost funding available to banks in the form of current and savings account deposits would adversely impact our net interest margin. A slower growth in low cost deposits compared to total deposits would result in an increase in the cost of funds and could adversely impact our net interest margin if we are not able to pass on the increase to borrowers. Revisions in deposit interest rates, or introduction of higher interest rates, by banks with whom we compete may also lead to revisions in our deposit rates to remain competitive and this could adversely impact our cost of funds.
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The Reserve Bank of India has been releasing guidelines on computation of lending rates by banks. Since April 1, 2016, the marginal cost of funds based methodology was applicable on incremental lending, which led to lower lending rates, and led to more frequent revisions in lending rates due to the prescribed monthly review of cost of funds. In February 2018, the Reserve Bank of India proposed to harmonize the methodology of determining benchmark rates by linking the earlier base rate to the marginal cost based lending rate. Further, in December 2018, the Reserve Bank of India announced the linking of new floating rate retail loans and floating rate loans to micro and small enterprises to an external benchmark. This has been applicable since October 1, 2019. From April 1, 2020, floating rate loans to medium enterprises were also linked to an external benchmark. Since our funding is primarily fixed rate, volatility in external benchmarks underlying loan pricing may cause volatility in or compress our net interest margin. If there are increases in our cost of funds and if we are unable to pass on the increases fully into our lending rates, our net interest margins and profitability would be adversely impacted. Such revisions in external benchmark lending rates may impact the yield on our interest-earning assets, our net interest income and net interest margin. At year-end fiscal 2022, approximately 47.7% of the Bank’s domestic loan portfolio was linked to external benchmarks.
The recent economic challenge of rising inflation during the three months ended June 30, 2022 led the Reserve Bank of India to increase the repo rate by 90 basis points and tighten systemic liquidity conditions by increasing the cash reserve ratio requirement of banks from 4.0% to 4.5% of net demand and time liabilities. The Reserve Bank of India also introduced a standing deposit facility rate as the floor of the liquidity adjustment facility compared to the earlier reverse repo rate. Any sudden withdrawal of or volatility in systemic liquidity or increase in interest rates may impact our liquidity and profitability.
High and increasing interest rates or greater interest rate volatility would adversely affect our ability to grow, our net interest margins, our net interest income, our income from treasury operations and the value of our fixed income securities portfolio as well as the operations of certain of our subsidiaries.
Our inability to effectively manage credit, market and liquidity risk and inaccuracy of our valuation models and accounting estimates may have an adverse effect on our earnings, capitalization, credit ratings and cost of funds.
Our risk management strategies may not be effective because in a difficult or less liquid market environment other market participants may be attempting to use the same or similar strategies to deal with difficult market conditions. In such circumstances, it may be difficult for us to reduce our risk positions due to the activity of such other market participants. Our derivatives businesses may expose us to unexpected market, credit and operational risks that could cause us to suffer unexpected losses or enhanced regulatory scrutiny. Severe declines in asset values, unanticipated credit events, or unforeseen circumstances that may cause previously uncorrelated factors to become correlated may create losses resulting from risks not appropriately taken into account in the development, structuring or pricing of a derivative instrument. In addition, some derivative transactions are not cleared and settled through a central clearing house or exchange, and they may not always be confirmed or settled by counterparties on a timely basis. In these situations, we are subject to heightened credit and operational risk, and in the event of a default, we may find the contract more difficult to enforce. Further, as new and more complex derivative products are created, disputes regarding the terms or the settlement procedures of the contracts could arise, which could force us to incur unexpected costs, including transaction and legal costs, and impair our ability to manage effectively our risk exposure to these products. Many of our hedging strategies and other risk management techniques have a basis in historic market behavior, and all such strategies and techniques are based to some degree on management’s subjective judgment. To the extent any of the instruments and strategies we use to hedge or otherwise manage our exposure to market or credit risk are not effective, we may not be able to mitigate effectively our risk exposures in particular market environments or against particular types of risk. Our balance sheet growth is dependent upon economic conditions, as well as upon our ability to securitize, sell, purchase or syndicate particular loans or loan portfolios. Our trading revenues and interest rate risk are dependent upon our ability to properly identify, and mark-to-market, changes in the value of financial instruments caused by changes in market prices or rates. Our earnings are dependent upon the effectiveness of our management of migrations in credit quality and risk concentrations, the accuracy of our valuation models and our critical accounting estimates and the adequacy of our allowances for loan losses. The Covid-19 pandemic, climate change and related economic disruption have significantly complicated risk management for banks, including us, and we may not be able to effectively mitigate the changes in our risk exposures.
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To the extent our assessments, assumptions or estimates prove inaccurate or not predictive of actual results, we could suffer higher than anticipated losses and enhanced regulatory scrutiny. The successful management of credit, market and operational risk is an important consideration in managing our liquidity risk because it affects the evaluation of our credit ratings by domestic and international rating agencies. Rating agencies may reduce or indicate their intention to reduce the ratings at any time. See also “—Risks Relating to India and Other Economic and Market Risks—Any downgrade of India’s debt rating or the rating on our senior unsecured foreign currency debt by an international rating agency could adversely affect our business, liquidity and the prices of our equity shares and ADSs”. The rating agencies can also decide to withdraw their ratings altogether, which may have the same effect as a reduction in our ratings. We are rated by certain Indian rating agencies, which include CRISIL, CARE and ICRA, with a long-term rating of AAA and a stable outlook. However, there is no assurance that we will always be able to maintain the highest rating and any significant decline in our business or capital position or increase in non-performing loans could impact our rating or outlook. Any reduction in our ratings (or withdrawal of ratings) may increase our borrowing costs, limit our access to capital markets and adversely affect our ability to sell or market our products, engage in business transactions particularly longer-term, and derivatives transactions, or retain our customers. Conditions in the international and Indian debt markets may adversely impact our access to financing and liquidity. This, in turn, could reduce our liquidity and negatively impact our operating results and financial condition. For more information, relating to our ratings, see also “Business—Risk Management—Market Risk—Liquidity Risk.”
Our funding is primarily short-term and if depositors do not roll over deposited funds upon maturity, our business could be adversely affected.
Most of our incremental funding requirements are met through short-term funding sources, primarily in the form of deposits including deposits from corporate customers and inter-bank deposits. Our customer deposits generally have a maturity of less than one year. However, a large portion of our assets have medium- or long-term maturities, creating the potential for funding mismatches. For instance, our project finance and mortgage loans typically have longer-term maturities compared to our funding profile.
Negative rumors have been previously circulated about our financial position which resulted in concerns being expressed by depositors and higher than normal withdrawal levels for a few days. Our international branches are primarily funded by debt capital market issuances and syndicated/bilateral loans, while our international subsidiaries generally raise deposits in their local markets. Volatility in the international debt markets may constrain our international capital market borrowings. There can be no assurance that our international branches and subsidiaries will be able to obtain funding from the international debt markets or other sources in a timely manner on terms acceptable to them or at all. This may adversely impact our ability to replace maturing borrowings and fund new assets. In addition, borrowers who have taken foreign currency loans from us may face challenges in meeting their repayment obligations on account of market conditions and currency movements. See also “—Risks Relating to India and Other Economic and Market Risks—Financial instability in other countries, particularly countries where we have established operations, could adversely affect our business.”
Negative publicity could damage our reputation and adversely impact our business and financial results and the prices of our equity shares and ADSs.
Reputation risk, or the risk to our business, earnings and capital from negative publicity, is inherent in our business. The reputation of the financial services industry in general has been closely monitored as a result of the financial crisis and other matters affecting the financial services industry. Negative public opinion about the financial services industry generally or us specifically could adversely affect our ability to keep and attract customers, and expose us to litigation and regulatory action. Negative publicity can result from our actual or alleged conduct in any number of activities, including lending practices and specific credit exposures, the level of non-performing loans, corporate governance, regulatory compliance, mergers and acquisitions, and related disclosure, sharing or inadequate protection of customer information, and actions taken by government, regulators, investigative agencies, judiciary and community organizations in response to that conduct. The media coverage and public scrutiny of our business practices, our board of directors, key management personnel, policies and actions has increased significantly over the past few months. Although we take steps to minimize reputation risk in dealing with such events, we, as a large financial services organization are inherently exposed to this risk.
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We have experienced negative publicity with respect to the allegations levelled against Ms. Kochhar and her spouse and the whistleblower complaints regarding alleged incorrect asset classification and other allegations. See also “—Risks that arise as a result of our presence in a highly regulated sector—The board of directors of the Bank has, pursuant to an independent enquiry, taken action against the former Managing Director and CEO. In the event the Bank is found by any of the enquiries in the matter by government and regulatory agencies to have violated applicable laws or regulations, the Bank could become subject to legal and regulatory sanctions that may materially and adversely affect our results of operations, financial condition and reputation.” We cannot be certain how the investigations by the government and regulatory and other agencies will conclude with regard to the issue of the former CEO and it is possible that the conclusions of these investigations could lead to more negative publicity.
Any continued unfavorable publicity may adversely impact investor confidence and affect the prices of our equity shares and ADSs. Our subsidiaries’ businesses include mutual fund, portfolio and private equity fund management, which are exposed to various risks including diminution in value of investments and inadequate liquidity of the investments. We also distribute products of our insurance, asset management and private equity subsidiaries and affiliate. Investors in these funds and schemes may allege mismanagement or weak fund management as well as mis-selling and conflicts of interest, which may impact our overall reputation as a financial services group and may require us to support these businesses with liquidity and may result in a reduction in business volumes and revenues from these businesses. We are also exposed to the risk of litigation, claims or disputes by customers, counterparties or other constituents across our businesses.
The exposures of our international branches and banking subsidiaries could generally affect our business, financial condition and results of operations.
The loan portfolio of our international branches and banking subsidiaries includes foreign currency loans to Indian companies for their Indian operations (where permitted by regulation) as well as for their overseas ventures, including cross-border acquisitions. This exposes us to specific additional risks including the failure of the acquired entities to perform as expected, and our inexperience in various aspects of the economic and legal framework in overseas markets. We are, through our international branches and banking subsidiaries, also exposed to a variety of local market credit risks, where our expertise and experience may be limited. Our international profile has also increased the complexity of our risks in a number of areas including price risks, currency risks, interest rate risks, compliance risk, regulatory and reputational risk and operational risk. We also face risks arising from our ability to manage inconsistent legal and regulatory requirements in the multiple jurisdictions in which we operate. Our businesses are subject to changes in legal and regulatory requirements and it may not be possible to predict the timing or nature of such changes. See also “—Risks that arise as a result of our presence in a highly regulated sector—The opportunities for growth in our international operations and our ability to repatriate capital from these operations may be limited by the local regulatory environments.” Business opportunities in these jurisdictions will also determine the growth in our operations.
Global developments including geopolitical tensions could impact economic growth in Canada and the United Kingdom, which in turn could impact the business of our banking subsidiaries in these countries. Our international branches and banking subsidiaries undertake select local banking businesses, including lending to multinational and local corporations, small businesses, property backed lending and insured and other mortgages, and in the event of these corporations being impacted by global and local economic conditions it could have an adverse impact on our business. For instance, during the three months ended March 31, 2020, two non-India linked loan accounts at our international branches had to be classified as non-performing as the borrowers misrepresented their financial position to lenders. Our international branches and banking subsidiaries have also made investments in bonds, certificates of deposit, mortgage backed securities, treasury bills and asset-backed commercial paper.
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We are repositioning our international business strategy to sharpen our focus on the non-resident Indian community and on India-linked trade. We aim to progressively exit exposures that are not linked to India in a planned manner at our international branches. Our overseas banking subsidiaries will continue to serve local markets selectively with a focus on risk mitigation and granularity of business. There can be no assurance of our successful execution of this strategy. The global financial and economic crisis resulted in mark-to-market and realized losses on our overseas and other subsidiaries’ investment and derivative portfolios, increased the regulatory scrutiny of our international operations, constrained our international debt capital market borrowings and increased our cost of funding. The Covid-19 pandemic also increased challenges for our international branches and banking subsidiaries. If we are unable to manage these risks, our business would be adversely affected.The classification of the loan portfolio of our international branches and banking subsidiaries is also subject to the regulations of respective local regulators. Such loans that are identified as impaired as per host country regulations for reasons other than record of recovery, but which are standard as per the current Reserve Bank of India guidelines, are classified as non-performing to the extent of the amount of outstanding loan in the host country. Overseas regulators may also require higher provisions against loans held in their jurisdictions.
Entry into new businesses or rapid growth in existing loan portfolios may expose us to increased risks that may adversely affect our business.
The rapid growth of our retail loan business and our rural initiative exposes us to increased risks within India including higher levels of non-performing loans in our unsecured retail credit portfolio, increased operational risk, increased fraud risk and increased regulatory and legal risk. We continue to focus on scaling up our retail lending volumes and have seen an increase in our retail unsecured portfolio and our lending to small businesses and entrepreneurs. Retail lending, including unsecured retail credit, has been an important driver of growth for the Indian banking system. Further, we are also focusing on scaling up our business and distribution network in rural areas. We have also entered into partnerships with technology companies with large customer bases to offer co-branded credit products and as well as with non-banking financial companies for co-origination and/or purchases of loans. We intend to continue to pursue similar partnerships.
While we have taken measures to address the risks in these businesses, there can be no assurance that the businesses would perform according to our expectations or that there would not be any adverse developments in these businesses in the future. We use data analytics extensively in our lending to retail and small business customers, and there can be no assurance that these analytical models will perform as intended. Our recent focus on partnerships with other entities to grow our portfolio may not yield the desired results and may lead to additional risks. Our inability to manage such risks may have an adverse impact on our future business and strategy, our asset quality and profitability and the prices of our equity shares and ADSs.
Our loan portfolio includes long-term project finance loans, which are particularly vulnerable to completion and other risks.
The quality of our project finance portfolio could be adversely impacted by several factors. The viability of these projects depends upon a number of factors, including market demand, government policies, the processes for awarding government licenses and access to natural resources and their subsequent judicial or other review, the financial condition of the government or other entities that are the primary customers for the output of such projects and the overall economic environment in India and the international markets. These projects are particularly vulnerable to a variety of risks, including risks of delays in regulatory approvals, environmental and social issues, judicial decisions, sudden disruptions in economic activity or lockdown measures, completion risk and counterparty risk, which could adversely impact their ability to generate revenues. In the past, we have experienced a high level of default and restructuring in our industrial and manufacturing project finance loan portfolio.
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Our loans to the power sector as a proportion of total loans has declined from 4.8% at March 31, 2018 to 2.1% at March 31, 2022. Power projects face a variety of risks, including access to fuel such as coal and gas, volatility in pricing of power and off-take of the power produced. In addition, power projects inherently have high leverage levels. Any reduction in the output of operational power plants or the projected output of newly commissioned or under-implementation power projects due to lower availability of fuel, higher fuel costs that cannot be passed through to purchasers and inability of state-owned power distribution utilities to purchase or pay for power due to their financial condition, or a decline in the price of power, may have an adverse impact on the financial condition of power producers and their ability to service their debt obligations, including to us.
Our loan portfolio also includes project finance, corporate finance, and working capital loans to commodity-based sectors such as iron and steel, other metals and mining, which are subject to similar and additional risks, as well as global commodity price cycles. For instance, during fiscal 2016, due to a slowdown in global demand for steel, there was a sharp decline in global steel prices, which in turn impacted Indian steel companies. Capacity utilization of steel companies declined and profitability came under pressure. The Government of India announced certain policy measures, including a minimum price for procuring steel from overseas markets, which have benefited the Indian steel sector. However, we cannot be certain that such or any other measures will continue to be introduced by the Government of India in the future. Further, the growing focus on climate change and national commitments towards a low-carbon economy may impact the flow of capital to specific sectors and could lead to structural shifts in these sectors, and the overall economy. It is difficult to assess the impact of these changes, and can expose us to new risks and challenges in managing the loan portfolio.
A slowdown in the Indian and global economy may exacerbate the risks for the projects that we have financed. Future project finance losses or high levels of loan restructuring could have a materially adverse effect on our profitability and the quality of our loan portfolio and the prices of our equity shares and ADSs.
Commission, exchange and brokerage income, profit on foreign exchange transactions and other sources of fee income are important elements of our profitability, and regulatory changes and market conditions could cause these income streams to decline and adversely impact our financial performance.
We earn commission, exchange and brokerage income from a variety of activities, including loan processing, syndication and advisory services for corporate clients with respect to their acquisition and project financing, distribution of retail investment and insurance products, transaction banking and retail credit products. Our commission, exchange and brokerage income is therefore impacted by the level of corporate activity including new financing proposals, the demand for retail financial products and the overall level of economic and trade activity. Our commission, exchange and brokerage income is also impacted by applicable regulations governing various products and segments of financial services and changes in these regulations may adversely impact our income streams and ability to grow our business. Our fee income from distribution of third party financial products is dependent on applicable regulations, the demand for these products and our distribution strategy for banking and third party products. Our ability to earn fees in the near term would likely be impacted by the Covid-19 pandemic. See also, “—Risks relating to our Business—The future trajectory of the Covid-19 pandemic is uncertain and could adversely affect our business, the quality of our loan portfolio and our financial performance.”
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Our industry is very competitive and our strategy depends on our ability to compete effectively.
Within the Indian market, we face intense competition from other commercial banks, investment banks, insurance companies, non-bank finance companies, new private sector banks like payments banks and small finance banks and non-bank entities offering retail payments services. Some Indian public and private sector banks have experienced higher growth and increase in market shares relative to us. The expansion of existing competitors or the entry of new competitors could increase competition for products and services. There could be greater competition for business opportunities if there is a slowdown in growth in the Indian banking sector. The establishment of account aggregators, permitted by the Reserve Bank of India, will facilitate sharing of customer data with different financial service providers from whom customers may be seeking loans or other products and may increase competition by making it easier for new entrants to onboard customers at a lower cost than traditional models. Recently, a large private sector bank in India announced a proposal to merge its parent company, which is a large housing finance company, with itself, leading to a significant increase in size and scale for the bank. This may significantly impact competition in the industry, especially for deposits.
Further, technology innovations in mobility and digitization of financial services require banks and financial services companies to continuously develop new and simplified models for offering banking products and services. The emergence of new platforms, or new operating models or new types of banks or other entities offering digital banking solutions, are trends that could increase competitive pressures on banks, including us. Innovations in the payments system and increasing use of mobile banking are leading to emergence of new platforms for cashless payments. This can also lead to new types of banks expanding their presence in other financial products like insurance and mutual funds. Non-financial companies, particularly international technology companies including large e-commerce players and internet-based service providers, are increasing their presence in the financial sector and are offering payment platforms and select services. We are currently partnering with some of these entities to jointly offer payment and credit products and services. Some or all of these entities, which have substantially more resources than us and other Indian banks, may eventually seek a larger share of the banking and financial services market in India and compete with us. Our subsidiaries also face similar risks, including enhanced competition from new, technology-led players with disruptive business models that may result in a loss of market share or reduced profitability or both, for existing players. There is no assurance that we will be able to continue to respond promptly to new technological developments, and be in a position to participate in new market opportunities or dedicate resources to upgrade our systems and compete with new players entering the market. See also “—Risks relating to technology—The growing use of technology in banking and financial services creates additional risks of competition, reliability and security”.
We face competition from non-banking finance companies that are lending in segments in which banks also have a presence, including home loans and vehicle loans. Their presence in the market may grow during periods when banks are unable to grow their advances due to challenges and stress in other businesses. There is no assurance that we will be able to effectively compete with these non-banking finance companies at all times. Further, changes in the banking sector structure due to consolidation as well as entry of new competitors may lead to volatility and new challenges and may increase pressure on banks to remain competitive.
Any changes in the banking structure in India, including the entry of new banks, greater competition between existing players and improvement in the efficiency and competitiveness of existing banks, may have an adverse impact on our business. Due to competitive pressures, we may be unable to successfully execute our growth strategy or offer products and services at reasonable returns and this may adversely impact our business. See also “Business—Competition”.
In our international operations we also face competition from the full range of competitors in the financial services industry, both banks and non-banks and both Indian and foreign banks. We remain a small to mid-size player in the international market and many of our competitors have resources much greater than our own.
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There is operational risk associated with the financial industry which, when realized, may have an adverse impact on our business.
We, like all financial institutions, are exposed to many types of operational risk, including the risk of fraud or other misconduct by employees or outsiders, unauthorized transactions by employees and third parties (including violation of regulations for prevention of corrupt practices, and other regulations governing our business activities), misreporting or non-reporting with respect to statutory, legal or regulatory reporting and disclosure obligations, or operational errors, including non-compliance with internal processes, clerical or recordkeeping and reconciliation errors or errors resulting from faulty computer or telecommunications systems. We have experienced significant growth in a fast changing environment, and management as well as our regulators, are aware that this may pose significant challenges to our control framework. As a result of our internal evaluations, we and our regulators have noted certain areas where our processes and controls could be improved. Our growth, particularly in retail lending, our rural initiative, our international business and our insurance businesses, exposes us to additional operational and control risks. Regulatory scrutiny of areas related to operational risk, including internal audit information, systems and data processing is increasing. The large size of our treasury and retail operations, which use automated control and recording systems as well as manual checks and recordkeeping, exposes us to the risk of errors in control, recordkeeping and reconciliation. The increasing size of our insurance business and the complexities of the products expose us to the risk that the models set up on actuarial software to compute the actuarial liabilities and deferred acquisition cost may contain errors or may require continuous improvement over a period of time. Given our high volume of transactions, certain errors may be repeated or compounded before they are discovered and successfully rectified. In addition, our dependence upon automated systems to record and process transactions may further increase the risk that technical system flaws, employee tampering, manipulation of those systems and deficiency in access control management will result in losses that are difficult to detect. We may also be subject to disruptions of our operating systems, arising from events that are wholly or partially beyond our control (including, for instance, computer viruses or electrical or telecommunication outages), which may give rise to deterioration in customer service and to loss or liability to us.
We also outsource some functions, like collections, sourcing of retail loans and management of ATMs to other agencies and hence also exposed to the risk that external vendors may be unable to fulfil their contractual obligations to us (or will be subject to the same risk of fraud or operational errors by their respective employees as we are), and to the risk that our (or our vendors’) business continuity and data security systems prove not to be sufficiently adequate. We also face the risk that the design of our controls and procedures proves inadequate, or is circumvented, thereby causing delays in detection or errors in information. We are also exposed to operational risks from transactions with other financial institutions and intermediaries. Although we maintain a system of controls designed to keep operational risk at appropriate levels, like all banks and insurance companies we have suffered losses from operational risk and there can be no assurance that we will not suffer losses from operational risks in the future that may be material in amount, and our reputation could be adversely affected by the occurrence of any such events involving our employees, customers or third parties.
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In addition, regulators or governmental authorities or judiciary may also hold banks, including us, liable for losses on account of customer errors such as inadvertent sharing of confidential account related information. There are inherent limitations to the effectiveness of any system especially of controls and procedures, including the possibility of human error, circumvention or overriding of the controls and procedures, in a fast changing environment or when entering new areas of business or expanding geographic reach. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. We are committed to continuing to implement and improve internal controls and our risk management processes, and this remains a key priority for us. If, however, we are unable to manage operational risk in India and in the other jurisdictions in which we operate, or if we are perceived as being unable to manage such risk, we may be subject to enhanced regulatory oversight and scrutiny. For a discussion of how operational risk is managed, see also “Business—Risk Management—Market Risk—Operational Risk”.
Our failure to establish, maintain and apply an adequate internal control over financial reporting could have a material adverse affect on our reputation, business, financial condition or results of operations.
We are responsible for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and preparation and fair presentation of our published Indian GAAP consolidated financial statements and disclosures relating to U.S. GAAP net income reconciliation, stockholders’ equity reconciliation and other disclosures as required by U.S. Securities and Exchange Commission and applicable GAAP. Our management is required to assess the effectiveness of our internal control over financial reporting and disclose whether such internal controls are effective. Our independent registered public accounting firm has to conduct an audit to evaluate and then render an opinion on the effectiveness of our internal control over financial reporting. See “Management—Summary Comparison of Corporate Governance Practices—Management’s Report on Internal Control Over Financial Reporting”.
We have established internal controls over financial reporting, as well as policies and procedures for evaluating those controls, in order to provide reasonable assurance of the reliability of our financial reporting and the preparation of financial statements. However, these controls may not prevent or detect errors. Any evaluation of effectiveness of future periods is subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. To the extent any issues are identified through the foregoing processes, there can be no assurance that we will be able to resolve them in a timely manner or at all. If this occurs, our reputation may be damaged, which could lead to a decline in investor confidence in us and may adversely affect our business, financial conditions and results of operations.
We and our customers are exposed to fluctuations in foreign exchange rates.
Several of our borrowers enter into derivative contracts to manage their foreign exchange risk exposures. Volatility in exchange rates may result in increased mark-to-market losses in derivative transactions for our clients. Upon the maturity or premature termination of the derivative contracts, these mark-to-market losses become receivables owed to us. Consequently, we become exposed to various kinds of risks including but not limited to credit risk, market risk and exchange risk.
Exchange rates are impacted by a number of factors including volatility of international capital markets, interest rates and monetary policy stance in developed economies like the United States, level of inflation and interest rates in India, the balance of payment position and trends in economic activity. Rising volatility in capital flows due to changes in monetary policy in the United States or other economies or a reduction in risk appetite or increase in risk aversion among global investors and consequent reduction in global liquidity may impact the Indian economy and financial markets. Following the outbreak of the Covid-19 pandemic, there was a significant outflow of foreign investments from Indian equity and debt markets during the three months ended March 31, 2020, and the Indian rupee depreciated by 5.6% vis-à-vis the U.S. dollar during the quarter ended March 31, 2020. During fiscal 2021, the exchange rate appreciated by 3.0% from Rs. 75.39 per U.S. dollar at March 31, 2020 to Rs. 73.14 per U.S. dollar at March 31, 2021 as global oil prices declined due to weak demand conditions. During fiscal 2022, several factors impacted the exchange rate including the second and third wave of the Covid-19 pandemic, geo-political tensions due to the crisis in Ukraine and sanctions on Russia, and deterioration in economic conditions following a sharp rise in global crude oil prices and increase in inflation in developed economies. The Rupee depreciated to Rs. 75.87 per U.S. dollar at March 31, 2022.
As discussed above, in the past, concerns over India’s current account deficit and changes in capital flows due to changes in U.S. monetary policy have caused the rupee to depreciate against the U.S. dollar. During the three months ended June 30, 2022, the rupee depreciated by 4.1% to Rs. 79.02 per U.S. dollar at June 30, 2022. This was following the tightening of monetary policy by the US Federal Reserve due to rising inflation concerns and consequent capital outflows from the Indian equity markets. Some of our borrowers with foreign exchange and derivative exposures may be adversely impacted by the depreciation of the rupee. These include borrowers impacted by higher rupee denominated interest or principal repayment on unhedged foreign currency borrowings; increases in the cost of raw material imports where there is limited ability to pass through such escalations to customers; and the escalation of project costs due to higher imported equipment costs; and borrowers that may have taken adverse positions in the foreign exchange markets. The failure of our borrowers to manage their exposures to foreign exchange and derivative risk, particularly adverse movements and volatility in foreign exchange rates, may adversely affect our borrowers and consequently the quality of our exposure to our borrowers and our business volumes and profitability.
Further, any increased intervention in the foreign exchange market or other measures by the Reserve Bank of India to control the volatility of the exchange rate, may result in a decline in India’s foreign exchange reserves and reduced liquidity and higher interest rates in the Indian economy. Prolonged periods of volatility in exchange rates, reduced liquidity and high interest rates could adversely affect our business, our future financial performance and the prices of our equity shares and ADSs. A sharp depreciation in the exchange rate may also impact some corporate borrowers having foreign currency obligations that are not fully hedged.
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An increase in non-performing or restructured assets on account of our borrowers’ inability to manage exchange rate risk and any increased capital or provisioning requirement against such exposures may have an adverse impact on our profitability, our business and the prices of our equity shares and ADSs. We have adopted certain risk management policies to mitigate such risk. However, there is no assurance that such measures will be fully effective in mitigating such risks.
We may seek opportunities for growth through acquisitions, divest our existing businesses, or be required to undertake mergers by the Reserve Bank of India and could face integration and other acquisitions risks.
We may seek opportunities for growth through acquisitions or be required to undertake mergers mandated by the Reserve Bank of India under its statutory powers. In the past, we have undertaken mergers and acquisitions. In the past, the Reserve Bank of India has ordered mergers of weak banks with other banks primarily in the interest of depositors of the weak banks. The Government of India announced the amalgamation of 10 public sector banks into four larger banks from April 1, 2020 as part of a consolidation measure to create fewer banks that would be individually larger in scale. We may in the future examine and seek opportunities for acquisitions in countries where we currently operate. Our subsidiaries in India may also undertake mergers, acquisitions and takeovers in India or internationally. Our general insurance affiliate, ICICI Lombard General Insurance, concluded the allotment of equity shares to the eligible shareholders of Bharti AXA General Insurance Company Limited as per their proportionate shareholding, following the approval from the Insurance Regulatory Development Authority of India and the National Company Law Tribunal for a merger. Following the completion of the transaction, the Bank’s shareholding in ICICI Lombard General Insurance decreased to 48.1%, and ICICI Lombard General Insurance ceased to be a subsidiary of the Bank. Mergers and acquisitions by our subsidiaries could lead to reduction in our shareholding in such subsidiaries (including to below majority ownership in certain subsidiaries), and under applicable law that may require us to reduce our shareholding to 30.0% or less, unless we receive regulatory and governmental approval to maintain a higher level of shareholding, which may be subject to various conditions including divestment to the required level of 30.0% within a specified timeframe. The Bank has been granted time until September 2023 to reduce its shareholding in ICICI Lombard General Insurance to 30.0%, to comply with the requirements under the Banking Regulation Act, 1949. Any future acquisitions or mergers or takeovers, whether by us or our subsidiaries, both Indian or international, may involve a number of risks, including the possibility of a deterioration of asset quality, quality of business and business operations, financial impact of employee related liabilities, diversion of our management’s attention required to integrate the acquired business and the failure to retain key acquired personnel and clients, leverage synergies or rationalize operations, or develop the skills required for new businesses and markets, or unknown and known liabilities including any ongoing litigation, claims or disputes concerning such acquisition, merger, its shareholders, share capital or its legal and regulatory compliance obligations or practices, some or all of which could have an adverse effect on our business or that of our subsidiaries.
We may also sell all or part of one or more of our businesses, including our subsidiaries and affiliates, for a variety of reasons including changes in strategic focus, redeployment of capital, contractual obligations and regulatory requirements.
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We depend on the accuracy and completeness of information about customers and counterparties.
In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may rely on information furnished to us by or on behalf of customers and counterparties, including financial statements and other financial information. We may also rely on certain representations as to the accuracy and completeness of that information and, with respect to financial statements, on reports of their independent auditors. For instance, in deciding whether to extend credit, we may assume that a customer’s audited financial statements conform to generally accepted accounting principles and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. Our financial condition and results of operations could be negatively affected by relying on financial statements that do not comply with generally accepted accounting principles or other information that is materially misleading. According to data published by the Reserve Bank of India, frauds reported in the Indian banking sector have shown an increasing trend in recent years, and the composition of the fraud amount reported is largely dominated by frauds related to loans and advances. In addition, our access to information about the credit histories of our borrowers, especially individuals and small businesses, may be limited, relative to what is typically available for similar borrowers in developed economies with more established nation-wide credit bureaus. This may affect the quality of information available to us about the credit history of our borrowers, especially individuals and small businesses. As a result, our ability to effectively manage our credit risk may be adversely affected.
A determination against us in respect of disputed tax assessments may adversely impact our financial performance.
We are regularly assessed by the Government of India’s tax authorities, and on account of outstanding tax demands we have included in contingent liabilities Rs. 84.8 billion in additional taxes in excess of our provisions at March 31, 2022. These additional tax demands mainly relate to income tax, service tax, sales tax and value added tax demands by the Government of India’s tax authorities for past years. We have appealed against each of these tax demands. The tax related inquiries are not included in contingent liabilities as we believe that such proceedings are likely to be dropped by the tax authorities or will not be upheld by judicial authorities. The amount of Rs. 84.8 billion included in our contingent liabilities does not include further disputed tax assessments amounting to Rs. 36.2 billion, of which Rs. 30.8 billion mainly relates to bad debts written off, broken period interest and penalties levied, where the possibility of liability arising has been considered remote based on favorable Supreme Court of India decisions in other similar cases, and Rs. 4.5 billion relating to error requiring rectification by tax authorities. See also “Business—Legal and Regulatory Proceedings”. During fiscal 2019, the tax authorities had issued notices to banks, including us, regarding levy of service tax on free services provided by banks to customers maintaining specified minimum balances in their deposit accounts. The banking industry has contested this notice and filed a writ petition in the Bombay High Court on July 2, 2019.
We have appealed all of these demands. While we expect that no additional liability will arise out of these disputed demands based on our consultations with tax counsel and favorable decisions in our own and other cases, there can be no assurance that these matters will be settled in our favor or that no further liability will arise out of these demands. Any additional tax liability may adversely impact our financial performance and the prices of our equity shares and ADSs.
There could be a difference in the assessment of our indirect tax liability which may lead to additional demand being raised subsequently by tax authorities. For instance, the service tax authorities, in earlier years, had raised a demand on trusts for certain funds managed by ICICI Venture, including in relation to the amounts retained by the trusts for incurring various expenses, distribution of certain class of unit holders and provisions for certain expenses/losses. On July 1, 2021, the Appellate Tribunal passed a judgement upholding the liability towards service tax on certain items. We are considering legal remedies in this matter and the funds have preferred an appeal with the High Court, against the order of the Appellate Tribunal.
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We are involved in various litigations. Any final judgment awarding material damages against us could have a material adverse impact on our future financial performance and our stockholders’ equity.
We and our group companies, or our or their directors or officers, are often involved in litigations (civil and criminal) in India and in the other jurisdictions in which we operate for a variety of reasons, which generally arise because we seek to recover our dues from borrowers or because customers seek claims against us. In certain instances, present and former employees have instituted legal and other proceedings against us. The majority of these cases arise in the normal course of business and we believe, based on the facts of the cases and consultation with counsel, that these cases generally do not involve the risk of a material adverse impact on our financial performance or stockholders’ equity. We estimate the probability of losses that may be incurred in connection with legal and regulatory proceedings as of the date on which our unconsolidated and consolidated financial statements are prepared. We recognize a provision when we have a present obligation as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. We determine the amount of provision based on our estimate of the amount required to settle the obligation at the balance sheet date, supplemented by our experience in similar situations. We review provisions at each balance sheet date and adjust them to reflect current estimates. In cases where the available information indicates that a loss is reasonably possible but the amount of such loss cannot be reasonably estimated, we make a disclosure to this effect in the unconsolidated and consolidated financial statements. Whenever we consider it appropriate and the legal or regulatory guidelines so permit, we may seek to settle or compound legal or regulatory proceedings through consensual process with the concerned claimant or regulator, which may entail monetary payment or receipt or agreeing to non-monetary terms. The non-monetary terms may include suspension or cessation of business activities for a specified period; change in key management personnel or restrictions being placed on key management personnel; disgorgement; implementation of enhanced policies and procedures to prevent future violations; appointing or engaging an independent consultant to review internal policies, processes and procedures; providing enhanced training and education; and/or submitting to enhanced internal audit, concurrent audit or reporting requirements. When there is only a remote risk of loss, we do not recognize a provision nor do we include a disclosure in the unconsolidated and consolidated financial statements. See also “Business—Legal and Regulatory Proceedings”. We cannot guarantee that the judgments in, or the outcomes of any of the litigation or other proceedings or of any settlement or compounding of legal or regulatory proceedings in which we are involved would be favorable to us and if our assessment of the risk changes, our view on provisions will also change.
Our exposure to the securities of asset reconstruction companies could generally affect our business, financial condition and results of operations.
We also have investments in security receipts arising from the sale of non-performing assets by us to reconstruction companies registered with the Reserve Bank of India. At March 31, 2022, the Bank had an outstanding net investment of Rs. 8.1 billion in security receipts issued by asset reconstruction companies. In September 2016, the Reserve Bank of India issued a framework for sale of stressed assets. As per this framework, with effect from April 1, 2017, provisions held for investment in security receipts is subject to a floor rate applicable to the underlying loans (the provisions the bank would have had to make if the loans had continued to be held in its books), if more than 50% of the security receipts are held by the bank that sold the loans. The threshold of 50% was reduced to 10% from April 1, 2018 as per the framework. Further, the framework requires banks to maintain an internal list of stressed assets identified for sale and review assets classified as ‘doubtful’ above a threshold amount on a periodic basis with a view to consider a sale or other disposition. There can be no assurance that reconstruction companies will be able to recover these assets and redeem our investments in security receipts and that there will be no reduction in the value of these investments. Any such inability to recover assets or redeem our investments without a diminution in value could generally affect our business, financial condition and results of operations. In fiscal 2022, the Indian government set up a National Asset Reconstruction Company through equity participation by banks and financial institutions to manage stressed assets of banks.
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We continue to expand our branch network and any inability to use these branches productively may have an adverse impact on our growth and profitability.
The branch network of ICICI Bank in India increased from 5,266 branches at March 31, 2021 to 5,418 branches at March 31, 2022. We plan to leverage our extensive geographical reach to support growth in our business. Our new branches typically operate at lower productivity levels, as compared to our existing branches. See also “—Risks Relating to Our Business—We may seek opportunities for growth through acquisitions, divest our existing businesses, or be required to undertake mergers by the Reserve Bank of India and could face integration and other acquisitions risks”. We also have a substantial branch network in rural and semi-urban areas and have also established branches in villages that did not have any banking services. Any inability to achieve or substantial delays in achieving desired levels of deposits, advances and revenues from the new branches would have an adverse impact on our growth and profitability and the prices of our equity shares and ADSs.
We depend on the knowledge and skills of our senior management. Any inability to attract them and retain them and other talented professionals or any loss of senior management or other talented professionals may adversely impact our business.
Our continued success depends in part on the continued service of key members of our management team and our ability to continue to attract, train, motivate and retain highly qualified professionals. This is a key element of our strategy and we believe it to be a significant source of competitive advantage. The successful implementation of our strategy depends on the availability of skilled management, both at our head office and at each of our business units and international locations, continuity in the service of our directors, executives and senior managers, and our ability to attract and train young professionals.
The appointment of individuals in certain positions is subject to regulatory and shareholder approvals. Any stringent requirements by our regulator for appointing key members in the management may require us to reorganize our management structure and may affect our ability to identify, hire and appoint suitable professionals for various roles.
The loss of any member from our senior management, including directors and key personnel, can have a material impact on our business, our financial performance, our stockholders’ equity, our ability to implement our strategy and the prices of our equity shares and ADSs. If we or one of our business units or other functions fail to staff operations appropriately, or lose one or more key senior executives or qualified young professionals and fail to replace them in a satisfactory and timely manner, our business, financial condition and results of operations, including our control and operational risks, may be adversely affected. Likewise, if we fail to attract and appropriately train, motivate and retain young professionals or other talent, our business may likewise be affected. We have recently made several changes to our human resource management practices, including key performance indicators, unit-level operating flexibility and accountability and a shift from grades to functional designations at senior levels, aimed at greater agility and synergy across the organization. There can be no assurance that these measures will be successful in meeting the desired objectives.
A substantial portion of our compensation structure for middle and senior management is in the form of employee stock options, and dependent on the market price of our equity shares. Depending on market and business conditions, we may decide to reduce our employee strength in certain of our businesses. We recently introduced an employee stock option scheme for up to the middle-level management employees pursuant to which, options will be issued at a face value of Rs. 2.0 per unit, with the vesting of units based upon the continuation of the employee. However, increased competition, including the entry of new banks into an already competitive sector, may affect our ability to hire and retain qualified employees. See also “Business—Employees”.
Several of our employees were impacted by the Covid-19 pandemic. Such health epidemics or natural disasters in the future could impact our employees, including the senior management. There can be no assurance that this would not impact our ability to manage or conduct our business or the price of our equity shares and ADSs.
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Risks relating to technology
The growing use of technology in banking and financial services creates additional risks of competition, reliability and security.
Our business and our operations are heavily dependent upon our ability to offer digital products and services and process large volumes of transactions. This has increased our reliance on technology in recent years. Technology innovations in financial services require banks and financial services companies to continuously develop new and simplified models for offering banking products and services. See also “—Risks Relating to Our Business—Our industry is very competitive and our strategy depends on our ability to compete effectively.”
The growing demand for digital banking services, accelerated in part due to the Covid-19 pandemic, has substantially increased the volume of transactions for the banking system, including us. This has required banks to enhance their focus on the availability and scalability of their systems in the context of growing customer dependence on digital transactions and increasing volumes of such transactions and may require additional investments. Any disruption in service delivery could impact our business, our financial position and our reputation, and also lead to regulatory action including imposing restrictions on business.
We face security risks, including denial of service attacks, hacking, social engineering attacks targeting our colleagues and customers, malware intrusion or data corruption attempts, and identity theft that could result in the disclosure of confidential information, adversely affect our business or reputation, and create significant legal and financial exposure.
Our businesses rely on our secure processing, transmission, storage and retrieval of confidential, proprietary and other information in our computer and data management systems and networks and in the computer and data management systems and networks of third parties. To access our products and services, our customers may use personal smartphones, tablets, laptops, PCs, and other mobile devices that are beyond our control systems and subject to their own cybersecurity risks. Given our reliance and focus on technology and presence in diverse geographies, our technologies, systems, networks, and our customers’ devices are subject to security risks and are susceptible to cyber-attacks (such as, denial of service attacks, hacking, terrorist activities or identity theft) that could negatively impact the confidentiality, integrity or availability of data pertaining to us or our customers, which in turn may cause direct loss of money to our customers or to us, damage to our reputation and adversely impact our business and financial results. Third parties with which we do business or that facilitate our business activities could also be sources of operational and information security risk to us, including from breakdowns or failures of their own systems or capacity constraints.
We, our customers, regulators and other third parties, including other financial services institutions and companies engaged in data processing, have been subject to, and are likely to continue to be the target of, cyber-attacks. These cyber-attacks include computer viruses, malicious or destructive code, phishing attacks, denial of service or information, ransomware, improper access by employees or vendors, attacks on personal email of employees, ransom demands to not expose security vulnerabilities in our systems or the systems of third parties or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information of ours, our employees, our customers or of third parties, damage our systems or otherwise materially disrupt our or our customers’ or other third parties’ network access or business operations. Like many other large global financial institutions, we have also experienced a distributed denial of services attack which was intended to disrupt customer access to our main portal. While our monitoring and mitigating controls were able to detect and effectively respond to this incident, there can be no assurance that these security measures will be successful in the future. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.
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We have a governance framework in place for security and have implemented information security policies, procedures and technologies. However, considering that technology is currently in a phase of rapid evolution and that the methods used for cyber-attacks are also changing frequently or, in some cases, are not recognized until an actual attack, we may not be able to anticipate or to implement effective preventive measures against all security breaches. Further, circumstances such as the Covid-19 pandemic requiring a large number of our employees to work from home may increase our vulnerability to cyber attacks. Cyber threats are rapidly evolving and we may not be able to anticipate or prevent all such attacks and could be held liable for any security breach or loss.
Cybersecurity risks for banking organizations have significantly increased in recent years in part because of the proliferation of new technologies, and the use of the internet and telecommunications technologies to conduct financial transactions. For example, cybersecurity risks may increase in the future as we continue to increase our mobile-payment and other internet-based product offerings and expand our internal usage of web-based products and applications. In addition, cybersecurity risks have significantly increased in recent years in part due to the increased sophistication and activities of organized crime affiliates, terrorist organizations, hostile foreign governments, disgruntled employees or vendors, activists and other external parties, including those involved in corporate espionage. Even the most advanced internal control environment may be vulnerable to compromise. Targeted social engineering attacks and “spear phishing” attacks are becoming more sophisticated and are extremely difficult to prevent. In such an attack, an attacker will attempt to fraudulently induce colleagues, customers or other users of our systems to disclose sensitive information in order to gain access to its data or that of its clients. Persistent attackers may succeed in penetrating defenses given enough resources, time, and motive. The techniques used by cyber criminals change frequently, may not be recognized until launched and may not be recognized until well after a breach has occurred. The risk of a security breach caused by a cyber-attack at a vendor or by unauthorized vendor access has also increased in recent years. Additionally, the existence of cyber-attacks or security breaches at third-party vendors with access to our data may not be disclosed to us in a timely manner. We could also face cybersecurity risks which result in direct loss of money, as has happened with certain other banks in the past where their high value payment systems were compromised resulting in direct monetary loss for the bank. We also face risks where our customers could lose money because of cyber attacks, and these could result in monetary as well as reputational risks for the Bank.
We also face indirect technology, cybersecurity and operational risks relating to clients and other third parties with whom we do business or upon whom we rely to facilitate or enable our business activities, including, for example, financial counterparties, regulators and providers of critical infrastructure such as internet access and electrical power. As a result of increasing consolidation, interdependence and complexity of financial entities and technology systems, a technology failure, cyber-attack or other information or security breach that significantly degrades, deletes or compromises the systems or data of one or more financial entities could have a material impact on counterparties or other market participants, including us. This consolidation, interconnectivity and complexity increases the risk of operational failure, on both individual and industry-wide bases, as disparate systems need to be integrated, often on an accelerated basis.
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Any third-party technology failure, cyber-attack or other information or security breach, termination or constraint could, among other things, adversely affect our ability to effect transactions, service our clients, manage our exposure to risk or expand our business. Cyber-attacks or other information or security breaches, whether directed at us or third parties, may result in a material loss or have material consequences. Furthermore, the public perception that a cyber-attack on our systems has been successful, whether or not this perception is correct, may damage our reputation with customers and third parties with whom we do business. Hacking of personal information and identity theft risks, in particular, could cause serious reputational harm. A successful penetration or circumvention of system security could cause us serious negative consequences, including our loss of customers and business opportunities, costs associated with maintaining business relationships after an attack or breach; significant business disruption to our operations and business, misappropriation, exposure, or destruction of our confidential information, intellectual property, funds, and/or those of our customers; or damage to our computers or systems, and could result in a violation of applicable privacy laws and other laws, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in our security measures, reputational damage, reimbursement or other compensatory costs, additional compliance costs, and could adversely impact our results of operations, liquidity and financial condition.
In view of the Covid-19 pandemic, work-from-home has been enabled for our employees, other than at the branches, which continue to function as banking is classified as an essential service. This may expose us to risks arising on account of remote work environment, data security issues, increased cyber-attacks and availability of critical functions and IT systems. Our customers could also be exposed to increased phishing and vishing attacks that could result in a financial loss to them, and in turn lead to claims for compensation from the Bank or reputation loss for the Bank.
System failures or system downtime could adversely impact our business.
Given the large share of retail products and services and transaction banking services in our total business, the importance of systems technology to our business has increased significantly. Our business, financial, accounting, data processing systems or other operating systems and facilities may stop operating properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control, such as surges in customer transaction volume, utility disruptions or failures, natural disasters, diseases pandemics, events arising from political or social matters and terrorist attacks. While we have procedures to monitor for and prevent system downtime or failures, and to recover from system failures in the event they occur, there is no guarantee that these procedures will successfully prevent a system failure or allow us to recover quickly from a system failure. In the event that our data center is severely impacted, while we have a secondary disaster recovery data center, recovery of some of our systems and services may be delayed, thereby adversely impacting our operations and customer service levels. Any failure in our systems, particularly for retail products and services and transaction banking, could significantly affect our operations and the quality of our customer service and could result in enhanced regulatory scrutiny and business and financial losses that would adversely affect the prices of our equity shares and ADSs. Regulatory scrutiny in this area is increasing. See also “—Risks that arise as a result of our presence in a highly regulated sector—The enhanced supervisory and compliance environment in the financial sector increases the risk of regulatory action against us, whether formal or informal.”
Risks relating to our insurance subsidiary and affiliate
Additional capital requirements of our insurance subsidiary and affiliate or our inability to monetize a part of our shareholding in these companies may adversely impact our business and the prices of our equity shares and ADSs.
At March 31, 2022, we owned 51.4% of the equity shares of our life insurance subsidiary, ICICI Prudential Life Insurance Company, and 48.1% of the equity shares of our general insurance affiliate, ICICI Lombard General Insurance Company.
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Although our insurance businesses are profitable and we currently do not anticipate they would require capital, additional capital may be required to support the business which may, among other reasons, arise due to regulatory requirements or increased opportunities for growth or changes in loss experience and actuarial assumptions. See also “—Risks relating to our insurance subsidiary and affiliate—Loss reserves for our affiliate’s general insurance business are based on estimates as to future claims liabilities and adverse developments relating to claims could lead to further reserve additions and materially adversely affect the operation of our general insurance affiliate.” Our insurance subsidiary and affiliate may also explore mergers and acquisitions which may lead to issuance of equity shares. Issuance of additional equity shares for these or other reasons would reduce our shareholding, unless we invest additional capital in these businesses. Our ability to invest additional capital in these businesses is subject to the Reserve Bank of India’s regulations on capital adequacy and its guidelines on financial services provided by banks that prescribe limits for our aggregate investment in financial sector enterprises. All such investments require prior approval of the Reserve Bank of India. The Reserve Bank of India has announced a review of the guidelines pertaining to ownership, governance and corporate structure of private sector banks in India and has set up an internal working group to consider, among other things, holding of financial subsidiaries through a non-operative financial holding company. In November 2020, RBI released the report of the Internal Working Group to review the extant ownership and corporate structure guidelines for Indian private sector banks and sought feedback on the recommendations by January 15, 2021. In November 2021, the Reserve Bank of India accepted few recommendations made by the internal working group including a non-operative financial holding company structure for all new licenses issued for universal banks. The outcome of this report may result in changes to our group structure, the nature and impact of which we cannot currently predict, including a potential impact on our investment in our insurance businesses. Any reduction in our shareholding in our insurance businesses to below majority ownership would (including if arising on account of mergers and acquisitions), under applicable law, require us to reduce our shareholding to 30.0% or less, subject to regulatory and governmental approval to maintain a higher level of shareholding. Our general insurance affiliate, ICICI Lombard General Insurance Company concluded the allotment of equity shares to the eligible shareholders of Bharti AXA General Insurance Company Limited as per their proportionate shareholding, following the approval from the Insurance Regulatory Development Authority of India and National Company Law Tribunal for a merger in September 2021. Following the completion of the transaction, the Bank’s shareholding in ICICI Lombard General Insurance Company decreased to 48.1%, and ICICI Lombard General Insurance Company ceased to be a subsidiary of the Bank. The Bank has been granted time until September 2023 to reduce its shareholding in ICICI Lombard General Insurance Company to 30.0%, to comply with the requirements under the Banking Regulation Act, 1949. There is no assurance that we will be able to undertake further monetization of our investments in our subsidiaries and affiliates, through public offering or otherwise, or of the level of valuation of the subsidiaries and affiliates at which such monetization may take place and the resultant impact on our net income and stockholders' equity.
Any additional capital requirements of our insurance companies, restrictions on our ability to capitalize them and a requirement that we reduce our shareholding substantially could adversely impact their growth, our future capital adequacy, our financial performance and the prices of their equity shares and our equity shares and ADSs. See also “Business—Overview of Our Products and Services—Insurance” and “—Risks relating to our insurance subsidiary and affiliate—While our insurance businesses are an important part of our business, there can be no assurance of their future rates of growth or levels of profitability.”
While our insurance businesses are an important part of our business, there can be no assurance of their future rates of growth or levels of profitability.
Our life insurance and general insurance businesses are an important part of our business. See also “Business—Overview of Our Products and Services—Insurance”. These businesses have experienced volatility in growth rates in the past and there can be no assurance of their future rates of growth or profitability.
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The Indian life insurance sector has experienced significant regulatory changes in recent years. See also “Supervision and Regulation—Regulations Governing Insurance Companies”. The regulatory changes, apart from impacting the business strategy, have also resulted in reduced profit margins on life insurance products. Our life insurance subsidiary’s growth and profitability depends on various factors, including the proportion of protection and annuity products in its portfolio, the maintenance on its relationship with key distribution partners, regulatory changes, and market movements. The demand for unit-linked products may be influenced by any volatility or downturn in capital markets. ICICI Bank is a corporate agent of its insurance subsidiaries and accounts for a significant portion of the business volumes of its life insurance subsidiary. The growth of the life insurance subsidiary’s business is thus significantly dependent on the Bank’s distribution strategy with respect to banking products and third party products. While the subsidiary has been making profits since fiscal 2010, there can be no assurance of the continued growth of the subsidiary’s business and profitability, including the business generated by the Bank.
We conduct our general insurance business through our general insurance affiliate, ICICI Lombard General Insurance Company. ICICI Lombard General Insurance Company’s growth and profitability depends on various factors, including the proportion of certain profitable products in its portfolio, the maintenance on its relationship with key distribution partners and reinsurers, continuation of support by the Government of India of certain insurance schemes, regulatory changes, changes to tax positions and market movements. There can be no assurance of the future rates of growth in the insurance business. While this affiliate has been making profits since fiscal 2013, there can be no assurance of the future profitability or rates of growth in the insurance business. See also “—Risks relating to our insurance subsidiary and affiliate—Additional capital requirements of our insurance entities or our inability to monetize a part of our shareholding in these entities may adversely impact our business and the prices of our equity shares and ADSs.” and “Supervision and Regulation—Regulations Governing Insurance Companies.”
Further, the Insurance Regulatory Development Authority of India has from time to time proposed changes to the regulations governing distribution of insurance products by corporate agents, including banks. Any future regulatory changes or restrictions may require our insurance subsidiaries to change their distribution strategies, which may result in increased costs and lower business volumes, as well as impacting ICICI Bank’s distribution of their products and the associated fee income. A slowdown in growth in the Indian economy, the impact of the Covid-19 pandemic, further regulatory changes or customer dissatisfaction with our insurance products could adversely impact the future growth of these businesses. See also “—Risks that arise as a result of our presence in a highly regulated sector—The enhanced supervisory and compliance environment in the financial sector increases the risk of regulatory action against us, whether formal or informal”. Any slowdown in these businesses could have an adverse impact on our business and the prices of our equity shares and ADSs.
Actuarial experience and other factors could differ from assumptions made in the calculation of life actuarial reserves and other actuarial information.
The assumptions our life insurance subsidiary makes in assessing its life insurance reserves and computing other actuarial information may differ from what it experiences in the future. These assumptions include the assessment of the long-term development of interest rates, investment returns, the allocation of investments between equity, fixed income and other categories, persistency, mortality and morbidity rates, policyholder lapses, policy discontinuation and future expense levels. In addition, there is a risk that the model used to estimate life and health insurance reserves based on such assumptions could be incorrect.
Our life insurance subsidiary monitors its actual experience of these assumptions and to the extent that it considers any deviation from assumption to continue in the longer term, it refines its long-term assumptions. Changes in any such assumptions may lead to changes in the estimates of life and health insurance reserves and other actuarial information. Such changes may also impact the valuation of our life insurance subsidiary by existing or potential investors, and the valuation at which any future monetization of our shareholding in the life insurance subsidiary may take place, if at all.
While our life insurance subsidiary monitors its experience and assumptions, events such as the Covid-19 pandemic are not anticipated in setting life insurance reserves. Higher claims due to the pandemic would have an adverse impact on the earnings and net worth of the subsidiary.
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Loss reserves for our affilaite’s general insurance business are based on estimates as to future claims liabilities and adverse developments relating to claims could lead to further reserve additions and materially adversely affect the operation of our general insurance affiliate.
In accordance with the general insurance industry practice and accounting and regulatory requirements, our general insurance business establishes reserves for loss and loss adjustment expenses related to its general insurance business. Reserves are based on estimates of future payments that will be made in respect of claims, including expenses relating to such claims. The estimation of the loss reserves relies on several key actuarial steps and assumptions, for example, selection of the actuarial methods by line of business, groupings of similar product lines and determination of underlying actuarial assumptions like expected loss ratios, loss development factors, and loss cost trend factors. Such estimates are made on both a case-by-case basis of claims that have been reported but not settled, based on the facts and circumstances available at the time the reserves are established, as well as in respect of losses that have been incurred but not reported. These reserves represent the estimated ultimate cost necessary to bring all pending claims to final settlement.
Reserves are subject to change due to a number of variables which affect the ultimate cost of claims, such as changes in claims handling procedures, legal environment, social attitudes, results of litigation, costs of repairs, changing trends in medical costs, minimum wages and other factors such as inflation and exchange rates. Our general insurance company’s reserves for environmental and other latent claims are particularly subject to such variables. The results of operations of our general insurance company depend significantly upon the extent to which its actual claims experience is consistent with the assumptions it uses in setting the prices for products and establishing the liabilities for obligations for technical provisions and claims. To the extent that its actual claims experience is less favorable than the underlying assumptions used in establishing such liabilities, it may be required to increase its reserves, which may materially adversely affect its results of operations.
Established loss reserves estimates are periodically adjusted in the ordinary course of settlement, using the most current information available to management, and any adjustments resulting from changes in reserve estimates are reflected in current results of operations. Our general insurance company also conducts reviews of various lines of business to consider the adequacy of reserve levels. Based on current information available and on the basis of internal procedures, the management of our general insurance company considers that these reserves are adequate. However, because the establishment of reserves for loss and loss adjustment expenses is an inherently uncertain process, there can be no assurance that ultimate losses will not materially exceed the established reserves for loss and loss adjustment expenses and have a material adverse effect on the results of operations of our general insurance company. Such adverse effect may also impact the valuation of our general insurance company by existing or potential investors, and the valuation at which any future monetization of our shareholding in the general insurance company may take place, if at all. See also “—Risks relating to our insurance subsidiary and affiliate—Additional capital requirements of our insurance entities or our inability to monetize a part of our shareholding in these entities may adversely impact our business and the prices of our equity shares and ADSs”.
The financial results of our insurance companies could be materially adversely affected by the occurrence of a catastrophe.
Portions of our general insurance business may cover losses from unpredictable events such as hurricanes, windstorms, epidemics, monsoons, earthquakes, fires, industrial explosions, floods, riots and other man-made or natural disasters, including acts of terrorism, and epidemics or pandemics such as the Covid-19 pandemic. The incidence and severity of these catastrophes in any given period are inherently unpredictable. Although reserves are established after an assessment of potential losses relating to catastrophes covered, there is no assurance that such reserves would be sufficient to pay for all related claims.
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In addition, our life insurance subsidiary’s operations are also exposed to claims arising out of catastrophes and epidemics or pandemics, such as the Covid-19 pandemic, due to increased mortality and morbidity claims of affected customers. In the second wave of the Covid-19 pandemic, the number of new cases and resultant mortality has been higher compared to initial wave of the pandemic in 2020, and has resulted in a significant increase in claims on insurance companies, including our life insurance subsidiary. In addition, catastrophes could result in losses in the investment portfolios of our life insurance subsidiary due to, among other reasons, the failure of its counterparties to perform their obligations or significant volatility or disruption in the financial markets.
Our general insurance company’s operations are exposed to claims relating to catastrophes and epidemics or pandemics. Continuing higher claims related to Covid-19 may adversely impact the profitability of our general insurance company.
Although our insurance subsidiary and affiliate monitor their overall exposure to catastrophes and epidemics and other unpredictable events in each geographic region and determine their underwriting limits related to insurance coverage for losses from such events, the insurance subsidiary and affiliate generally seek to reduce their exposure through the purchase of reinsurance, selective underwriting practices and by monitoring risk accumulation. Claims relating to catastrophes and epidemics or pandemics may result in unusually high levels of losses and may require additional capital to maintain solvency margins and could have a material adverse effect on our financial position or results of operations.
Risks Relating to ADSs and Equity Shares
You will not be able to vote your ADSs and your ability to withdraw equity shares from the depositary facility is subject to delays and legal restrictions.
Our ADS holders themselves have no voting rights unlike holders of our equity shares who have voting rights. The ceiling on voting rights for holders of equity shares is 26.0% of the total voting rights of a Bank. See also “Major Shareholders”. If you wish, you may withdraw the equity shares underlying your ADSs and seek to exercise your voting rights under the equity shares you obtain from the withdrawal. However, for foreign investors, this withdrawal process may be subject to delays. For a discussion of the legal restrictions triggered by a withdrawal of the equity shares from the depositary facility upon surrender of ADSs, see also “Restriction on Foreign Ownership of Indian Securities”.
Your holdings may be diluted by additional issuances of equity and any dilution may adversely affect the market prices of our equity shares and ADSs.
In August 2020, we raised Rs. 150.00 billion (US$ 2.0 billion) of equity capital through a Qualified Institutions Placement. We may in the future conduct additional equity offerings to fund the growth of our business. In addition, up to 10.0% of our issued equity shares from time to time, may be granted in accordance with our Employee Stock Option Scheme. We constantly evaluate different financing options and any future issuance of equity shares or ADSs or exercise of employee stock options would dilute the positions of investors in equity shares and ADSs and could adversely affect the market prices of our equity shares and ADSs.
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You may be unable to exercise pre-emptive rights available to other shareholders.
A company incorporated in India must offer its holders of equity shares pre-emptive rights to subscribe and pay for a proportionate number of shares to maintain their existing ownership percentages prior to the issuance of any new equity shares, unless these rights have been waived by at least 75.0% of the company’s shareholders present and voting at a shareholders’ general meeting. United States investors in ADSs may be unable to exercise these pre-emptive rights for equity shares underlying ADSs unless a registration statement under the Securities Act of 1933, as amended (the “Securities Act”) is effective with respect to such rights or an exemption from the registration requirements of the Securities Act is available. Our decision to file a registration statement will depend on the costs and potential liabilities associated with any such registration as well as the perceived benefits of enabling investors in ADSs to exercise their preemptive rights and any other factors we consider appropriate at such time. To the extent that investors in ADSs are unable to exercise pre-emptive rights, their proportional ownership interests in us would be reduced.
Your ability to sell in India any equity shares withdrawn from the depositary facility, the conversion of rupee proceeds from such sale into a foreign currency and the repatriation of such foreign currency may be subject to delays if specific approval of the Reserve Bank of India is required.
ADS holders seeking to sell in India any equity shares withdrawn upon surrender of ADSs, convert the rupee proceeds from such sale into a foreign currency or repatriate such foreign currency may need the Reserve Bank of India’s approval for each such transaction. See also “Restriction on Foreign Ownership of Indian Securities”. We cannot guarantee that any such approval will be obtained in a timely manner or at terms favorable to the investor. Because of possible delays in obtaining the requisite approvals, investors in equity shares may be prevented from realizing gains during periods of price increases or limiting losses during periods of price declines.
Restrictions on deposit of equity shares in the depositary facility could adversely affect the price of our ADSs.
Under current Indian regulations, an ADS holder who surrenders ADSs and withdraws equity shares may deposit those equity shares again in the depositary facility in exchange for ADSs. An investor who has purchased equity shares in the Indian market may also deposit those equity shares in the ADS program. However, the deposit of equity shares may be subject to securities law restrictions and the restriction that the cumulative aggregate number of equity shares that can be deposited as of any time cannot exceed the cumulative aggregate number represented by ADSs converted into underlying equity shares as of such time. These restrictions increase the risk that the market price of our ADSs will be below that of the equity shares.
The depositary facility pursuant to which the ADSs are issued may be amended. Such amendment could include changes in the size of the ADS program. Any such amendment could adversely affect the market price and liquidity of our equity shares and ADSs or adversely affect the ability to trade the ADSs.
Certain shareholders own a large percentage of our equity shares and their actions could adversely affect the prices of our equity shares and ADSs.
The Life Insurance Corporation of India, the General Insurance Corporation of India and other government-owned general insurance companies, all of which are directly controlled by the Indian government, are among our principal shareholders. At March 31, 2022, the Life Insurance Corporation of India held 6.4% of our outstanding equity shares. See also “Major Shareholders”. Any substantial sale of our equity shares by these or other large shareholders could adversely affect the prices of our equity shares and ADSs. The Reserve Bank of India, in exercise of powers conferred by the Banking Regulation Act has notified a ceiling on voting rights in a banking company for single shareholder of 26.0%. Deutsche Bank Trust Company Americas held 19.0% of our equity shares at March 31, 2022 and must vote these shares as directed by our Board of Directors.
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Conditions in the Indian securities market may adversely affect the price or liquidity of our equity shares and ADSs.
The Indian securities markets are smaller and more volatile than securities markets in developed economies. In the past, the Indian stock exchanges have experienced high volatility and other problems that have affected the market price and liquidity of the listed securities, including temporary exchange closures, broker defaults, settlement delays and strikes by brokers. Following the outbreak of the Covid-19 pandemic in early 2020, the benchmark S&P BSE Sensex declined during the three months ended March 31, 2020 by 28.6%, from 41,254 level at December 31, 2019 to 29,468 at March 31, 2020. During this period, several listed securities were impacted, including us. The index has subsequently recovered and at June 30, 2022, the S&P BSE Sensex closed at 58,568. In the past as well volatility in the Indian stock markets have created temporary concerns regarding our exposure to the equity markets. In recent years, there have been changes in laws and regulations regulating the taxation of dividend income, which have impacted the Indian equity capital markets. See also “Dividends”. Similar problems or changes in the future could adversely affect the market price and liquidity of our equity shares and ADSs.
Settlement of trades of equity shares on Indian stock exchanges may be subject to delays.
The equity shares represented by ADSs are currently listed on the BSE Limited and the National Stock Exchange of India Limited. Settlement on those stock exchanges may be subject to delays and an investor in equity shares withdrawn from the depositary facility upon surrender of ADSs may not be able to settle trades on such stock exchanges in a timely manner. See also “—Risks Relating to ADSs and Equity Shares—Conditions in the Indian securities market may adversely affect the price or liquidity of our equity shares and ADSs.”
Changes in Indian regulations on foreign ownership, a change in investor preferences or an increase in the number of ADSs outstanding could adversely affect the prices of our equity shares and ADSs.
ADSs issued by companies in certain emerging markets, including India, may trade at a discount or a premium to the underlying equity shares, in part because of the restrictions on foreign ownership of the underlying equity shares. See also “Restriction on Foreign Ownership of Indian Securities”. Historically, our ADSs have generally traded at a small premium to the trading price of our underlying equity shares on the Indian stock exchanges. We believe that this price premium resulted from the limited portion of our market capitalization represented by ADSs, restrictions imposed by Indian law on the conversion of equity shares into ADSs and an apparent preference among some investors to trade dollar-denominated securities. In fiscal 2006 and fiscal 2008, we conducted offerings of ADSs which increased the number of outstanding ADSs and we may conduct similar offerings in the future. Also, over time, some of the restrictions on the issuance of ADSs imposed by Indian law have been relaxed. As a result, any premium enjoyed by ADSs as compared to the equity shares may be reduced or eliminated as a result of offerings made or sponsored by us, changes in Indian law permitting further conversion of equity shares into ADSs or a change in investor preferences.
Because the equity shares underlying ADSs are quoted in rupees in India, you may be subject to potential losses arising out of exchange rate risk on the Indian rupee.
Investors who purchase ADSs are required to pay for ADSs in U.S. dollars and are subject to currency fluctuation risk and convertibility risks since the equity shares underlying ADSs are quoted in rupees on the Indian stock exchanges on which they are listed. Dividends on the equity shares will also be paid in rupees and then converted into U.S. dollars for distribution to ADS investors. Investors who seek to convert the rupee proceeds of a sale of equity shares withdrawn upon surrender of ADSs into foreign currency and repatriate the foreign currency may need to obtain the approval of the Reserve Bank of India for each such transaction. See also “—Risks Relating to ADSs and Equity Shares—Your ability to sell in India any equity shares withdrawn from the depositary facility, the conversion of rupee proceeds from such sale into a foreign currency and the repatriation of such foreign currency may be subject to delays if specific approval of the Reserve Bank of India is required” and “Exchange Controls.”
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You may be subject to Indian taxes arising out of capital gains.
In certain circumstances, capital gains arising on the sale of the underlying equity shares are subject to Indian capital gains tax. Investors are advised to consult their own tax advisors and to carefully consider the potential tax consequences of owning ADSs or underlying equity shares. See also “Taxation—Indian Tax”.
There may be less company information available in Indian securities markets than in securities markets in the United States.
There is a difference between India and the United States in the level of regulation and monitoring of the securities markets and the activities of investors, brokers and other market participants. SEBI is responsible for improving disclosure and regulating insider trading and other matters for the Indian securities markets. There may however, be less publicly available information about Indian companies than is regularly made available by public companies in the United States.
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Shareholding Structure and Relationship with Government of India
The following table sets forth, at June 30, 2022, certain information regarding the ownership of our equity shares.
| Percentage of Total Equity Shares Outstanding | Number of Equity Shares Held | |||||||
| Government Controlled Shareholders: | ||||||||
| Life Insurance Corporation of India | 6.7 | 464,712,216 | ||||||
| Other Government-controlled institutions, insurance companies, reinsurers, corporations and banks | 0.9 | 64,868,332 | ||||||
| Total government-controlled shareholders | 7.6 | 529,580,548 | ||||||
| Other Indian Investors: | ||||||||
| SBI Mutual Fund | 5.2 | 365,564,781 | ||||||
| ICICI Prudential Mutual Fund | 3.0 | 212,830,714 | ||||||
| HDFC Mutual Fund | 2.2 | 150,673,907 | ||||||
| National Pension Scheme Trust | 1.9 | 132,479,927 | ||||||
| UTI Mutual Fund | 1.7 | 119,416,807 | ||||||
| Kotak Mutual Fund | 1.5 | 105,424,555 | ||||||
| Aditya Birla Sun Life Mutual Fund | 1.5 | 101,619,781 | ||||||
| Nippon India Mutual Fund | 1.4 | 97,613,013 | ||||||
| Axis Mutual Fund | 1.4 | 96,164,189 | ||||||
| SBI Life Insurance Company Limited | 1.2 | 84,854,307 | ||||||
| Mirae Asset Mutual Fund | 1.2 | 83,264,926 | ||||||
| Other mutual funds and alternative investment funds | 5.8 | 400,329,280 | ||||||
| Private sector insurance companies other than SBI Life Insurance Company | 2.3 | 160,552,210 | ||||||
| Other private sector corporations and financial institutions | 1.4 | 95,621,562 | ||||||
| Investor education protection fund | 0.1 | 7,535,763 | ||||||
| Individual domestic investors(1),(2) | 7.1 | 492,250,060 | ||||||
| Total other Indian investors | 38.9 | 2,706,195,782 | ||||||
| Total Indian investors | 46.5 | 3,235,776,330 | ||||||
| Foreign investors: | ||||||||
| Deutsche Bank Trust Company Americas, as depositary for American Depositary Shares (ADS) holders | 16.7 | 1,160,577,107 | ||||||
| Government of Singapore | 3.0 | 210,484,508 | ||||||
| Dodge and Cox International Stock Fund | 1.4 | 96,186,676 | ||||||
| Europacific Growth Fund | 1.1 | 75,470,114 | ||||||
| Other foreign institutional investors, foreign banks, overseas corporate bodies, foreign companies, foreign nationals, foreign institutional investors and non-resident Indians(2) | 31.3 | 2,177,860,161 | ||||||
| Total foreign investors | 53.5 | 3,720,578,566 | ||||||
| Total | 100.0 | 6,956,354,896 | ||||||
| (1) | Executive officers and directors (including non-executive directors) as a group held about 0.02% of ICICI Bank’s equity shares at June 30, 2022. |
| (2) | No single shareholder in this group owned 5.0% or more of ICICI Bank’s equity shares as of this date. |
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The holding of government-controlled shareholders was 7.6% at June 30, 2022 against 7.0% at June 30, 2021 and 11.1% at June 30, 2020. The holding of Life Insurance Corporation of India was 6.9% at June 30, 2022 against 6.0% at June 30, 2021 and 8.3% at June 30, 2020.
We operate as an autonomous commercial enterprise and the Indian government has never directly held any of our shares. We are not aware of or a party to any shareholders’ agreement or voting trust relating to the ownership of the shares held by the government-controlled shareholders. We do not have any agreement with our government-controlled shareholders regarding management control, voting rights, anti-dilution or any other matter. Our Articles of Association include a provision for the government of India to appoint, pursuant to the provisions of guarantee agreements between the government of India and ICICI, a representative to our Board. At present, there is no representative of the government of India on our Board. We have generally invited a representative of Life Insurance Corporation of India to join our Board. Since April 2019, there is no representative of Life Insurance Corporation of India on our Board. See also “Management—Directors and Executive Officers” for a discussion of the composition of our Board of Directors.
The holding of other Indian investors was 38.9% at June 30, 2022 against 33.5% at June 30, 2021 and 35.2% at June 30, 2020. The total holding of Indian investors was 46.5% at June 30, 2022 against 40.5% at June 30, 2021 and 46.3% at June 30, 2020. The holding of foreign investors was 53.5% at June 30, 2022 against 59.5% at June 30, 2021 and 53.7% at June 30, 2020. The Reserve Bank of India, exercising its powers under the Banking Regulation Act has established a limit of 26.0% on the voting rights of a single shareholder in a banking company. Deutsche Bank Trust Company Americas holds the equity shares represented by about 580 million American Depositary Receipts outstanding as depositary on behalf of the holders of the American Depositary Shares (ADS). The ADS are listed on the New York Stock Exchange. The Deutsche Bank Trust Company Americas (as depositary) which held 16.7% of our equity shares at June 30, 2022, must vote these shares as directed by our Board of Directors. Our ADS holders themselves have no voting rights unlike holders of our equity shares who have voting rights. Except as stated above, no shareholder has differential voting rights. See also “Supervision and Regulation—Structural Reforms—Amendments to the Banking Regulation Act” and “Supervision and Regulation—Ownership Restrictions”.
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In fiscal 2022, we entered into transactions with related parties consisting of (i) associates/other related entities and (ii) key management personnel and their close family members.
Related Parties
Associates/Other Related Entities
For fiscal 2022, the following parties were identified as our associates/other related entities: ICICI Lombard General Insurance Company Limited1, Arteria Technologies Private Limited, India Advantage Fund-III, India Advantage Fund-IV, India Infradebt Limited, ICICI Merchant Services Private Limited, I-Process Services (India) Private Limited, NIIT Institute of Finance Banking and Insurance Training Limited, Comm Trade Services Limited, ICICI Foundation for Inclusive Growth and Cheryl Advisory Private Limited.
1. From April 1, 2021, ICICI Lombard General Insurance Company Limited ceased to be a subsidiary and became an affiliate of the Bank.
Key Management Personnel and their Close Family Members
Our key management personnel include our executive directors. The following individuals were our key management personnel in fiscal 2022: Mr. Sandeep Bakhshi, Ms. Vishakha Mulye, Mr. Anup Bagchi, and Mr. Sandeep Batra. The close family members of the above key management personnel are also our related parties. Close family members in relation to the executive directors mean their spouses, children, children’s spouses, grand children, grand children’s spouses, siblings, sibling’s spouses, parents, maternal grand parents and paternal grand parents. We have applied the Indian GAAP standard and Reserve Bank of India Act 1934 in determining the close family members of the executive directors.
Related Party Transactions
The following are the material transactions between us and our associates/other related entities or our key management personnel or their close family members. A related party transaction is disclosed as a material related party transaction whenever it exceeds 10% of all related party transactions in that category.
For additional details, see also “Management—Compensation and Benefits to Directors and Officers—Loans” and note 2 - “Related Party Transactions” of Schedule 18 to the consolidated financial statements included herein.
Insurance Services
During fiscal 2022, we received insurance premiums from our associates/other related entities amounting to Rs. 67 million, from key management personnel of the Bank amounting to Rs. 4 million and from the close family members of key management personnel amounting to Rs. 5 million. The premiums received were towards cover for life insurance and investment linked insurance plans. The material transactions during fiscal 2022 included Rs. 48 million of premium received from ICICI Lombard General Insurance Company Limited and Rs. 19 million of premium received from ICICI Foundation for Inclusive Growth.
During fiscal 2022, we paid insurance premiums amounting to Rs. 3.2 billion to ICICI Lombard General Insurance Company Limited. The premiums paid were towards cover for health insurance, personal accident and miscellaneous items.
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During fiscal 2022, we paid claims including maturity, annuity and policy surrender value to our associates/other related entities amounting to Rs. 42 million and to key management personnel of the Bank amounting to Rs. 1 million. The material transactions during fiscal 2022 included Rs. 42 million paid to ICICI Lombard General Insurance Company Limited.
During fiscal 2022, we received claims towards health, fire, personal accident, motor and other miscellaneous items amounting to Rs. 147 million from ICICI Lombard General Insurance Company Limited.
Fees, Commission and Other Income
During fiscal 2022, we received fees, commission and other income from our associates/other related entities amounting to Rs. 1.2 billion, from key management personnel of the Bank amounting to Rs. 1 million and from the close family members of key management personnel amounting to Rs. 1 million. These transactions primarily arose from marketing and promotion fee, sponsorship and banking service fee, arranger fees and bank charges. The material transactions during fiscal 2022 included Rs. 1.1 billion of fees, commission and other income received from ICICI Lombard General Insurance Company Limited.
During fiscal 2022, we received commission on bank guarantees from our associates/other related entities amounting to Rs. 3 million. The material transactions during fiscal 2022 included Rs. 3 million commission received from ICICI Merchant Services Private Limited.
Income from Custodial Services
During fiscal 2022, we received income from custodial services amounting to Rs. 0.1 million from India Advantage Fund – III and India Advantage Fund – IV.
Recovery of Lease of Premises, Shared Corporate and Facilities Expenses
During fiscal 2022, we recovered cost towards sharing of premises, corporate infrastructure facilities and technology services from our associates/other related entities amounting to Rs. 353 million. The material transactions during fiscal 2022 included Rs. 315 million of cost recovered from ICICI Lombard General Insurance Company Limited and Rs. 39 million of cost recovered from ICICI Foundation for Inclusive Growth.
Payment of Lease of Premises, Shared Corporate and Facilities Expenses
During fiscal 2022, we paid cost towards sharing of premises, corporate infrastructure facilities and technology services to ICICI Lombard General Insurance Company Limited amounting to Rs. 1 million.
Recovery of Secondment of Employees
During fiscal 2022, we received compensation from I-Process Services (India) Private Limited amounting to Rs. 16 million for the recovery of secondment of our employees.
Brokerage, Fees and Other Expenses
During fiscal 2022, we paid brokerage, fees and other expenses to our associates/other related entities amounting to Rs. 12.3 billion. These transactions primarily pertain to outsourcing of manpower services and expenses towards providing basic banking services. The material transactions during fiscal 2022 included Rs. 8.5 billion in brokerage, fees and other expenses paid to I-Process Services (India) Private Limited and Rs. 3.8 billion in brokerage, fees and other expenses paid to ICICI Merchant Services Private Limited.
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Investments in Securities Issued by Related Parties
During fiscal 2022, we invested Rs. 1.0 billion in securities issued by India Infradebt Limited.
Purchase of Investments
During fiscal 2022, we purchased investments of Rs. 1.8 billion from ICICI Lombard General Insurance Company Limited. Purchase of investments included purchase of government securities and corporate bonds/debentures from secondary market.
Interest Expenses
During fiscal 2022, we paid interest on deposits accepted and bond borrowings to our associates/other related entities amounting to Rs. 192 million, to our key management personnel amounting to Rs. 5 million and to the close family members of key management personnel amounting to Rs. 2 million. The material transactions during fiscal 2022 included Rs. 164 million of interest paid to ICICI Lombard General Insurance Company Limited.
Interest Earned
During fiscal 2022, we received interest on investments in non-convertible bonds and loans from our associates/other related entities amounting to Rs. 511 million and from our key management personnel amounting to Rs. 6 million. The material transaction during fiscal 2022 included Rs. 505 million of interest received from India Infradebt Limited.
Purchase of fixed assets
During fiscal 2022, we purchased fixed assets from our associates/other related entities amounting to Rs. 5 million. The material transactions during fiscal 2022 included Rs. 3 million of fixed assets purchased from ICICI Lombard General Insurance Company Limited and Rs. 2 million of fixed assets purchased from Arteria Technologies Private Limited.
Dividend Income
During fiscal 2022, we received dividend income from our associates/other related entities amounting to Rs. 2.0 billion. The material transaction during fiscal 2022 was Rs. 1.9 billion of dividend received from ICICI Lombard General Insurance Company Limited.
Gain/(loss) on Foreign Exchange and Derivative Transactions (Net)
During fiscal 2022, we received gain on foreign exchange and derivative transactions from ICICI Lombard General Insurance Company Limited amounting to Rs. 37 million.
Reimbursement of Expenses to Related Parties
During fiscal 2022, we reimbursed expenses to ICICI Foundation for Inclusive Growth amounting to Rs. 2.2 billion for corporate social responsibility related activities.
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Reimbursement of Expenses from Related Parties
During fiscal 2022, we received Rs. 83 million on account of reimbursement of expenses from ICICI Lombard General Insurance Company Limited.
Dividends Paid
During fiscal 2022, we paid dividends to our key management personnel, amounting to Rs. 2.5 million and to the close family members of key management personnel, amounting to Rs. 0.0 million (insignificant amount). The dividend paid during fiscal 2022 to Ms. Vishakha Mulye was Rs. 1.8 million, to Mr. Sandeep Bakhshi was Rs. 0.4 million, to Mr. Sandeep Batra was Rs. 0.2 million, to Mr. Anup Bagchi was Rs. 0.1 million, to Mr. Shivam Bakhshi was Rs. 0.0 million (insignificant amount), to Ms. Esha Bakhshi was Rs. 0.0 million (insignificant amount) and to Ms. Minal Bakhshi was Rs. 0.0 million (insignificant amount).
Sale of Investments
During fiscal 2022, we sold investments to our associates/other related entities amounting to Rs. 8.3 billion. The material transactions during fiscal 2022 included Rs. 6.8 billion of investments sold to ICICI Lombard General Insurance Company Limited and Rs. 1.5 billion of investments sold to India Infradebt Limited. Sale of investments included sale of government securities and corporate bonds/debentures from secondary market.
Donations Given
During fiscal 2022, we gave donations to ICICI Foundation for Inclusive Growth amounting to Rs. 486 million.
Related Party Balances
The following table sets forth, at the date indicated, our balance payable to/receivable from our associates/other related entities:
Items |
At year-end fiscal 2022 |
| (in million) | |
| Deposits from related parties held by us | Rs. 3,425 |
| Payables to related parties | 3,483 |
| Our investments in related parties | 24,774 |
| Investments of related parties in the Group | 2,100 |
| Loans and advances to related parties(2) | 128 |
| Receivables from related parties | 1,928 |
| Guarantees issued by us for related parties | 59 |
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The following table sets forth, at the date indicated, the balance payable to/receivable from the key management personnel:
Items |
At year-end fiscal 2022 |
| (in million, except number of shares) | |
| Deposits from key management personnel | Rs. 125 |
| Payables to key management personnel | 0.0(1) |
| Investments in our shares held by key management personnel | 2 |
| Loans and advances to key management personnel(3) | 139 |
| Employee stock options outstanding of ICICI Bank (numbers) | 19,437,200 |
| Employee stock options outstanding of ICICI Prudential Life Insurance Company Limited (numbers) | 536,600 |
| Employee stock options of ICICI Bank exercised(4) | 394 |
The following table sets forth, at the date indicated, the balance payable to/receivable from the close family members of key management personnel:
Items |
At year-end fiscal 2022 |
| (in million) | |
| Deposits from close family members of key management personnel | Rs. 41 |
| Payables to close family members of key management personnel | 0.1 |
| Investments in our shares held by close family members of key management personnel | 3 |
| Loans and advances to close family members of key management personnel(2) | 0.3 |
The following table sets forth, for the period indicated, the maximum balance payable to/receivable from the key management personnel:
Items |
At year-end fiscal 2022 |
| (in million) | |
| Deposits from key management personnel | Rs. 277 |
| Payables to key management personnel | 0.1 |
| Investments in our shares held by key management personnel | 3 |
| Loans and advances to key management personnel(3) | 269 |
The following table sets forth, for the period indicated, the maximum balance payable to/receivable from the close family members of key management personnel:
Items |
At year-end fiscal 2022 |
| (in million) | |
| Deposits from close family members of key management personnel | Rs. 177 |
| Payables to close family members of key management personnel | 0.1 |
| Investments in our shares held by close family members of key management personnel | 3 |
| Loans and advances to close family members of key management personnel(2) | 2 |
| (1) | Insignificant amount. |
| (2) | The loans and advances (a) were made in the ordinary course of business, (b) were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and (c) did not involve more than the normal risk of collectability or present other unfavorable features. |
| (3) | The loans and advances (a) were made in the ordinary course of business and were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons or (b) were made on the same terms, including interest rates and collateral, as those prevailing at the time for other employees as part of employee loan scheme, and (c) did not involve more than the normal risk of collectability or present other unfavorable features. |
| (4) | During fiscal 2022, 1,921,500 employee stock options of ICICI Bank were exercised by the key management personnel of the Bank, which have been reported at exercise price. |
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Joint Ventures and Affiliates
From fiscal 2008, I-Process Services (India) Private Limited and NIIT Institute of Finance Banking and Insurance Training Limited were accounted as equity affiliates in consolidated financial statements.
From fiscal 2010, ICICI Merchant Services Private Limited was accounted as an equity affiliate in the consolidated financial statements.
From fiscal 2013, India Infradebt Limited was accounted as an equity affiliate. From fiscal 2015, India Advantage Fund-III and India Advantage Fund-IV were accounted as an equity affiliate. From fiscal 2019, Arteria Technologies Private Limited was accounted as an equity affiliate. From April 1, 2021, ICICI Lombard General Insurance Company Limited ceased to be a subsidiary and was accounted as an equity affiliate.
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We are a diversified financial services group offering a wide range of banking and financial services to corporate and retail customers through a variety of delivery channels. Apart from banking products and services, we offer life and general insurance, asset management, securities broking, and private equity products and services through our specialized subsidiaries and affiliates. Our consolidated total assets at year-end fiscal 2022 were Rs. 17,526.4 billion. Our consolidated capital and reserves and surplus at year-end fiscal 2022 were Rs. 1,820.5 billion and our consolidated net profit (after minority interest) for fiscal 2022 was Rs. 251.1 billion.
Our primary business consists of commercial banking operations for retail and corporate customers. Our commercial banking operations for retail customers consist of retail lending, deposit taking, distribution of insurance and investment products and other fee-based products and services. We provide a range of commercial banking products and services, including loan products, fee and commission-based products and services, deposit products and foreign exchange and derivatives products to India’s leading corporations, middle market companies and small and medium enterprises. We also offer agricultural and rural banking products. We earn interest and fee income from our commercial banking operations. We deliver our products and services through a variety of channels, including bank branches, ATMs, call centers, internet and mobile phones. We had a network of 5,418 branches and 13,626 ATMs in India at year-end fiscal 2022.
Our international franchise focusses on four strategic pillars, namely (a) the non-resident Indian ecosystem comprising deposits, remittances, investments and asset products; (b) multinational corporation ecosystem comprising both foreign multinational companies investing in India and Indian multinational companies branching out for their foreign currency and other India related requirements and also Global In-house Centres, which are back-offices of multinational companies; (c) trade ecosystem, comprising primarily India-linked trade transactions which are self-liquidating in nature; and (d) funds ecosystem, to capture fund flows into India through the Foreign Portfolio Investment and Foreign Direct Investment routes. At year-end fiscal 2022, we had banking subsidiaries in the United Kingdom and Canada, branches in China, Singapore, Dubai International Finance Centre, Hong Kong, the United States (New York), South Africa and Bahrain. We have representative offices in the United Arab Emirates (Dubai, Abu Dhabi and Sharjah), Bangladesh, Nepal, Malaysia (Kuala Lumpur), United States (Texas and California), Sri Lanka and Indonesia. Our subsidiary in the United Kingdom has a branch in Germany. See also “Risk factors—Risks Relating to Our Business—The exposures of our international branches and banking subsidiaries could generally affect our business, financial condition and results of operations”.
Our treasury operations include the maintenance and management of regulatory reserves, proprietary trading in equity and fixed income and a range of foreign exchange and derivatives products and services for corporate customers, such as forward contracts and interest rate and currency swaps.
We are also engaged in insurance, asset management, securities broking business and private equity fund management through specialized subsidiaries. Our subsidiaries, ICICI Prudential Life Insurance Company and ICICI Prudential Asset Management Company, provide a wide range of life insurance and asset management products respectively.
Our affiliate, ICICI Lombard General Insurance Company provides a wide range of general insurance products. In September 2021, the Insurance Regulatory and Development Authority of India and the National Company Law Tribunal approved the scheme of arrangement between ICICI Lombard General Insurance Company Limited and Bharti AXA General Insurance Company Limited, with effect from September 8, 2021. Pursuant to the scheme of arrangement, assets and liabilities of Bharti AXA’s general insurance business vested with ICICI General Insurance Company Limited on September 8, 2021 with effect from the Appointed Date of April 1, 2020. ICICI Lombard General Insurance Company Limited issued two fully paid up equity shares to the shareholders of Bharti AXA for every 115 fully paid up equity shares. Subsequent to issuance of equity shares to Bharti AXA shareholders, the Bank’s shareholding in ICICI Lombard General Insurance Company Limited reduced to below 50.0%, and from April 1, 2021, ICICI Lombard General Insurance Company Limited ceased to be a subsidiary and became an equity affiliate of the Bank.
Our subsidiary ICICI Securities Limited is engaged in equities underwriting, securities broking and distribution of financial products. Our subsidiary ICICI Securities Primary Dealership Limited is engaged in underwriting and primary dealership of government securities. Our private equity fund management subsidiary ICICI Venture Funds Management Company, manages funds that make private equity investments.
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Our legal name is ICICI Bank Limited, but we are known commercially as ICICI Bank. We were incorporated on January 5, 1994 under the laws of India as a limited liability corporation. The duration of ICICI Bank is unlimited. Our principal corporate office is located at ICICI Bank Towers, Bandra-Kurla Complex, Mumbai 400 051, India, our telephone number is +91 22 3366 7777 and our website address is www.icicibank.com. None of the contents of our and our subsidiaries’ websites are incorporated in this annual report. Our agent for service of process in the United States is Mr. Akshay Chaturvedi, Country Head, ICICI Bank Limited, New York Branch, 500 Fifth Avenue, Suite 2830, New York, New York 10110.
ICICI was formed in 1955 at the initiative of the World Bank, the Government of India and Indian industry representatives. The principal objective was to create a development financial institution for providing medium-term and long-term project financing to Indian businesses. Until the late 1980s, ICICI primarily focused its activities on project finance, providing long-term funds to a variety of industrial projects. With the liberalization of the financial sector in India in the 1990s, ICICI transformed its business from a development financial institution offering only project finance to a diversified financial services provider that, along with its subsidiaries and other group companies, offered a wide variety of products and services. ICICI Bank was incorporated in 1994 as a part of the ICICI group. ICICI and ICICI Bank merged in 2002.
In fiscal 2022, we maintained our strategic focus on profitable growth in business within the guardrails of risk and compliance. We grew our credit portfolio with a focus on granularity and saw healthy growth across our retail, SME and business banking portfolios, and in current and savings account deposits on a daily average basis. We continued to focus on holistically serving our corporate clients and their ecosystems, including lending to the corporate sector based on risk assessment and pricing. We focused on maintaining a strong balance sheet, with prudent provisioning and healthy capital adequacy. We continue to hold high provisioning coverage on non-performing loans. We also hold additional contingency provisions to mitigate any stress that could arise due to the Covid-19 pandemic and other uncertainties. Our capital position is strong with capital adequacy ratios significantly above regulatory requirements at March 31, 2022.
Going forward, we will continue with our strategic focus on growing the core operating profit (profit excluding income from treasury-related activities and before provisions) in a risk-calibrated manner. Our Risk Appetite and Enterprise Risk Management framework sets out our risk appetite, including a limit framework for various risk categories. We will focus on growing our loan portfolio in a granular manner based on risk and reward, with focus on return of capital and containment of provisions below a defined percentage of core operating profit. We have no specific targets for loan mix or segment-wise loan growth. We will aim to continue to grow our deposit franchise, maintain a stable and healthy funding profile and our competitive advantage in cost of funds.
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We see significant opportunities for profitable growth across various sectors of the Indian economy. The key elements of our strategy to maximize our share of these opportunities are:
360-degree customer centric approach
We leverage our branch network, digital channels, partnerships and presence across various ecosystems to expand our customer base. Using ICICI STACK, the Bank offers solutions to its customers to suit their life-stage and business needs. We plan to continue to focus on maximizing the total life-cycle value of the relationship with the customer.
Focus on ecosystems
We aim to serve all financial requirements of customers and their ecosystems. Using ‘ICICI STACK for Corporates’, we offer customized solutions to corporates and their network of employees, vendors, dealers and other parts of their ecosystems. We focus on capturing the fund flows in the corporate’s supply chain with dealers and vendors by offering various digital solutions. Our ecosystem branches house multi-functional teams required to nurture relationships and bring the entire bouquet of services of the Bank to the corporates and their ecosystems. Our “Merchant Stack” provides a wide range of banking and value added services to the merchant ecosystem comprising retailers, online businesses and large e-commerce firms.
Focus on micro markets
The Bank follows a micro market based approach to create an efficient distribution and resource allocation strategy. Our data analytics capabilities enable us to analyze relevant geographical, demographic and economic data combined with internal data to identify locally relevant opportunities. This also includes allocating appropriate resources and strengthening the branch network where required.
Internal cross-functional collaboration and external partnerships
The Bank has focused on increasing collaboration to provide solutions that meet the complete banking requirements of customers. Cross-functional teams have been created to tap into various ecosystems, enabling 360-degree coverage of customers and increasing wallet share.
Partnerships with technology companies and platforms with large customer bases and transaction volumes offer unique opportunities for acquiring new customers and enhancing service delivery and customer experience. We have also set up a start-up investment and partnerships team to collaborate with and invest in fintech startups and co-develop products aligned with our digital roadmap.
Process decongestion and operating flexibility
Our strategy emphasizes decongestion of internal process to make customer onboarding and service delivery frictionless, thereby improving the customer experience. We have reduced the layers of management in our organization structure and empowered operating teams, to create flexibility and agility in capturing business opportunities while operating within the guardrails of compliance and risk.
Leveraging technology and digital across businesses
The Bank has embarked on a journey to transform from Bank to BankTech, with a focus on creating an enterprise architecture framework across digital platforms, data and analytics, micro services based architecture, cloud computing, cognitive intelligence and other emerging technologies. This is based on the founding pillars of scalability, modularity, flexibility, agility, resilience and reliability, and creating delightful and digitally native customer experiences to enable sustainable profitable growth.
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We extensively leverage data analytics for deeper insights into customer needs and behavior and create unique propositions for customer and market segments. Our various digital platforms such as iMobile Pay, internet banking platforms, InstaBIZ and Trade Online provide end-to-end seamless digital journeys, personalized solutions and value added features to customers and enable effective data driven cross-sell and up-sell. The open architecture feature of iMobile Pay and InstaBIZ helps us to acquire new customers in a frictionless manner. We have taken a number of initiatives to offer a convenient and frictionless experience to customers by digitizing the credit underwriting process, with instant loan approvals. We will continue to enhance our cyber security and invest in technology to enhance our offerings to customers as well as the scalability, flexibility and resilience of our technology architecture.
Guiding principles of our strategy
We are focused on the twin principles of “One Bank, One RoE” emphasizing the need to maximize our share of the target opportunity across all products and services, and the principle of “Fair to Customer, Fair to Bank” emphasizing the goal of delivering fair value to customers, while creating value for shareholders. The Bank-level core operating profit and containing the total provisions within a certain level of core operating profit of the Bank are key performance indicators for the Bank’s leadership team. We seek to sell products and offer services which meet societal needs and are in the interest of our customers. We focus on building a culture where every employee upholds this principle and serves customers with humility. We aim to be the trusted financial services provider of choice for our customers.
During fiscal 2021, the Covid-19 pandemic resulted in a nation-wide lockdown in April-May 2020 which substantially impacted economic activity. Several unprecedented fiscal and monetary measures were taken by the Government of India and the Reserve Bank of India to provide stability to the financial sector and protect individuals, businesses and the banking sector from adverse economic consequences. The easing of lockdown measures subsequently led to gradual improvement in economic activity and progress towards normalcy from the second half of fiscal 2021. In fiscal 2022, India witnessed two more waves of the Covid-19 pandemic and the re-imposition of localised/regional lock-down measures in certain parts of the country. Currently, while the number of new Covid-19 cases have reduced significantly and the Government of India has withdrawn most of the Covid-19 related restrictions, the future trajectory of the pandemic may have an impact on the results of the Bank and the Group. See also “Risk Factors—Risks Relating to Our Business—The future trajectory of the Covid-19 pandemic is uncertain and could adversely affect our business, the quality of our portfolio and our financial performance.” and “Risk Factors—Risks Relating to India and Other Economic and Market Risks—A prolonged slowdown in economic growth in India could cause our business to suffer.”
Overview of Our Products and Services
We offer products and services in the commercial banking area to corporate and retail customers, both domestic and international. We also undertake treasury operations and offer treasury-related products and services to our customers. We are also engaged in insurance, asset management, securities broking business, housing finance and private equity fund management through specialized subsidiaries.
Commercial Banking for Retail Customers
Our commercial banking operations for retail customers consist of retail lending and deposits, and fee based products and services like credit, debit and prepaid cards, depositary share accounts, distribution of third party investment and insurance products.
Retail Lending Activities
Our retail lending activities include home loans, automobile loans, commercial business loans, personal loans, credit cards, consumer durable goods financing, loans against time deposits and loans against securities. We also fund dealers who sell automobiles and commercial vehicles. Up to fiscal 2020, we reported business banking and various products of our rural portfolio such as loans against jewelry, kisan credit card as a part of our retail lending activities. From fiscal 2022, we have started presenting business banking and products of rural portfolio separately.
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Our suite of products and services for retail customers includes savings, investment, credit and protection products, along with convenient payment and transaction banking services. Our retail portfolio consists largely of secured lending, with growth based on proprietary data and analytics in addition to credit bureau checks, and is intended to be well-priced in relation to the risk. Our deposit franchise enables us to offer competitive pricing to selected customer segments. We also leverage our existing customer database for sale of key retail asset products through cross-sell and up-sell. Our underwriting process involves a combination of key variables to assess the cash flow and repayment ability of the customer like income, leverage, customer profile, affluence markers, credit bureau data and demographics. We utilize multiple data points including liability and asset relationships, transaction behavior and bureau behavior along with proprietary machine learning and statistical models for making credit decisions.
The following table sets forth, at the dates indicated, the break-down of our gross retail finance portfolio.
At March 31, | ||||||||||||||||
2021 | 2022 | 2022 | 2022 | |||||||||||||
| (Rs. in billions) | (% share) | (US$ in millions) | ||||||||||||||
| Home loans | Rs. 2,806.2 | Rs. 3,323.8 | 65.9 | % | US$ 43,810 | |||||||||||
| Automobile loans | 371.1 | 406.5 | 8.1 | 5,358 | ||||||||||||
| Commercial business loans(1) | 277.2 | 266.0 | 5.3 | 3,506 | ||||||||||||
| Others(2) | 84.9 | 129.9 | 2.6 | 1,711 | ||||||||||||
| Total secured retail finance portfolio | 3,539.4 | 4,126.2 | 81.9 | 54,385 | ||||||||||||
| Personal loans | 506.1 | 632.8 | 12.5 | 8,340 | ||||||||||||
| Credit card receivables | 183.3 | 254.7 | 5.1 | 3,357 | ||||||||||||
| Others(3) | 19.5 | 26.7 | 0.5 | 352 | ||||||||||||
| Total unsecured retail finance portfolio | 708.9 | 914.2 | 18.1 | 12,049 | ||||||||||||
| Total retail finance portfolio | Rs. 4,248.3 | Rs. 5,040.4 | 100.0 | % | US$ 66,434 | |||||||||||
| (1) | Includes commercial vehicles and construction equipment. |
| (2) | Includes two-wheeler loans, loan against securities and dealer financing. |
| (3) | Primarily includes dealer financing. |
Home loans
Our home loan portfolio includes loans for both purchase and construction of homes as well as loans against property. We also offer instant top-up on home loans to existing home loan customers. Our policies for home loans are based on certain stipulated ratios such as the loan-to-value ratio and the ratio of fixed debt obligations to a borrower’s income. The initial repayment term of home loans is 15 to 20 years with payments in the form of equal monthly installments. The credit process includes cashflow assessment of the borrower as well as evaluating the property being mortgaged against the legal and technical standards defined at the Bank.
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We follow robust credit appraisal processes for loan-against-property. The average loan-to-value ratios of the loan-against-property portfolio are lower compared to our home loan portfolio. Lending is based on cash flows of borrowers and not just the value of the collateral. We also provide loans to customers belonging to economically weaker sections and customers buying homes in the low-cost affordable housing segment. The loan amount under this segment is generally up to Rs. 3.0 million. Our initiatives to digitize the entire underwriting process with instant approvals have been one of the drivers of growth in our home loan portfolio. See also “Technology” and “Risk Factors—Risks Relating to Our Business—Our banking and trading activities are particularly vulnerable to interest rate risk and volatility in interest rates could adversely affect our net interest margin, the value of our fixed income portfolio, our income from treasury operations, the quality of our loan portfolio and our financial performance”.
Our home loans primarily have floating interest rates linked to repo rate of the Reserve Bank of India. Home loans are repaid in equated monthly installments over the tenor of the loan. An increase in the repo rate will increase the interest rate on home loans and a decrease in repo rate will decrease the interest rate on home loans. When interest rates on home loans increase, the tenor of the loan is extended and in instances where this is not possible, the equated monthly installments of the loan are increased. When interest rates on home loans decrease, the tenor of the loan is reduced leaving the equated monthly installments unchanged. See also “Risk factors—Our banking and trading activities are particularly vulnerable to interest rate risk and volatility in interest rates could adversely affect our net interest margin, the value of our fixed income portfolio, our income from treasury operations, the quality of our loan portfolio and our financial performance”.
We offer home loan products primarily in India through ICICI Bank and our wholly owned subsidiary, ICICI Home Finance Company Limited. The loan portfolio of our housing finance subsidiary includes home loans, loans-against-property and loans to developers among others. The loan portfolio of ICICI Home Finance Company Limited increased by 5.4% from Rs. 137.6 billion at March 31, 2021 to Rs. 145.0 billion at March 31, 2022. The total assets under management, including securitized assets, increased from Rs. 169.7 billion at March 31, 2021 to Rs. 178.7 billion at March 31, 2022. ICICI Home Finance Company Limited raises funds through term loans from banks (including external commercial borrowings), bonds and debentures, commercial papers, fixed deposits and refinance from National Housing Bank. At March 31, 2022, ICICI Home Finance Company Limited had a branch network of 170 branches.
Our banking subsidiary in Canada offers residential mortgages in the local market. ICICI Bank Canada held total residential mortgages amounting to CAD 3,692 million (Rs. 223.3 billion) at year-end fiscal 2022 as compared to CAD 3,627 million (Rs. 210.5 billion) at year-end fiscal 2021. This includes mortgages of CAD 2,400 million (Rs. 145.2 billion) at year-end fiscal 2022 as compared to CAD 2,572 million (Rs. 149.2 billion) at year-end fiscal 2021 securitized under the Canadian National Housing Act—Mortgage Backed Securities program or through participation in the Canada Mortgage Bonds program. Further, the total residential mortgages also include conventional mortgages of CAD 1,223 million (Rs. 74.0 billion) at year-end fiscal 2022 as compared to CAD 887 million (Rs. 51.5 billion) at year-end fiscal 2021 and insured mortgages of CAD 69 million (Rs. 4.2 billion) at year-end fiscal 2022 as compared to CAD 169 million (Rs. 9.8 billion) at year-end fiscal 2021.
Automobile loans
We finance the purchase of new and used automobiles. Automobile loans are fixed rate products repayable in equal monthly installments. The interest rate is based on factors such as customer relationship, car segment and tenure of loan, among others, for new automobiles and age and segment of car, tenure of loan and product variant like top-up or refinance, for used automobiles. Our automobile loans for new cars typically range from Rs. 250,000 to Rs. 5,000,000 in size with tenors in the range of 12 to 84 months.
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Commercial business loans
We finance the purchase of commercial vehicles and equipment. Commercial business loans are fixed rate products repayable in equal monthly installments. Our commercial business customers include large fleet operators in the medium commercial vehicle and heavy commercial vehicle categories. Our commercial vehicles portfolio is not concentrated, with the top 20 customers contributing approximately 2.5% of the commercial vehicles portfolio at year-end fiscal 2022.
Personal loans and credit cards
We also offer unsecured products such as personal loans and credit cards to our customers. Personal loans and credit card receivables have fixed interest rates. At year-end fiscal 2022, approximately 75% of our personal loan and credit card portfolio was extension of credit to existing customers of the Bank, and approximately 85% of the portfolio comprised salaried individuals. We offer a range of instant personal loans and credit cards that are accessible entirely through our digital channels. The Bank’s personal loan disbursements in fiscal 2022 were Rs. 391.1 billion, which was approximately 17.6% of total retail loan disbursements. Our personal loans typically range from Rs. 50,000 to Rs. 4,000,000 in size with tenors of one to five years and yields ranging from 11% to 22%.
Retail Deposits
Our retail deposit products include time deposits and savings account deposits. We offer these products with special features targeted at specific customer segments such as high net worth individuals, defense personnel, trusts and businessmen. We also offer real-time account opening and activation to savings account customers, through enhanced system-driven validations. We also offer corporate salary account products and current account (i.e., checking accounts for businesses) products to our small enterprise customers, who maintain balances with us. At year-end fiscal 2022, we had a debit card base of approximately 37 million cards compared to 39 million cards at year-end fiscal 2021. The decline was due to closure of dormant and inactive accounts during fiscal 2022.
Fee-Based Products and Services
Through our distribution network, we offer various products including Government of India savings bonds, sovereign gold bonds, insurance policies, bullion and public offerings of equity shares and debt securities by Indian companies. We offer several card-based products such as credit cards, debit cards, prepaid cards, travel cards and commercial cards. We also offer a variety of mutual fund products. We levy services charges on deposit accounts. We also offer foreign exchange products to retail customers including sale of currency notes, traveler’s checks and travel cards. We also facilitate retail inward remittances from foreign geographies.
As a depositary participant of the National Securities Depository Limited and Central Depository Services (India) Limited, we offer depositary share accounts to settle securities transactions in a dematerialized mode. Further, we are one of the banks designated by the Reserve Bank of India for issuing approvals to non-resident Indians and overseas corporate bodies to trade in shares and convertible debentures on the Indian stock exchanges and operating their banking and custody accounts.
Retail lending for rural customers
The Bank’s rural banking operations aim to meet the financial requirements of customers in rural and semi-urban locations. Our products in this segment include working capital loans for growing crops, financing of post-harvest activities, loans against gold jewelry along with personal loans, financing against warehouse receipts, farm equipment loans and affordable housing finance and auto and two wheeler loans. We also provide consumption loans for low-income customers. We offer financial solutions to micro-finance institutions, self-help groups, co-operatives constituted by farmers, corporations and medium enterprises engaged in agriculture-linked businesses. The rural banking portfolio grew by 7.6% from Rs. 739.0 billion at year-end fiscal 2021 compared to Rs. 795.1 billion at year-end fiscal 2022.
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The following table sets forth, at the dates indicated, the break-down of our gross rural finance portfolio.
| At March 31, | ||||||||||||||||
| 2021 | 2022 | 2022 | 2022 | |||||||||||||
| (Rs. in billion) | (Rs. in billion) | % share | (US$ in million) | |||||||||||||
| Farmer finance1 | Rs. 228.8 | Rs. 241.0 | 30.3 | % | US$ 3,176 | |||||||||||
| Loans against jewelry | 239.0 | 208.2 | 26.2 | 2,744 | ||||||||||||
| Rural business credit | 145.9 | 193.8 | 24.4 | 2,554 | ||||||||||||
| Others2 | 125.3 | 152.1 | 19.1 | 2,005 | ||||||||||||
| Rural advances | Rs. 739.0 | Rs. 795.1 | 100.0 | % | US$ 10,479 | |||||||||||
1. Includes kisan credit card.
2. Includes term loans for farm equipment, self-help groups, loans to microfinance institutions for on-lending to individuals and inventory funding.
Our rural banking operations primarily focus on six main ecosystems identified in the rural market which include farmers, dealers, self-employed persons, corporates, institutions and micro-entrepreneurs.
The farmer ecosystem includes participants such as farmers, seed producers, agri-input dealers, warehouses, agri-equipment dealers, commodity traders and agri processors. Products offered include working capital loans through the kisan credit card and gold loan products, and term loans for farm equipment, dairy livestock purchase and farm development. See also “Selected Statistical Information—Loan Concentration—Directed Lending”.
The dealer ecosystem comprises dealers/distributors of farm equipment, white goods, and pharmaceutical manufacturers. Similarly, the self-employed ecosystem comprises of rural entrepreneurs who are engaged into trading and manufacturing activities based out of commercial and industrial areas in the rural market dealing with both agriculture and non-agriculture related products. The rural ecosystem of corporates includes manufacturing and processing units, employees, dealers and suppliers. The institutional segment comprises various institutes like schools, colleges, hospitals and government offices. The micro-lending space includes women from the lower-income strata of the population, non-government organizations and other institutions working at the grass-root level in the rural economy.
We have scaled-up funding of electronic negotiable warehousing receipts, which provides an opportunity for farmers to access credit quickly and with ease. Farmers can use electronic negotiable warehousing receipts to get loans against underlying commodities. This protects the farmers from volatility and gives opportunities to avail better prices for their produce. Apart from meeting the financial requirements for business purposes, we also offer products to meet the personal requirements of customers in the rural ecosystem.
We have adopted a community banking approach with emphasis on personal relationships with customers. Our operational structure enables us to meet the holistic financial needs of the customers in the villages at their doorstep. Our reach in rural areas comprises a network of branches, ATMs and field staff, and business correspondents providing last-mile access in remote areas. As at year-end fiscal 2022, we had a network of 5,418 branches, of which 51.2% were in rural and semi-urban areas with 649 branches in villages that were previously unbanked. The Bank had a network of over 20,500 branches, including business correspondent outlets. As at March 31, 2022, we had over 3,300 ATMs and 490,000 digital service points in rural areas. See also “Risk Factors—Risks Relating to Our Business—Entry into new businesses or rapid growth in existing loan portfolios may expose us to increased risks that may adversely affect our business”. At year-end fiscal 2022, more than 4,000 customer service points were enabled through our business correspondent network.
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See also “Risk Factors—Risks that arise as a result of our presence in a highly regulated sector—We are subject to the directed lending requirements of the Reserve Bank of India, which may also involve buying related certificates at a premium to meet the annual targets, and any shortfall in meeting these requirements may be required to be invested in Government of India schemes that yield low returns, thereby impacting our profitability. We may also experience a higher level of non-performing assets in our directed lending portfolio, which could adversely impact the quality of our loan portfolio, our business and the prices of our equity shares and ADSs.”
Commercial banking for Small and Medium Enterprises and Business Banking
Our business banking customers include proprietorship firms, partnership firms and private limited companies. The average size of loans in this segment is approximately Rs. 10.0-15.0 million. Our focus in this segment is on using digital channels and ensuring granularity, obtaining adequate collateral and robust monitoring. More than 95% of our business banking portfolio has collateral covering more than 100% of the outstanding value of the loan. The loans are generally secured by collateral in the form of property apart from a charge on current assets.
Our small and medium enterprise portfolio consists of enterprises with a turnover of up to Rs. 2.5 billion. We offer a wide spectrum of banking products and solutions to small and medium enterprises to address their evolving business needs. This involves customized offerings, faster turnaround time, transaction convenience, timely access to capital and cross-border trade and foreign exchange. We offer digital solutions for on-boarding, payments and collections, lending and cross-border transactions. We focus on providing parameterized and programme-based lending for small and medium enterprises, which is granular and well-collateralized.
We are focused on growing this portfolio by leveraging our distribution network and through various digital channels and platforms, tapping corporate ecosystems and ongoing efforts towards process decongestion.
Following the Covid-19 pandemic, we have provided financial assistance to clients based on various Government of India schemes, which includes providing moratorium on loan repayment and emergency credit lines to eligible small and medium enterprise customers. We had disbursed about Rs. 170.0 billion to our retail and micro, small and medium enterprises customers under the Government of India’s Emergency Credit Line Guarantee Scheme until year-end fiscal 2022.
Commercial Banking for Corporate Customers
Our product suite for corporate customers includes working capital and term loan products and transaction banking services, fee and commission-based products and services, deposits and foreign exchange and derivatives products across trade, treasury, bonds, commercial papers, channel financing, supply chain solutions, and various other activities. Our approach has been to deepen our partnership and support to clients through their life cycle. Our corporate customer base includes top business houses, large and medium private and public sector companies, financial institutions, banks, non-bank finance companies, private equity funds and financial sponsors. We have established relationships with multinational companies operating in India, and financial sponsors, including private equity funds and their investee companies. We offer transaction banking services to corporates to meet the day-to-day needs for smooth functioning of their businesses. The transaction banking services offered include account related services, payment and collection services, domestic and cross border trade finance, working capital finance and supply chain finance. We offer integrated cash management and trade finance solutions to our customers. Our transaction banking solutions are delivered to our customers through physical and digital channels and a team of account managers. In addition to leveraging the physical branch network, we have expanded our capabilities for providing transaction banking services to our customers from 183 locations at year-end fiscal 2021 to 211 locations at year-end fiscal 2022. Many of these expanded branch capabilities are in the factory/township premises of certain large conglomerates in the country.
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Corporate Loan Portfolio
Our corporate loan portfolio consists of project and corporate finance (including structured finance and cross-border acquisition financing) and working capital financing. For further details on our loan portfolio, see “Selected Statistical Information—Loan Concentration”. For a description of our credit rating and approval system, see “—Risk Management—Credit Risk”.
Our project finance portfolio consists principally of medium-term and long-term rupee and foreign currency loans to the manufacturing and infrastructure sectors. We also provide financing by way of investment in marketable instruments such as fixed rate and floating rate debentures. We generally have a security interest on the fixed assets of the borrower although some of our financing is also extended on an unsecured basis. Our working capital financing consists mainly of cash credit facilities, overdraft, demand loans and non-fund based facilities including bill discounting, letters of credit and guarantees.
Fee and Commission-Based Activities
We generate fee income through our lending, transaction banking, syndication and foreign exchange related solutions provided to our corporate customers. We also offer our corporate customers a wide variety of fee and commission-based products and services including documentary credits and standby letters of credit (called guarantees in India).
Further, we are one of the banks designated by the Reserve Bank of India for issuing approvals to non-resident Indians and overseas corporate bodies to trade in shares and convertible debentures on the Indian stock exchanges and operating their banking and custody accounts. We also offer services such as escrow, trust and retention account facilities, online payment facilities, custodial services and tax filing and collection services on behalf of the Government of India and the governments of Indian states.
At year-end fiscal 2022, total assets held in custody on behalf of our clients (mainly foreign institutional investors, offshore funds, overseas corporate bodies and depositary banks for Global Depository Receipts (GDR) investors were Rs. 19,272.0 billion. As a registered depositary participant of National Securities Depository Limited and Central Depository Services (India) Limited, the two securities depositaries operating in India, we also provide electronic depositary facilities to investors.
Corporate Deposits
We offer a variety of deposit products to our corporate customers including current accounts, time deposits and certificates of deposits. For more information on the type, cost and maturity profile of our deposits, see “Selected Statistical Information—Funding”.
Foreign Exchange and Derivatives
We provide customer specific products and services, which cater to risk hedging needs of corporations at domestic and international locations, arising out of currency and interest rate fluctuations. The products and services include:
· Foreign Exchange Products
Products include cash, tom, spot and forwards transactions. We offer customized hedging and trading solutions to clients, on the basis of their business needs. These products are offered in India and across our international locations.
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· Derivatives
We offer derivative products including interest rate swaps, currency swaps and options in all major currencies.
Commercial Banking for Government and Institutions
We provide a range of banking services including customized products and services for enhancing e-governance and financial management to government departments and bodies across various levels such as central, state, district and local bodies which include municipalities and gram panchayats. We assist the government for collection of central taxes, state taxes and goods and services tax payments through authorized branches and digital channels. Our integrated banking platforms provide simple online tax payment options to customers. Statutory payments like Employees’ Provident Fund Organization and Employees’ State Insurance Corporation dues can be done online through our platforms. These efforts also result in deposit balances for the Bank.
We have on-boarded a number of central and state government departments to ensure quick disbursement of funds and benefits to beneficiaries and implementing agencies through the Public Financial Management System of the Government of India. We are also assisting state level nodal agencies and last mile implementing agencies for adopting efficient release of Government of India scheme funds.
We also provide financial services to other institutions, including educational institutions, hospitals and cooperative societies, among others and offer a range of technology driven collections and payment solutions.
Commercial Banking for International Customers
Our international franchise focusses on four strategic pillars, namely (a) the non-resident Indian ecosystem comprising deposits, remittances, investments and asset products; (b) multinational corporation ecosystem comprising both foreign multinational companies investing in India and Indian multinational companies branching out for their foreign currency and other India related requirements and also Global In-house Centres, which are back-offices of multinational companies; (c) trade ecosystem, comprising primarily India-linked trade transactions which are self-liquidating in nature; and (d) funds ecosystem, to capture fund flows into India through the Foreign Portfolio Investment and Foreign Direct Investment routes. During fiscal 2022, we continued to reduce non-India linked exposures in a planned manner. Further, our overseas banking subsidiaries continue to serve local markets selectively with a focus on risk mitigation and granularity of business.
Many of the products that we offer through our overseas branches and subsidiaries, as well as to international customers from our domestic network, such as debt financing, trade finance and letters of credit, are similar to the products offered to our customers in India.
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Total assets (net of inter-office balances) of ICICI Bank’s overseas branches at year-end fiscal 2022 were Rs. 866.0 billion and total advances were Rs. 412.8 billion compared to total assets of Rs. 858.4 billion and total advances of Rs. 375.9 billion at year-end fiscal 2021. The year-on-year increase in our overseas branches loan portfolio was primarily due to increase in the India-linked trade finance book. Our overseas branches are primarily funded by bond issuances, syndicated loans from banks, money market borrowings, inter-bank bilateral loans and borrowings from external commercial agencies. The overseas loan portfolio of ICICI Bank was 4.8% of the overall loan portfolio at year-end fiscal 2022. The corporate fund and non-fund outstanding, net of cash/bank/insurance backed lending, was US$ 3.7 billion at March 31, 2022. Out of US$ 3.7 billion, 82.4% of the outstanding was to Indian corporates and their subsidiaries and joint ventures and 9.5% of the outstanding was to non-India companies with Indian or India-linked operations and activities and this portfolio is generally well-rated and the Indian operations of these companies are our target customers for deposit and transaction banking franchise. The Bank will continue to pursue risk calibrated opportunities in this segment. Out of US$ 3.7 billion, approximately 4.2% of the outstanding was to companies owned by non-resident Indians/person of Indian origins and 3.9% of the outstanding was to other non-India companies which is less than 1.0% of the total portfolio of the Bank. The non-India linked corporate portfolio reduced by 48.2% from about US$ 1.2 billion year-on-year to US$ 641 million at March 31, 2022. See also “Risk Factors—Risks Relating to Our Business—Our funding is primarily short-term and if depositors do not roll over deposited funds upon maturity, our business could be adversely affected”.
Our subsidiaries in the United Kingdom and Canada are full service banks offering retail and corporate banking services. These subsidiaries offer direct banking using the internet as the access channel. Our subsidiary in the United Kingdom offers loans to corporate businesses, including to Europe-based multinational corporations which have active trade and investment flows with India, large businesses owned by persons of Indian origin and for Indian corporations seeking to develop their overseas businesses. Our subsidiary in Canada originates residential mortgages, primarily insured and qualifying for insurance by either the Canadian federal government agency or insurance companies back-stopped by the Canadian federal government, and offers loans to both Canadian and US corporations as well as Indian corporations seeking to develop their business overseas. Our overseas subsidiaries also aim to reduce their exposures to non-India linked corporate loan portfolio, subject to regulatory requirements.
At year-end fiscal 2022, ICICI Bank UK PLC had seven branches in the United Kingdom and a branch in Germany. At year-end fiscal 2022, the total assets of ICICI Bank UK PLC were US$ 2.2 billion. ICICI Bank UK PLC made a net profit of US$ 11 million during fiscal 2022, compared to US$ 15 million during fiscal 2021. At year-end fiscal 2022, loans and advances of ICICI Bank UK PLC were US$ 1.2 billion and investments were US$ 0.5 billion.
At year-end fiscal 2022, ICICI Bank Canada had seven branches and total assets of CAD 5.7 billion. ICICI Bank Canada earned a net profit of CAD 29 million in fiscal 2022 as compared to a net profit of CAD 20 million in fiscal 2021. At year-end fiscal 2022, net advances (net loans) of ICICI Bank Canada were CAD 5.0 billion and investments were CAD 0.6 billion.
See also “Risk Factors—Risks Relating to India and Other Economic and Market Risks—Financial instability in other countries, particularly countries where we have established operations, could adversely affect our business” and “Risk Factors—Risks Relating to Our Business—The exposures of our international branches and banking subsidiaries could generally affect our business, financial condition and results of operations.”
Branch and ATM network and call centers
We deliver our products and services through a variety of channels, ranging from traditional bank branches to ATMs and call centers. In addition, our digital channels and platforms have become increasingly important to our customers. See “Technology”. At year-end fiscal 2022, we had a network of 5,418 branches across several Indian states. The branch network serves as an integrated channel for deposit mobilization and selected retail asset origination. Our focus is to create fully digital branches and touch points for customer experience in order to maximize customer engagement time for solutions. Many of our branches have insta-banking kiosks that are touch-screen self-service devices that allow customers to pre-process or completely process transactions, thus reducing wait-time.
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The following table sets forth the break-down of the number of branches by area for the periods indicated.
At March 31, 2021 | At March 31, 2022 | |||||||||||||||
Number of branches and extension counters(1) | % of total | Number of branches and extension counters(1) | % of total | |||||||||||||
| Metropolitan | 1,542 | 29.3 | % | 1,567 | 28.9 | % | ||||||||||
| Urban | 1,063 | 20.2 | 1,074 | 19.8 | ||||||||||||
| Semi-urban | 1,537 | 29.2 | 1,599 | 29.5 | ||||||||||||
| Rural | 1,124 | 21.3 | 1,178 | 21.7 | ||||||||||||
| Total branches and extension counters | 5,266 | 100.0 | % | 5,418 | 100.0 | % | ||||||||||
| (1) | Classification of branches as per population census 2011. |
At March 31, 2022, we had 13,626 ATMs across India. Our ATMs have additional features such as instant fund transfer, cardless cash withdrawal for ICICI Bank customers, bill payment and insurance premium payment.
Our call centers across locations at Thane and Hyderabad are operational around the clock and are equipped with multiple leading edge systems such as interactive voice response systems, automatic call distribution, computer telephony integration and voice recorders. We seek to use the latest technology in these call centers to provide an integrated customer view to the call center agents to get a complete overview of the customer’s relationship with us. We use a virtual relationship management channel for superior and seamless connect that caters to the transaction and product needs of customers through human interface on the phone. We have implemented a customer relationship management solution for the automation of customer service requests in all key retail products. The solution helps in tracking and timely resolution of various customer queries and issues. The solution has been deployed at the phone banking call centers as well as at a large number of branches.
Investment Banking
Our investment banking operations principally consist of ICICI Bank’s treasury operations and the operations of ICICI Securities Primary Dealership Limited and of ICICI Securities Limited.
Treasury
Through our treasury operations, we seek to manage our balance sheet, including the maintenance of required regulatory reserves, and to optimize profits from our trading portfolio by taking advantage of market opportunities. Our domestic trading and securities portfolio includes our regulatory reserve portfolio, as there is no restriction on active management of our regulatory reserve portfolio. Our treasury operations include a range of products and services for corporate and small enterprise customers, such as forward contracts and interest rate and currency swaps, and foreign exchange products and services. See also “—Commercial Banking for Corporate Customers—Foreign Exchange and Derivatives”.
Our treasury undertakes liquidity management by seeking to maintain an optimum level of liquidity, complying with the cash reserve ratio requirement and seeking to maintain the smooth functioning of all our branches. We maintain a balance between interest-earning liquid assets and cash to optimize earnings and undertake reserve management by maintaining statutory reserves, including the cash reserve ratio and the statutory liquidity ratio. At year-end fiscal 2022, ICICI Bank was required to maintain the statutory liquidity ratio requirement percentage at 18.00% of its domestic net demand and time liabilities by way of approved securities such as Government of India securities and state government securities. We maintain the statutory liquidity ratio through a portfolio of government of India securities that we actively manage to optimize the yield and benefit from price movements. Further, as a prudent liquidity management strategy, we generally maintain excess investments in securities eligible for classification under the statutory liquidity ratio requirement. We maintain the liquidity coverage ratio and net stable funding ratio, as required under Basel III, both on a standalone basis and at the group level. The minimum requirement is 100%. The liquidity coverage ratio requirement is met by investment in high quality liquid assets which are primarily in the form of government securities and better-rated corporate bonds. At March 2022, our liquidity coverage ratio on a standalone basis was 131.16% and on a group level was 131.98%. Both of these ratios were higher than the regulatory requirement of 100%. See also “Supervision and Regulation—Legal Reserve Requirements”.
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ICICI Bank engages in investments and foreign exchange operations from Mumbai and overseas branches. As a part of our treasury activities, we also maintain proprietary trading portfolios in domestic debt and equity securities and in foreign currency assets. Our treasury manages our foreign currency exposures and the foreign exchange and risk hedging derivative products offered to our customers and engages in market making and proprietary trading in currency and interest rate market. Our investment and market risk policies are approved by the Board of Directors.
In general, we pursue a strategy of active management of our equity portfolio to maximize our return on investment. To reinforce compliance with the Securities and Exchange Board of India’s insider trading regulations, all dealings in our equity and debt investments in listed companies are undertaken by our treasury’s equity and corporate bonds dealing desks, which are segregated from both the other groups and desks in the treasury and from our other business groups, and which do not have access to unpublished price sensitive information about these companies that may be available to us as a lender.
We deal in several major foreign currencies and take deposits from non-resident Indians in major foreign currencies. We also manage onshore accounts in foreign currencies. The foreign exchange treasury manages our portfolio through money market and foreign exchange instruments to optimize yield and liquidity.
We provide a variety of risk management solutions to our clients, including foreign currency forward contracts, currency and interest rate swaps and options. We monitor and control the market risk and credit risk on our foreign exchange portfolio through counterparty limits, position limits, stop-loss limits and limits on the loss of the entire foreign exchange trading operations and exception reporting. See also “—Risk Management—Market Risk—Exchange Rate Risk”.
Securities broking and investment banking
ICICI Securities Limited is a financial services company operating across capital market segments including retail and institutional equity, financial product distribution, private wealth management and investment banking. As at March 31, 2022, ICICI Securities Limited served 8 million customers. ICICI Securities Limited has an online securities broking platform called www.icicidirect.com. ICICI Securities Limited assists its customers like retail investors, corporates, financial institutions, high net worth individuals and ultra high networth individuals in meeting their financial goals by providing them with research, advisory and execution services. ICICI Securities Limited has a subsidiary in the United States, ICICI Securities Holdings Inc., which in turn has a subsidiary in the United States, ICICI Securities Inc., which is registered as a broker dealer with the Securities and Exchange Commission. ICICI Securities Inc., which is a member of the Financial Industry Regulatory Authority in the United States; also has a branch office in Singapore that is registered with the Monetary Authority of Singapore where it holds a capital markets services license for dealing in capital market products in Singapore.
The consolidated profit after tax of ICICI Securities Limited was Rs. 14.0 billion in fiscal 2022 as compared to Rs. 10.9 billion in fiscal 2021. ICICI Securities Limited was listed on the National Stock Exchange of India Limited and BSE Limited on April 4, 2018 following an offer for sale in an initial public offering of the company. After this sale, our share ownership in ICICI Securities Limited came down from 100.00% to 79.22% as of year-end fiscal 2020. To meet the minimum public shareholding norm for ICICI Securities Limited, the Bank further sold its 4.21% stake in ICICI Securities in fiscal 2021. Our share ownership in ICICI Securities Limited was 74.89% at March 31, 2022.
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Primary dealership
ICICI Securities Primary Dealership is engaged in the primary dealership of Indian government securities. It also deals in other fixed income securities. In addition to this, it has underwriting, portfolio management services and placement of debt and money market operations. ICICI Securities Primary Dealership earned a net profit of Rs. 3.3 billion in fiscal 2022 compared to a net profit of Rs. 6.5 billion in fiscal 2021. The revenues of the business are directly linked to conditions in the fixed income market.
Private Equity
Our subsidiary ICICI Venture Funds Management Company Limited is a diversified specialist alternative asset manager with a presence across private equity, real estate, infrastructure and special situations. During fiscal 2022, ICICI Venture Funds Management Company Limited concluded a total of six new investments involving an aggregate capital outlay of approximately Rs. 19.9 billion. In the same period, ICICI Venture Funds Management Company Limited concluded four exit/liquidity transactions involving aggregate realization of Rs. 7.1 billion. ICICI Venture Funds Management Company Limited launched a fifth fund in its private equity vertical with target fund size of Rs. 25.0 billion. ICICI Venture Funds Management Company Limited also concluded set-up work for a new office platform and commenced preparatory work for the successor fund in its real estate vertical. ICICI Venture Funds Management Company Limited reported a net profit of Rs. 2 million in fiscal 2022 as compared to Rs. 40 million in fiscal 2021.
Asset Management
We provide asset management services through our subsidiary, ICICI Prudential Asset Management Company. ICICI Prudential Asset Management Company is a joint venture with Prudential PLC of the United Kingdom. We have 51.0% interest in the entity and Prudential PLC owns 49.0%. ICICI Prudential Asset Management Company also provides portfolio management services and advisory services to clients. ICICI Prudential Asset Management Company had average mutual fund assets under management of Rs. 4,498.7 billion during fiscal 2022. ICICI Prudential Asset Management Company earned a net profit of Rs. 14.4 billion during fiscal 2022 compared to a net profit of Rs. 11.8 billion during fiscal 2021.
Insurance
We provide a wide range of insurance products and services through our subsidiary ICICI Prudential Life Insurance Company Limited and our affiliate ICICI Lombard General Insurance Company Limited. ICICI Prudential Life Insurance Company Limited is a joint venture with Prudential Corporation Holding Limited, a part of the Prudential PLC group of the United Kingdom. Both, ICICI Prudential Life Insurance Company Limited and ICICI Lombard General Insurance Company Limited are listed on relevant Indian stock exchanges.
ICICI Prudential Life Insurance Company Limited has a wholly owned subsidiary, ICICI Prudential Pension Funds Management Company Limited, one of the fund managers for the pension assets of Indian citizens (other than the mandated pension funds of government employees) under the National Pension System.
Our share ownership in ICICI Prudential Life Insurance Company Limited was 51.32% at March 31, 2022.
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ICICI Prudential Life Insurance Company Limited had a market share of 7.2% on retail weighted new business received premium in fiscal 2022 based on data published by Insurance Regulatory and Development Authority. The market share within the private sector was 11.4% in fiscal 2022. The total premium increased by 4.8% from Rs. 357.3 billion in fiscal 2021 to Rs. 374.6 billion in fiscal 2022. Within product segments, for fiscal 2022, contribution of the protection and non-linked savings to the business of our life insurance subsidiary has increased. While unit-linked product contribution was still significant, its demand may be influenced by any volatility or downturn in capital markets. Our life insurance subsidiary is primarily focused on growth in the value of new business, as a key profitability metric. The profit after tax of ICICI Prudential Life Insurance Company Limited was Rs. 7.5 billion in fiscal 2022 as compared to Rs. 9.6 billion in fiscal 2021. The decline in profit after tax during fiscal 2022 reflects the higher Covid-19 claims seen during the second wave of Covid-19 pandemic in first half of fiscal 2022.
See also “Risk Factors—Risks relating to our insurance subsidiaries—Additional capital requirements of our insurance entities or our inability to monetize a part of our shareholding in these entities may adversely impact our business and the prices of our equity shares and ADSs” and “Risk Factors—Risks relating to our insurance subsidiaries -While our insurance businesses are an important part of our business, there can be no assurance of their future rates of growth or levels of profitability” and “Operating and Financial Review and Prospects—Segment Revenues and Assets—Life Insurance”.
ICICI Lombard General Insurance Company Limited’s gross direct premium income was Rs. 179.8 billion in fiscal 2022 as compared to Rs. 140.0 billion in fiscal 2021. During fiscal 2022, ICICI Lombard General Insurance Company Limited was ranked second in the country with a market share of 8.1% based on gross direct premium as per the data published by the Insurance Regulatory Development Authority of India. ICICI Lombard General Insurance Company Limited earned a net profit of Rs. 12.7 billion in fiscal 2022 and a net profit of Rs. 14.7 billion in fiscal 2021.
ICICI Lombard General Insurance Company Limited was formed as a joint venture with Fairfax Financial Holdings of Canada. The joint venture was terminated on July 3, 2017. During fiscal 2021, the Board of ICICI Lombard General Insurance Company Limited approved the proposed merger of the general insurance business of Bharti AXA General Insurance Company Limited with an appointed date of April 1, 2020. ICICI Lombard received the approval from Insurance Regulatory and Development Authority of India on September 3, 2021. The merger came into effect at September 8, 2021. As consideration towards the merger, ICICI Lombard General Insurance issued fresh equity shares to shareholders of Bharti AXA General Insurance Company Limited whereby the shareholding of the Bank in ICICI Lombard General Insurance Company Limited was reduced to less than 50% resulting in ICICI Lombard ceasing to be a subsidiary of the Bank. The numbers for ICICI Lombard General Insurance provided above for fiscal 2022 are not comparable with fiscal 2021.
As per the Banking Regulation Act, 1949, as amended, a bank can hold either less than 30.0% or more than 50.0% in a company. Following the transaction of ICICI Lombard General Insurance Company, the Bank’s shareholding in ICICI Lombard General Insurance Company Limited has gone below 50.0%. The Bank’s holding in ICICI Lombard General Insurance Company Limited was 48.04% at March 31, 2022. The Bank has been granted time until September 2023 to reduce its shareholding in ICICI Lombard General Insurance to 30.0%, to comply with the requirements under the Banking Regulation Act, 1949.
The Insurance Regulatory and Development Authority of India issued regulations on registration of corporate agents for the sale of insurance products. As per the regulations, banks can partner with three insurance companies each in life, non-life and health insurance sectors. We have entered into an agreement with our insurance subsidiaries, ICICI Prudential Life Insurance Company Limited and ICICI Lombard General Insurance Company Limited, and operate as a corporate agent for these companies. We distribute life and general insurance products through our branches, phone banking and digital channels and earn commissions and fees from these subsidiaries. ICICI Bank accounts for a significant portion of the business volumes of its life insurance subsidiary. The growth of the life insurance subsidiary’s business is thus significantly dependent on the Bank’s distribution strategy, including the Bank’s choice of and focus on specific life insurance products, and the relative emphasis on sales of insurance and banking products.
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As a financial intermediary, we are exposed to risks that are particular to our lending, transaction banking and trading businesses and the environment within which we operate. Our goal in risk management is to ensure that we understand, measure, monitor and manage the various risks that arise and that the organization adheres to the policies and processes, which are established to address these risks.
The key principles underlying our risk management framework are as follows:
| · | The Board of Directors has oversight of all the risks assumed by us. |
| · | Specific committees of the Board have been constituted to facilitate focused oversight of various risks. For a discussion of these and other committees, see “Management”. |
| · | Credit Committee: The functions of the Credit Committee include review of developments in key industrial sectors, major credit portfolios and approval of credit proposals as per the authorization approved by the Board. |
| · | Audit Committee: The Audit Committee provides direction to the audit function and monitors the quality of internal and statutory audit. The responsibilities of the Audit Committee include examining the financial statements and auditors’ report and overseeing the financial reporting process to ensure fairness, sufficiency and credibility of financial statements. |
| · | Information Technology Strategy Committee: The functions of the Committee are to approve strategy for information technology and policy documents, ensure that information technology strategy is aligned with business strategy, review information technology risks, ensure proper balance of information technology investments for sustaining the Bank's growth, oversee the aggregate funding of information technology at Bank-level, ascertain if the management has resources to ensure the proper management of information technology risks, review contribution of information technology to business, oversee the activities of Digital Council, review technology from a future readiness perspective, overseeing key projects progress and critical information technology systems performance and the review of special information technology initiatives. |
| · | Risk Committee: The functions of the Committee are to review ICICI Bank's risk management policies pertaining to credit, market, liquidity, operational, outsourcing, reputation risks, business continuity plan and disaster recovery plan and approve Broker Empanelment Policy and any amendments thereto. The functions of the Committee also include setting limits on any industry or country, review of the Enterprise Risk Management framework, Risk Appetite framework, stress testing framework, Internal Capital Adequacy Assessment Process and framework for capital allocation; review of the status of Basel framework, risk dashboard covering various risks, outsourcing activities and the activities of the Asset Liability Management Committee. The Committee has oversight on risks of subsidiaries covered under the Group Risk Management Framework. The Committee also carries out cyber security risk assessment. |
| · | Policies approved from time to time by the Board of Directors form the governing framework for each type of risk. The business activities are undertaken within this policy framework. |
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| · | Independent groups and sub-groups have been constituted across our organization to facilitate independent evaluation, monitoring and reporting of various risks. These groups function independent of the business groups/sub-groups. |
The risk management framework forms the basis for developing consistent risk principles across the Bank and its overseas banking subsidiaries. The Board of Directors approves the Enterprise Risk Management and Risk Appetite Framework and thresholds/limits structure under which various business lines operate.
We are primarily exposed to credit risk, market risk, liquidity risk, operational risk, technology risk, compliance risk and reputation risk. We have centralized groups, the Risk Management Group, the Compliance Group, the Legal Group, the Financial Crime Prevention and Reputation Risk Management Group and the Internal Audit Group with a mandate to identify, assess and monitor all of our principal risks in accordance with well-defined policies and procedures. In addition, the Lending Services Operations Group, Treasury and Securities Services Group and the Operations Group monitor operational adherence to regulations, policies, terms of sanction and internal approvals.
The Risk Management Group is further organized into the Credit Risk Management Group, Market Risk Management Group, Operational Risk Management Group, Credit Monitoring Group and Information Security Group. The Risk Management Group reports to the Risk Committee of the Board of Directors. The Compliance Group and the Internal Audit Group report to the Audit Committee of the Board of Directors. The Risk Management Group, Compliance Group and Internal Audit Group have administrative reporting to Executive Director. Treasury and Securities Services Group, Lending Services Operations Group and Operations Group report to Executive Director. These groups are independent of the business units.
Credit Risk
Credit risk is the risk of loss that may occur from the failure of any party to abide by the terms and conditions of any contract, principally the failure to make required payments of amounts due to us. In its lending operations, ICICI Bank is principally exposed to credit risk.
The credit risk is governed by the Credit and Recovery Policy (credit policy) approved by the Board of Directors. The Credit and Recovery Policy outlines the type of products that can be offered, customer categories, the targeted customer profile and the credit approval process and limits.
ICICI Bank measures, monitors and manages credit risk at an individual borrower level and at the portfolio level for non-retail borrowers. The credit risk for retail borrowers is managed at a portfolio level. ICICI Bank has a structured and standardized credit approval process, which includes a well-established procedure of credit appraisal. The Country Risk Management Policy addresses the recognition, measurement, monitoring and reporting of country risk.
The Bank has established a risk appetite and limit structure, with respect to credit risk, and specifically concentration risk, which includes following measures:
| · | limits and thresholds for group and borrower exposures based on rating and track record; |
| · | rating based limits with respect to incremental asset origination in the corporate portfolio; |
| · | portfolio limit for buyout, securitization |
| · | establishment of a separate credit monitoring group to enhance focus on monitoring of borrowers and to facilitate proactive action wherever required; and |
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| · | enhanced monitoring of retail product portfolios through periodic reviews and vintage curve analysis. |
The Credit Committee of the Board reviews the portfolio and large exposure groups. The Bank has a dedicated group, namely, Financial Crime Prevention Group overseeing/handling the fraud prevention, detection, investigation, monitoring, reporting and awareness creation functions.
Credit Approval Authorities
The Board of Directors/Credit Committee has delegated credit approval authority to various committees, forums and individual officers under the credit approval authorization policy. The credit approval authorization policy is based on the level of risk and the quantum of exposure, and is designed to ensure that transactions with higher exposure and higher levels of risk are sent to a correspondingly higher forum/committee for approval.
The Bank has established several levels of credit approval authorities for its corporate banking activities - the Credit Committee, the Committee of Executive Directors, the Committee of Senior Management, the Committee of Executives, Corporate Lending Forum and Regional Committees. For certain exposures under programs, approval under joint authorization framework have been established. These authorities approves cases under programs formulated through a cluster-based approach wherein a lending program is implemented for a homogeneous group of individuals or business entities that comply with certain norms. To be eligible for funding under the programs, borrowers need to meet the stipulated credit norms and obtain a minimum score on a scoring model. We have incorporated control norms, borrower approval norms and review triggers in all such programs. The Corporate Lending Forum, which comprises personnel from business groups and Credit Risk Management Group, approves credit proposals for higher rated corporates (internal rating A- and above) and upto a certain exposure limit.
Retail credit facilities are required to comply with approved product policies. All products policies are approved by the Committee of Executive Directors. The individual credit proposals are evaluated and approved by individual officers/forums on the basis of the product policies.
Credit Risk Assessment Methodology for Standalone Entities
All credit proposals other than retail products, program lending, score card-based lending to small and medium enterprises and agricultural businesses and certain other specified products are rated internally by the Credit Risk Management Group, prior to approval by the appropriate forum.
The Credit Risk Management Group rates proposals, carries out industry analysis (through a centralized industry team), tracks the quality of the credit portfolio with regular rating reviews and reports periodically to the Credit Committee and the Risk Committee. The Bank also has a credit monitoring group, which monitors individual accounts on regular basis including stock statements, bank statements, stock audit reports etc. For non-retail exposures, the Lending Services Operations Group verifies adherence to the terms of the approval prior to the commitment and disbursement of credit facilities. We also manage credit risk through various limit structures, which are in line with the Reserve Bank of India’s prudential guidelines. The Bank has set up various exposure limits, including the single borrower exposure limit, the group borrower exposure limit, the industry exposure limit, the unsecured exposure limit, and limits on exposure to sensitive sectors such as capital markets, non-banking finance companies and real estate. Based on rating and track of the borrower and group, limits on incremental sanctions have also been put in place. Limits on countries and bank counterparties have also been stipulated.
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ICICI Bank has an established credit analysis procedure leading to appropriate identification of credit risk both at the individual borrower and the portfolio level. Appropriate appraisal and credit rating methodologies have been established for various types of products and businesses. The methodology involves assessment of quantitative and qualitative parameters. For example, for any large corporate borrower, the rating methodology entails a comprehensive evaluation of the industry, borrower’s business position in the industry (benchmarking), financial position and projections, quality of management, impact of projects being undertaken by the borrower and structure of the transaction.
Borrower risk is evaluated by considering:
| · | the risks and prospects associated with the industry in which the borrower is operating (industry risk); |
| · | the financial position of the borrower by analyzing the quality of its financial statements, its past and expected future financial performance, its financial flexibility in terms of ability to raise capital and its cash flow adequacy (financial risk); |
| · | the borrower’s relative market position and operating efficiency (business risk); |
| · | the quality of management by analyzing their track record, payment record and financial conservatism (management risk); and |
| · | the risks with respect to specific projects, both pre-implementation, such as construction risk and funding risk, as well as post-implementation risks such as industry, business, financial and management risks related to the project (project risk). |
After conducting an analysis of a specific borrower’s risk, the Credit Risk Management Group assigns a credit rating to the borrower. We have a scale of 12 ratings ranging from AAA to B. A borrower’s credit rating is a vital input for the credit approval process. The borrower’s credit rating and the default pattern corresponding to that credit rating, form an important input in the risk-based pricing framework of the Bank. Every proposal for a financing facility is prepared by the relevant business unit and reviewed by the Credit Risk Management Group before being submitted for approval to the appropriate approval authority other than retail products, program lending, score card-based lending to small and medium enterprises and agri-businesses and certain other specified products. The approval process for non-fund facilities is similar to that for fund-based facilities. The credit rating for every borrower is reviewed periodically. We also review the ratings of our borrowers in a particular industry upon the occurrence of any significant event impacting that industry. An in-house developed statistical scoring model is being used for assessment of the majority of credit proposals in Mid Corporate Group programs.
On our current rating scale, ratings of below BBB- (i.e., BB and B ratings) are considered to be relatively high-risk categories. Our current credit policy does not expressly provide a minimum rating required for a borrower to be considered for a loan. All corporate loan proposals with an internal rating of below BBB- are sent to our Credit Committee for its approval. See also “Consolidated financial Statements-Schedules forming part of the consolidated financial statements—Additional Notes-Note 7 -Credit quality indicators of loans”.
The appraisal process involves an in-depth study of the industry, financial, commercial, technical and managerial aspects of the borrower. An assessment of the financial requirements of the client is made in order to arrive at the amount of credit to be considered by the Bank. Each credit proposal is thereafter prepared in an appropriate appraisal format and placed before the approving authority as prescribed by the Board of Directors/ Credit Committee from time to time.
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The following sections detail the risk assessment process for various business segments:
Assessment of Project Finance Exposures
For optimal risk identification, allocation and mitigation to minimize risk in project finance transactions, the Bank carries out detailed evaluation of technical and the financial aspects of the project and the sponsor’s financial strength. Project finance loans are generally fully secured, and cash flows are routed through an escrow account. We may also take security interest in relevant project contracts such as concession agreements, off-take agreements and construction contracts as part of the security package. Funds are disbursed based on project progress. Project completion is considered upon satisfactory commencement of operations of the project. We continue to monitor the credit exposure until loans are fully repaid. We have adopted a cautious and selective approach to project financing since the last few years.
Assessment of Corporate Finance Exposures (Term loans/fixed maturity loans)
As part of the corporate loan approval procedures, ICICI Bank carries out a detailed analysis of funding requirements, including normal capital expenses, long-term working capital requirements, and acquisition finance etc. ICICI Bank’s funding of long-term requirements is assessed on the basis of detailed review of underlying transaction and an analysis of cash flows.
The analysis covers the following key areas:
| · | A detailed analysis of cash flows to forecast the amounts that will be paid and the timing of the payments based on an exhaustive analysis of historical data and future projections; |
| · | Analysis of the underlying business systems; and |
| · | An additional review of the legal, accounting and tax issues that may impact the structure. |
Our analysis enables us to identify risks in these transactions. To mitigate risks, we use various credit enhancement techniques, such as collateralization, cash collateralization, creation of escrow accounts and debt service reserves. Rating review of these exposure is done based on asset quality review framework of the Bank.
Corporate finance loans can be secured by fixed assets (which normally consists of property, plant and equipment), pledge of financial assets (such as marketable securities or at times non-marketable securities) and we may obtain contractual comforts such as corporate guarantees or personal guarantees from the sponsors wherever appropriate. In certain cases, the terms of financing include covenants relating to sponsors’ shareholding in the borrower and restrictions on the sponsors’ ability to sell all or part of their shareholding. We also provide unsecured loans to higher rated, well-established corporate borrowers.
The Credit Monitoring Group also carries out regular monitoring of these exposures.
With respect to financing of cross-border corporate mergers and acquisitions, we carry out detailed due diligence on the acquirer as well as the target’s business profile.
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We emphasize environmental and social risk assessment for new project and corporate financing proposals subject to certain criteria. These proposals are reviewed under a social and environmental management framework that integrates analysis of the environmental and social risk assessment into the overall credit appraisal process. We are also in the process of incorporating environmental, social and governance and climate risk aspects as part of the credit evaluation process. Borrower level environmental, social and governance scores from external agencies are considered during the evaluation of a proposal. We have developed sector specific environmental, social and governance tools for borrower level evaluation and a framework for assessment of climate-related physical and transition risk that a borrower in the sector could be exposed. We have also formulated an approach to address risks emanating from climate change on the Bank’s operations and loan portfolio.
Assessment of Working Capital Finance Exposures
We carry out a detailed analysis of borrowers’ working capital requirements. Once credit limits are approved, we may calculate the amounts that can be lent on the basis of review of monthly stock statements provided by the borrower and the margins stipulated. Credit limits are reviewed on a periodic basis.
Working capital facilities are generally secured by inventories, receivables and other current assets. Additionally, in certain cases, we obtain contractual comforts such as personal guarantees or corporate guarantees from sponsors, or subordinated security interests in the tangible assets of the borrower including plant and machinery.
Assessment of Retail Loans
The origination and approval of retail credit exposures are segregated to achieve independence.
The Credit and Policy Group is responsible for preparing credit policies/operating policies. The Credit Risk Management Group oversees the credit risk issues for retail assets including the review of all credit policies and operating policies proposed for approval by the Board or forums authorized by the Board. These groups are involved in portfolio monitoring of all retail assets and in suggesting and implementing policy changes. Data Science and Analytics Group is responsible for devising customer-segment specific strategies, portfolio tracking and monitoring, analytics, score card development and database management. The credit team is independent from the business unit and is organized geographically to support the retail sales and service structure.
The Bank’s credit officers evaluate credit proposals on the basis of operating policies approved by the Committee of Executive Directors. The criteria vary across product segments but typically include factors such as the borrower’s income, the loan-to-value ratio and demographic parameters. External agencies such as field investigation agencies facilitate a comprehensive due diligence process including visits to offices and homes of borrowers. The Bank also draws upon a centralized database on delinquent loans and reports from the credit bureaus to review the borrower’s profile. Except for personal loans and credit cards, the Bank generally requires a contribution from the borrower and its loans are secured by the asset financed. For mortgage loans and used vehicle loans, a valuation agency or an in-house technical team carries out the valuations. In case of certain products, the Bank has implemented a credit-scoring which forms one of the criteria for loan evaluation.
As part of digital credit lending, ICICI Bank has scaled up offerings to bank customers over a period of time. As part of its strategy, the Bank uses multi-dimensional credit filters by using data-sets to optimize risk. The portfolio build-up strategy is based on utilizing the pre-approved customer database for origination of key retail asset products wherein major incremental origination is from existing liability customer relationships.
The Bank undertakes portfolio buyouts of various retail assets products. The portfolio is selected by applying selection filters like tenure, size, loan to value ratio and location, and meeting regulatory requirements with regard to minimum holding period and minimum retention requirement by the seller. The buyouts are in the form of direct assignment or by way of investment in pass through certificates.
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The Bank has established centralized operations to manage operational risk in the back-office processes of its retail assets business and also has decentralized operations to improve turnaround time for customers. A separate team under the Credit and Policy Group undertakes review and audits of credit quality and processes across different products. The Bank has a debt services management group independent of business group and structured along product lines and geographical locations, to manage debt recovery. The group operates under the guidelines of a standardized recovery process.
Assessment Procedures for Small Enterprises Loans and Business Banking
The Bank finances small enterprises, which include individual cases and financing dealers and vendors of companies. Small enterprise credit also includes financing extended directly to small enterprises as well as lending based on parameterized product based credit facilities which involves a cluster-based approach wherein a lending program is implemented for a homogenous group of individuals/business entities, which comply with certain laid down parameterized norms. Further, programs can also be made for diverse group of individuals/business entities/ industries having common target market norms and go-no-go parameters as approved by the Committee of Executive Directors. The risk assessment of such a cluster involves the identification of appropriate credit norms for the target market, the use of scoring models for enterprises that satisfy these norms and a comprehensive appraisal of those enterprises which are awarded a minimum required score in the scoring model.
ICICI Bank has lending programs for business banking customers, based on various financial and non-financial parameters and target market norms. The program criteria are approved by the Committee of Executive Directors and individual credit proposals are assessed by the credit team based on these approved criteria.
For large ticket size loans (maximum up to Rs. 400 million), an in-house developed statistical scoring model is being used for assessment of majority of cases in small and medium enterprises programs. The underwriting process integrates various digital tools like bank statement analyzer, automatic fetching of bureau reports and enhanced business rule engine to generate probability of default scores for score-based analysis. A detailed appraisal is performed based on the financial as well as non-financial parameters to assess the creditworthiness of the enterprise in all the cases. A similar approach is being followed for lending to borrowers in mid corporate group for maximum limit up to Rs. 500 million.
The Bank also finances dealers and vendors linked to large and medium entities by implementing structures to enhance the base credit quality of the vendor or dealer. The process involves an analysis of the base credit quality of the vendor or dealer and an analysis of the linkages that exist between the vendor or dealer and the company. The sanction of limits to dealers and vendors takes place manually as well as digitally.
The risk management policy also includes setting up of portfolio control norms, continuous monitoring renewal norms as well as stringent review and exit triggers to be followed while financing such clusters or communities.
Assessment Procedures for Rural and Agricultural Loans
The rural and agricultural portfolio consists of loans to individuals and non-individuals engaged in agriculture/allied activities. These loans are extended to meet crop production and maintenance, consumption, asset purchase and income generating requirements of borrowers.
The sales and credit decision-making functions are segregated. The Credit and Policy Group is responsible for preparing credit policies/operating policies. The Credit Risk Management Group oversees the credit risk and portfolio monitoring related issues along with the review of credit/operating policies and changes thereto pertaining to retail agricultural assets for approval by competent authorities. The credit team oversees the underwriting function and is organized geographically in line with the rural sales and service structure.
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Rural and agriculture credit also includes financing extended on a cluster-based approach to borrowers with homogeneous profile. The risk assessment of such cluster includes identification of appropriate credit norms, the use of scoring models for enterprises and stipulating suitable collateral norms.
For loans against gold ornaments and gold coins, the credit norms focus on establishing ownership and authenticity (purity and weight) of the underlying jewelry with the help of Bank appointed external appraisers. Norms with respect to loan-to-value ratio have been laid down in accordance with regulatory guidelines.
For loans against pledge of agricultural commodities, the credit norms focus on the quality, quantity and price volatility of the underlying commodity. A dedicated group evaluates, directly or through the agencies appointed by it at the time of funding and undertakes periodic post disbursements checks. Norms with respect to price monitoring and loan-to-value ratio have been laid down.
See also “Risk Factors—Risks Relating to Our Business—Entry into new businesses or rapid growth in existing loan portfolios may expose us to increased risks that may adversely affect our business”.
Risk Monitoring and Portfolio Review
We monitor credit facilities through a risk-based asset review framework under which the frequency of asset review is higher for cases with higher exposure balances and/or lower credit ratings. For corporate, small and medium enterprises, the Lending Services Operations Group verifies adherence to the terms of the credit approval prior to disbursement/limit set up.
The Credit Monitoring Group monitors corporate and small and medium enterprise borrower accounts to identify triggers on the basis of account conduct and behavior. These triggers are highlighted to risk and business teams and are included in the appraisal and portfolio review process, which helps to take timely action on the exposures.
An analysis of our portfolio composition based on internal rating is carried out and is submitted to the Risk Committee of the Board on a quarterly basis as part of the risk dashboard. This facilitates the identification and analysis of trends in the portfolio credit risk.
The Credit Committee of the Bank, apart from approving proposals, regularly reviews the credit quality of the portfolio and various sub-portfolios. A summary of the reviews carried out by the Credit Committee is submitted to the Board for its information.
Under the Bank’s Enterprise Risk Management framework, the Bank has defined benchmark vintage curves as delinquency triggers for key retail products. Actual delinquencies for these products are monitored against these benchmark vintage curves, to enable analysis and directed collection strategies as well as review of origination norms, where required.
Market Risk
Market risk is the possibility of loss arising from changes in the value of a financial instrument as a result of changes in market variables such as interest rates, exchange rates, credit spreads and other asset prices. Our exposure to market risk is a function of our trading and asset-liability management activities and our role as a financial intermediary in customer-related transactions. These risks are mitigated by the limits stipulated in the Investment Policy (which includes the Derivatives Policy) and Asset Liability Management Policy, which are approved and reviewed by the Board of Directors.
Market Risk Management Procedures
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The Asset Liability Management Policy stipulates liquidity and interest rate risk limits at an aggregate level and Asset Liability Management Committee reviews adherence to limits and determines the strategy in light of the current and expected environment. The Investment Policy addresses issues related to investments in various treasury products and includes the Derivatives Policy which is formulated in line with the comprehensive guidelines issued by Reserve Bank of India on derivatives for banks. The policies are designed to ensure that operations in the securities and foreign exchange and derivatives areas are conducted in accordance with sound and acceptable business practices and are as per current regulatory guidelines, laws governing transactions in financial securities and the financial environment. The policies contain the limit structures that govern transactions in financial instruments. The Board has authorized the Asset Liability Management Committee and Committee of Executive Directors (Borrowing, Treasury and Investment Operations) to grant certain approvals related to treasury activities, within the broad parameters laid down by policies approved by the Board.
The Asset Liability Management Committee, comprising the Managing Director and Chief Executive Officer, wholetime directors and senior executives, meets periodically and reviews the positions of trading groups, interest rate and liquidity gap positions, sets deposit and benchmark lending rates, reviews the pricing methodologies for various categories of advances, reviews the valuation methodologies for various treasury products, the business profile and its impact on asset liability management and determines the asset liability management strategy, as deemed fit, taking into consideration the current and expected business environment. The Asset Liability Management Policy provides guidelines to manage liquidity risk and interest rate risk in the banking book.
The Market Risk Management Group is responsible for the identification, assessment and measurement of market risk. Risk limits including position limits and stop loss limits are reported on a daily basis by the Treasury and Securities Services Group and reviewed periodically. Foreign exchange risk is monitored through the net overnight open foreign exchange limit. Interest rate risk in banking book is measured through the use of re-pricing gap/ duration analysis. Interest rate risk is further monitored through interest rate risk limits approved by the Board of Directors.
Interest Rate Risk
Our core business is deposit taking, borrowing and lending in both Indian Rupees and foreign currencies as permitted by the Reserve Bank of India. These activities expose us to interest rate risk.
Our balance sheet consists of Indian rupee and foreign currency assets and liabilities, with a predominantly higher proportion of rupee-denominated assets and liabilities. Thus, movements in Indian interest rates are our main source of interest rate risk.
Interest rate risk is measured through earnings at risk from an earnings perspective and through duration of equity from an economic value perspective. Further, exposure to fluctuations in interest rates is also measured by way of gap analysis, providing a static view of the maturity and re-pricing characteristics of balance sheet positions. We monitor interest rate risk through the above measures on a fortnightly basis. The duration gap analysis and interest rate sensitivity gap statements for standalone Bank are submitted to the Reserve Bank of India on a monthly basis. Additionally, for the overseas branches the interest rate gap statements are also submitted to the host regulator based on applicable guidelines. We also monitor sensitivities of our interest rate options portfolio.
ICICI Bank’s primary source of funding is deposits and, to a smaller extent, borrowings. In the rupee market, most of our deposit taking is at fixed rates of interest for fixed periods, except for savings account deposits and current account deposits, which do not have any specified maturity and can be withdrawn on demand. Current account deposits in the domestic operations are non-interest bearing. Our borrowings are usually for a fixed period, with certain borrowings qualifying as capital instruments having European call options attached to them, exercisable by us only on specified dates, subject to regulatory approvals. On the asset side, we have a mix of floating and fixed interest rate assets. Our term loans are generally repaid gradually, with principal repayments being made over the life of the loan.
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Pursuant to regulatory reserve requirements, we maintain a large part of our assets in government of India securities and in interest-free balances with the Reserve Bank of India, which are funded mainly by deposits and borrowings. This exposes us to the risk of differential movement in the yield earned on statutory reserves and the related funding cost.
Almost all the long tenor foreign currency loans in the overseas branches of the Bank are floating rate loans. These loans are generally funded with foreign currency borrowings and deposits in our overseas branches. We generally convert the long tenor foreign currency borrowings into floating rate dollar liabilities through the use of interest rate and currency swaps with leading international banks. Our overseas subsidiaries in the UK and Canada have fixed rate retail term deposits and fixed/floating rate wholesale borrowings as their funding sources; with the UK subsidiary additionally having floating rate savings deposits and non-interest bearing current deposits. They also have fixed and floating rate assets. Interest rate risk is generally managed by increasing/decreasing the duration of investments and government securities portfolio and/or by entering into interest rate derivatives whenever required. We are an active participant in the interest rate swap market and are one of the largest counterparties in India. For risks related to the transition from LIBOR, see “Risk Factors—Risks that arise as a result of our presence in a highly regulated sector—The transition from LIBOR to other alternative reference rates may adversely affect our income from exposures or transactions currently referenced to LIBOR and also bring about the vagaries that such alternative reference rates may have”.
As a part of the transition from LIBOR to alternate risk free rates, the Bank has set up a cross-functional working group to monitor the developments internationally, and to oversee the LIBOR transition. The working group is addressing matters primarily pertaining to exposure and impact assessment, contracts remediation, system upgrades, valuation and accounting implications and conduct and reputational risks. The working group is also implementing an internal program, developed with assistance from an external consultant, for ensuring a smooth transition.
The Bank has exposures to LIBOR through both on balance-sheet and off balance-sheet transactions. For the on balance-sheet transactions, the Bank has incorporated fallback language in new lending and borrowing contracts. For existing on balance-sheet contracts, the Bank is in process of amending documentation in order to transit to secured overnight financing rate (SOFR) index and to finalize its detailed terms with counterparties in line with market standards. With respect to off balance-sheet transactions through derivatives, the Bank has adopted the International Swaps and Derivatives Association 2020 IBOR Fallbacks Protocol. Some of the derivatives exposures are linked to INR MIFOR, which will cease by June 30, 2023. There is an ongoing industry wide consultation for the transition of these MIFOR based trades, and the Bank is actively involved in the same. The transition for non-US$ denominated on and off balance-sheet transactions has been completed as of December 31, 2021. The transition for US$ denominated transactions is in progress for tenors of US$ LIBOR that have not yet ceased publication. The timeline for the phase out for US$ based instruments linked to five tenors that continue to be published, including the three month and six month indices, is June 30, 2023. The Bank is also actively engaging with its customers to inform them about the transition. The Bank has published frequently asked questions on its website and has set up a centralized desk to handle client queries. At March 31, 2022, the Bank had outstanding LIBOR based instruments that will mature after June 30, 2023. The cash flows of loans outstanding at March 31, 2022 and due after June 30, 2023 were approximately US$ 0.53 billion and for debt obligations outstanding at March 31, 2022 and due after June 30, 2023 were approximately US$ 0.21 billion. The notional of derivatives outstanding at March 31, 2022 and maturing after June 30, 2023 was approximately US$ 28.01 billion. The notional of derivatives linked to MIFOR index outstanding at March 31, 2022 and maturing after June 30, 2023 was approximately US$ 8.27 billion.
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The Bank has upgraded its core systems and has carried out transactions referencing alternate reference rates, as part of the system preparedness. At an industry level, the Bank is engaging with trade bodies, regulators and other institutions for development of alternate instruments and a transition roadmap for the industry. The progress with respect to the transition both on internal status as well as external developments is updated to the Bank’s Asset Liability Committee and to the Risk Committee of the Board on a periodic basis. The Board of Directors is also briefed about the LIBOR transition program periodically. See also “Risk Factors—Risks that arise as a result of our presence in a highly regulated sector—The transition from LIBOR to other alternative reference rates may adversely affect our income from exposures or transactions currently referenced to LIBOR and also bring about the vagaries that such alternative reference rates may have”.
For a discussion of our vulnerability to interest rate risk, see “Risk Factors—Risks Relating to Our Business—Our banking and trading activities are particularly vulnerable to interest rate risk and volatility in interest rates could adversely affect our net interest margin, the value of our fixed income portfolio, our income from treasury operations, the quality of our loan portfolio and our financial performance” and “Risk Factors—Risks Relating to Our Business—Our inability to effectively manage credit, market and liquidity risk and inaccuracy of our valuation models and accounting estimates may have an adverse effect on our earnings, capitalization, credit ratings and cost of funds”.
Equity Risk
We assume equity risk both as part of our investment book and our trading book. At year-end fiscal 2022, we had a total equity investment portfolio (excluding investment in affiliates) of Rs. 184.6 billion, primarily comprising Rs. 39.9 billion of investments by ICICI Bank and Rs. 106.0 billion of investments by our insurance subsidiaries. The Bank also acquires equity investments from loan conversion and also investment in unlisted equity which are long-term in nature. We also invest in private equity funds, primarily those managed by our subsidiary ICICI Venture Funds Management Company. These funds invest in equity and equity linked instruments. Our investments through these funds are similar in nature to our other equity investments and are subject to the same risks. In addition, they are also subject to risks in the form of changes in regulation and taxation policies applicable to such equity funds. ICICI Securities and ICICI Securities Primary Dealership also have a small portfolio of equity derivatives. For further information on our trading and available-for-sale investments, see “—Overview of Our Products and Services—Investment Banking—Treasury”.
The risk in the equity portfolio of the proprietary trading group, which manages the equity trading book of ICICI Bank, is controlled through position limits, value-at-risk approach and stop loss limits, as stipulated in the Investment Policy. The portfolio includes investments in listed equities, equity mutual funds and infrastructure and real estate investment trusts, as well as application money paid for new offerings of such investments. Value-at-risk measures the statistical risk of loss from a trading position, given a specified confidence level and a defined time horizon, see “—Selected Statistical Information”.
Exchange Rate Risk
We offer instruments like swaps, forwards, and currency options to clients, which are primarily banks and corporate customers. We use cross currency swaps, forwards, and options to hedge against risks arising out of these transactions and for foreign currency loans that are originated in currencies different from the currencies of borrowings supporting them. Some of these transactions may not meet the hedge accounting requirements and are subject to mark-to-market accounting. Trading activities in the foreign currency markets expose us to exchange rate risks. This risk is mitigated by setting counterparty limits, stipulating foreign exchange overnight and intra-day position limits, greek limits for options, daily/quarterly/yearly cumulative stop-loss limits and engaging in exception reporting.
The Bank offers foreign currency-rupee options for hedging foreign currency exposures including hedging of balance sheet exposures to the users which include banks and corporate clients. All the options positions are maintained within the limits including greek limits specified in the Investment Policy. The foreign exchange rate risk is monitored through the net overnight open position limit approved by the Board and intra-day foreign exchange position limits.
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Derivative Instruments Risk
The Bank offers various derivative products, including options and swaps, to clients for their risk management purposes. Profits or losses on account of market movements on these transactions are borne by the clients. For the transactions which are not covered in the inter-bank market, the Bank runs open positions within the limits prescribed in its Investment Policy. The derivative transactions are subject to counterparty risk to the extent particular obligors are unable to make payment on contracts when due.
In view of the margin rules for non-centrally cleared derivative transactions issued by the Basel Committee on Banking Supervision, discussion paper issued by the Reserve Bank of India and guidelines issued by overseas regulators, certain derivative transactions are subject to margining and consequent collateral exchange in accordance with Credit Support Annex. Reserve Bank of India has recently permitted the Bank to post and collect margin for permitted derivative contracts with a person resident outside India. The Bank has also implemented International Swaps and Derivatives Association prescribed Standardized Initial Margin Model for estimating the initial margin requirements for some of the non-centrally cleared derivatives. The requirements are currently applicable for the overseas branches. The Bank settles certain derivative transactions through qualified central counterparties such as Clearing Corporation of India Limited and London Clearing House Limited and posts collateral in line with the margin regulations stipulated by qualified central counterparties.
The Bank also enters into interest rate and currency derivative transactions for the purpose of hedging interest rate and foreign exchange risk and also engages in trading of derivative instruments on its own account.
Credit Spread Risk
Credit spread risk arises out of investments in fixed income securities. Hence, volatility in the level of credit spreads would impact the value of these portfolios held by the Bank. We closely monitor our portfolio and risk is monitored by setting investment limits, rating-wise limits, single issuer limit, maturity limits and stipulating daily and cumulative stop-loss limits.
Liquidity Risk
Liquidity risk is the current and prospective risk arising out of an inability to meet financial commitments as they fall due, through available cash flows or through the sale of assets at fair market value. It includes both, the risk of unexpected increases in the cost of funding an asset portfolio at appropriate maturities and the risk of being unable to liquidate a position in a timely manner at a reasonable price.
The goal of liquidity management is to ensure that the Bank is always in a position to efficiently meet both expected and unexpected current and future cash flow and collateral needs without negatively affecting either the Bank’s daily operations or financial conditions.
We manage liquidity risk in accordance with our Asset Liability Management Policy. This policy is framed as per the current regulatory guidelines and is approved by the Board of Directors. The Asset Liability Management Committee of the Bank formulates and reviews strategies and provides guidance for management of liquidity risk within the framework laid out in the Asset Liability Management Policy. The Risk Committee of the Board has oversight of the Asset Liability Management Committee.
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The Bank uses various tools for the measurement of liquidity risk including the statement of structural liquidity, dynamic liquidity cash flow statements, liquidity ratios and stress testing through scenario analysis. The statement of structural liquidity is used as a standard tool for measuring and managing net funding requirements and the assessment of a surplus or shortfall of funds in various maturity buckets in the future. The cash flows pertaining to various assets, liabilities and off-balance sheet items are placed in different time buckets based on their contractual or behavioral maturity. The statement of structural liquidity of rupee currency for domestic operations, and statement of structural liquidity of all currencies together for international operations of the Bank (country-wise and in aggregate) are prepared on daily basis. The statement of structural liquidity of foreign currency for domestic operations, consolidated statement for domestic operations and for the Bank as a whole are prepared on fortnightly basis. The utilization against gap limits laid down for each bucket is reviewed by Asset Liability Management Committee of the Bank.
We also prepare and periodically present to the Asset Liability Management Committee, the dynamic liquidity cash flow statements, which in addition to scheduled cash flows, also consider the liquidity requirements pertaining to incremental business and the funding thereof. As a part of the stock and flow approach, we monitor various liquidity ratios, and limits as laid down for these ratios in the Asset Liability Management Policy.
The Bank has diverse sources of liquidity to allow for flexibility in meeting funding requirements. For the domestic operations, this includes current accounts and savings deposits payable on demand and retail term deposits, augmented by wholesale deposits, issuance of Certificate of Deposits, borrowings and through the issuance of bonds and subordinated debt from time to time. Loan maturities and sale of investments also provide liquidity. The Bank holds unencumbered, high quality liquid assets and has certain mitigating measures to protect against stress conditions.
For domestic operations, the Bank also has the option of managing liquidity by borrowing in the inter-bank market on a short-term basis. The overnight market, which is a significant part of the inter-bank market, is susceptible to volatile interest rates. To limit the reliance on such volatile funding, the Asset Liability Management Policy stipulates limits for borrowing and lending in the inter-bank market.
For our overseas branches, the Bank also has a well-defined borrowing program. The incremental wholesale borrowings are primarily in the form of money market borrowings and interbank bilateral loans. The Bank also raises refinance from other banks against eligible trade assets. Those loans that meet the Export Credit Agencies’ criteria are refinanced as per the agreements entered into with these agencies. The Bank also mobilizes deposits liabilities, in accordance with the regulatory framework in place in the respective host country.
The Bank maintains prudential levels of liquid assets in the form of cash, balances with the central bank and government securities, money market and other fixed income securities. As stipulated by the regulator, banks in India are required to maintain statutory liquidity ratio at a level of 18.0% at March 31, 2022 of their net demand and time liabilities in India and cash reserve ratio at a level of 4.0% of their net demand and time liabilities in India. The Bank generally holds additional securities over and above the stipulated statutory liquidity ratio requirement. In order to address the stress in financial conditions caused by Covid-19 pandemic, the Reserve Bank of India on March 27, 2020 announced reduction in the required cash reserve ratio by 100 basis points to 3.0% of net demand and time liabilities with effect from the reporting fortnight beginning March 28, 2020 for a period of one year ending on March 26, 2021. Further, Reserve Bank of India on February 5, 2021 decided to gradually restore the cash reserve ratio in two phases in a non-disruptive manner. The required cash reserve ratio was at 3.5% of net demand and time liabilities with effect from the reporting fortnight beginning March 27, 2021 and 4.0% of net demand and time liabilities with effect from the fortnight beginning May 22, 2021. On May 4, 2022, the Reserve Bank of India decided to increase the cash reserve ratio by 50 basis points from 4.0% to 4.5% of their net demand and time liabilities, effective from the reporting fortnight beginning May 21, 2022.
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Banks in India are required to maintain a liquidity coverage ratio at a minimum of 100.0% on a standalone as well as consolidated basis. The liquidity coverage ratio requirement is met by investments in high quality liquid assets which are primarily in the form of government securities, in excess of mandatory statutory liquidity ratio, specified portion of government securities held by the bank within the mandatory statutory liquidity ratio requirement in the form of facility to avail liquidity for liquidity coverage ratio and marginal standing facility, and better-rated corporate bonds.
At March 31, 2022, out of the statutory liquidity ratio requirement of 18.0% of net demand and time liabilities in India, 17.0% (15.0% for securities eligible for the facility to avail liquidity for liquidity coverage ratio, and 2.0% for securities eligible for the marginal standing facility) was counted towards the high quality liquid assets under the liquidity coverage ratio. In order to address the stress in financial conditions caused by Covid-19 pandemic, during March 2020, the Reserve Bank of India increased the limit of securities eligible for the marginal standing facility from 2.0% to 3.0% of a bank’s net demand and time liabilities, with effect from March 27, 2020 until June 30, 2020. The Reserve Bank of India subsequently decided to extend this enhanced limit until December 31, 2021. The Reserve Bank of India on April 18, 2022 permitted banks to reckon Government securities as under the facility to avail liquidity for liquidity coverage ratio within the mandatory statutory liquidity ratio requirement up to 16.0% of their net demand and time liabilities from 15.0% of their net demand and time liabilities.
During fiscal 2022, the Bank maintained a liquidity coverage ratio above the stipulated level. Banks in India are also required to maintain a net stable funding ratio at a minimum of 100.0% on a standalone as well as consolidated basis. Net stable funding ratio ensures resilience over a longer-term time horizon by requiring banks to fund their activities with more stable sources of funding.
We have a Board approved liquidity stress-testing framework, under which we estimate the Bank’s liquidity position under a range of stress scenarios, and consider possible measures we could take to mitigate the outflows under each scenario. During fiscal 2022, the results of each of the stress scenarios were within the Board-approved limits.
The Risk Committee of the Board has approved a liquidity contingency plan, which lays down a framework for ongoing monitoring of potential liquidity contingencies and an action plan to meet such contingencies. The liquidity contingency plan lays down several liquidity indicators, which are monitored on a pre-defined (daily or weekly) basis and also defines the protocol and responsibilities of various teams in the event of a liquidity contingency.
Similar frameworks to manage liquidity risk have been established at each of the overseas banking subsidiaries of the Bank addressing the risks they run as well as incorporating host country regulatory requirements as applicable.
Our subsidiary in the United Kingdom has access to diverse sources of liquidity to allow for flexibility in meeting its funding requirements. In line with local regulatory requirements, ICICI Bank UK has an Internal Liquidity Adequacy Assessment Process document, which is approved by its Board of Directors. The Internal Liquidity Adequacy Assessment Process outlines the stress testing framework and liquidity and funding risk limits. These limits are monitored by Asset Liability Management Committee of ICICI Bank UK PLC, at least on monthly basis. ICICI Bank UK PLC has complied with these requirements throughout fiscal 2022. It maintained liquidity coverage ratio above the stipulated level of 100.0% during fiscal 2022 and complied with Pillar 2 liquidity requirements, as stipulated to it by the Prudential Regulation Authority.
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In Canada, the liquidity coverage requirements guidelines from Office of the Superintendent of Financial Institution expect banks to ensure that the value of the liquidity coverage ratio be no lower than 100.0%, in absence of the situation of financial stress. At March 31, 2022, ICICI Bank Canada maintained liquidity coverage ratio above the regulatory minimum of 100.0%. Office of the Superintendent of Financial Institution expects each Canadian bank to have an internal liquidity policy articulating and defining the role of liquid assets within the bank’s overall liquidity management system and establishing minimum targets for liquid asset holdings. ICICI Bank Canada has a Liquidity Management Policy and Market Risk Management Policy, which are approved by its Board of Directors. These limits are monitored by Asset Liability Management Committee of ICICI Bank Canada, at least on monthly basis. ICICI Bank Canada has complied with these requirements throughout fiscal 2022.
In addition, Net Cumulative Cash Flow information on a monthly basis is shared with the Office of Superintendent of Financial Institutions consisting details of maturity pattern of assets and liabilities and net cash flows.
See also “Operating and Financial Review and Prospects—Market Risk—Liquidity Risk”.
Operational Risk
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Operational risk includes legal risk but excludes strategic and reputational risks. Legal risk includes, but is not limited to, exposure to fines, penalties or punitive damages resulting from supervisory actions, as well as private settlements.
The management of operational risk is governed by the Operational Risk Management Policy approved by the Board of Directors. The Policy is applicable across the Bank including overseas branches, ensuring a clear accountability and responsibility for management and mitigation of operational risk, developing a common understanding of operational risk and assisting the business and operation groups to improve internal controls. The Board has constituted an Operational Risk Management Committee for reviewing risks associated with the various business activities of the Bank. The Operational Risk Management Committee reviews the risk profile of various key functions, the tools used for management of operational risk and implementation of the operational risk management policies as approved by the Board. The Board has also approved a framework for approval of products and processes, which requires the products and processes pertaining to products/product variants to be assessed from an operational risk perspective. Based on the Group Operational Risk Management Policy approved by the Board, for companies having total assets of more than Rs. 10.00 billion or assets under management of more than Rs. 100.00 billion, the respective group companies are responsible for implementing operational risk management framework through the operational risk management policy approved by their respective Boards.
The key elements in the operational risk management process in the Bank are risk identification and assessment, risk measurement, risk monitoring and risk mitigation.
Operational risk is sought to be mitigated by maintaining a comprehensive system of internal controls, establishing systems and procedures to monitor transactions, maintaining key back-up procedures and undertaking regular contingency planning.
The Bank has put in place comprehensive process documents from customer sales to processing of transactions/proposals at various stages of the transaction life cycle. These process documents are required to be reviewed at a periodic basis. Further, the functional structure at the Bank has been organized in a manner to ensure adequate checks and balances. A brief on the management of operational controls and procedures at the Bank is summarized below:
Operational Controls and Procedures in Retail Banking
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The Bank has well-defined products, sales, credit and operations structure for customer sales, evaluation, servicing and monitoring. The Bank offers retail and transaction banking products to the customers through the various channels like branches, phone banking, digital/online, business correspondents, empaneled service providers, etc. The banking transactions relating to customer accounts are processed based on built-in system checks and authorization procedures and transactions are also subjected to enhanced due-diligence based on certain criteria. The Bank has designated centralized and regional processing centers located at various cities across the country.
The Bank has its contact centres in multiple cities for extending banking services to customers through phone banking. The services are offered through an automated Interactive Voice Response and as well through an agent after proper authentication of the customer.
Operational Controls and Procedures for Wholesale and Transaction Banking
The credit risk of the Wholesale banking business is independently evaluated by the credit risk management group, the legal group reviews, the security structure and documentation aspects and the operations group conducts verification and scrutiny of the loan documents vis-à-vis sanction terms, monitoring important covenants of the terms of sanction, monitoring creation of security and other important aspects for the facility extended by the Bank. The Bank has a credit monitoring group, which provides inputs for monitoring and management of credit portfolio across the life cycle of the loans. The Transaction Banking focuses on offering comprehensive payment and collection related products to the customers.
Operational Controls and Procedures in Treasury
The Bank has put in place internal controls with respect to its treasury operations, which include the segregation of duties between treasury front-office and treasury and securities services group, certain control procedures, monitoring procedures through detailed reporting statements, and a well-defined code of conduct for dealers. The Bank has also set up limits in respect of treasury operations including deal size limits and product-wise limits. In order to mitigate the potential risk of mis-selling, if any, a customer suitability and appropriateness policy has been implemented. Similarly, in order to mitigate potential contractual risks, if any, over the counter deal execution related conversations are recorded on a voice recording system. Some of the control measures include independence of deal validation, deal confirmation, documentation, limits monitoring, treasury accounting, settlement, reconciliation and regulatory compliance. Further, there is monitoring for unconfirmed, unsettled deals if any, delay in settlement or confirmation, etc.
Operational Controls and Procedures for Information Technology and Information Security
The Bank has a governance framework for information technology and security with oversight by the Information Technology Strategy Committee which is a Board-level committee chaired by an independent director. The security strategy at the Bank is based on the principle of defense in depth and the Information Technology risk framework of the Bank enunciates three lines of defense with clearly defined roles and responsibilities. The Bank has dedicated units responsible for information security and financial crime prevention, which are independent of the business units. In striving to provide high availability and continuity of services to its customers, including high availability of customer facing Information Technology systems, the Bank has a Business Continuity Management Policy which also includes the Disaster Recovery Policy for timely recovery of its Information Technology systems in the event of any disaster or contingency. The Bank also has a Information Security Policy and Cyber Security Policy which includes a cyber-crisis management plan. The Bank also conducts vulnerability assessment and penetration testing periodically to mitigate the risk that may arise from security vulnerabilities.
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The cyber security threat landscape for banks and financial institutions globally is constantly evolving and threats such as phishing, distributed denial of service attacks, leakage of sensitive data, malware, ransomware and exploitation of ATM vulnerabilities or vulnerabilities in systems provided to banks by software vendors are not only prevalent but also continuously morphing.
To stay on top of such an evolving threat landscape and to regularly monitor any attempted threats to the Bank’s information assets, the Bank has 24x7 monitoring and surveillance of systems by Security Operations Centre and IT Command Center (which includes Network Operation Center). This is supported by the resilience in the design and redundancy at every layer in Bank’s Information Technology infrastructure (servers, storage and network). The Bank has processes for change management, identity management, access management and security operations, and these processes are periodically reviewed and refined to keep them abreast of emerging risks and to implement commensurate controls to mitigate such risks. The Bank has a fully equipped disaster recovery setup in place at remote location(s), which is subject to periodic disaster recovery drills. Further, stringent gating controls are followed at the time of introducing new applications. As data protection is important, critical and vital, data leakage and loss prevention system is in place which consists of many policies to protect confidential data at endpoint, web and email level. The Bank also has in-house ethical hacking (red teams) to continuously test applications for vulnerabilities or security flaws. The Bank undergoes multiple assessments of its security by internal and external auditors, through specific thematic assignments and regulators to continuously check its security posture and strengthen its controls. The Bank continually keeps learning from the environment and any incidents, in order to enhance cyber resilience.
The Bank conducts and participates in cyber security drills to continuously fine tune its response mechanisms. The Bank runs frequent awareness campaigns for employees through mails, screen savers and other modes, and conducts internal simulation exercises to ensure high levels of employee awareness on information security. The Bank is continuously reviewing and taking adequate measures to enhance the IT resilience in terms of application architecture, network and infrastructure.
Operational Controls and Procedures for Digital Channels:
The digital channels are used by the Bank for both sales and servicing. The Bank has separate online channels for retail and corporate and small business banking customers and the same are also compatible with mobile devices. The Bank has put in place authentication and authorization controls for transactions through internet and mobile banking. The internet banking infrastructure is secured through multi-layer information security controls, including firewalls, intrusion prevention systems and network level access controls. These are supplemented by periodic penetration tests, vulnerability assessments and continuous security checks. The customer access and transactions are authenticated using two-factor authentication wherever applicable and the challenge mechanism is also dynamic, to ensure that the facility is being accessed by the intended customer.
To create awareness among customers about phishing, vishing and other digital banking frauds, the Bank regularly sends communications to customers. The Bank also has various fraud monitoring tools for online and offline monitoring of possible frauds being committed on customers account.
The adherence to the processes and guidelines in the aforesaid areas is overseen through risk monitoring, concurrent audits and internal audits.
See also “Risk Factors- Risks Relating to Technology- We face security risks, including denial of service attacks, hacking, social engineering attacks targeting our colleagues and customers, malware intrusion or data corruption attempts, and identity theft that could result in the disclosure of confidential information, adversely affect our business or reputation, and create significant legal and financial exposure”.
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Anti-Money Laundering Controls
The Bank has implemented Know Your Customer/Anti-Money Laundering/Combating of Financing of Terrorism guidelines in accordance with the provisions under Prevention of Money Laundering Act, 2002, rules promulgated thereunder and guidelines issued by the regulators from time to time.
Implementation of these guidelines includes the formulation of a Group Anti-Money Laundering Policy with the approval of the Board of Directors of the Bank which also covers the overseas branches; oversight by the Audit Committee on the implementation of the Anti-Money Laundering framework; appointment of a senior level officer as the principal officer who has the day-to-day responsibility for implementation of the anti-money laundering framework; implementation of adequate Know Your Customer procedures, screening of names of customers with negative lists issued by the regulators and customer risk categorization for classifying the customers as high, medium and low risk; risk-based transaction monitoring and regulatory reporting procedures through automated applications; implementing appropriate mechanisms to train employees’ and to creating customer awareness on this subject.
The Bank adopts a risk based approach and conducts customer risk assessment with simplified due diligence for low risk, normal due diligence for medium risk and enhanced due diligence for high risk customers pursuant to the Reserve Bank of India guidelines.
The Bank also adheres to the anti-money laundering requirements as specified by the regulators of respective geographies. The Bank’s anti-money laundering framework is subject to audit by the Internal Audit Department and their observations are reported to the Audit Committee at regular intervals.
The Bank has a Group Anti-Money Laundering policy which requires the non-banking and banking subsidiaries to formulate Anti-Money Laundering policies in line with their respective regulatory requirements.
In December 2017, the Bank received three notices from Unique Identification Authority of India for non-compliance of guidelines under Aadhaar (Authentication) Regulations, 2016 for non-compliance with certain requirements. The Bank has responded to these notices and is awaiting further communication from Unique Identification Authority of India in this regard.
The Directorate of Enforcement earlier issued six show-cause notices against ICICI Bank and certain other entities and persons alleging certain violations under Foreign Exchange Management Act, 1999 mainly pertaining to the sale of foreign exchange travel cards to travellers. In four of these matters, the Enforcement Directorate has imposed penalties of Rs. 4 million on ICICI Bank Limited and Rs. 1 million on its employees. ICICI Bank Limited has filed an appeal against these orders before Appellate Tribunal for Foreign Exchange and the matters are listed for hearing in the Appellate Tribunal.
The Bank has received a favorable order in two matters.
The Financial Intelligence Unit through its order dated July 30, 2021 issued a warning for failing to have effective internal mechanism to detect and report complete information on Cross Border Wire Transfer Reports under Prevention of Money Laundering Act, 2002. The Financial Intelligence Unit India also mentioned that resubmission of the entire Cross Border Wire Transfer Reports by the Bank according to guidelines was a mitigating factor in favor of the Bank.
In May 2021, Reserve Bank of India cautioned the Bank for continued operations in InstaSave Salary accounts despite aggregate balances exceeding permissible limits.
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See also “Risk Factors—Risks that arise as a result of our presence in a highly regulated sector—The enhanced supervisory and compliance environment in the financial sector increases the risk of regulatory action against us, whether formal or informal” and “Risk Factors—Risks Relating to Our Business—Negative publicity could damage our reputation and adversely impact our business and financial results and the prices of our equity shares and ADS.”
Cyber Security
We have taken a comprehensive approach pertaining to cyber security and have laid down policies, standards and guidelines addressing security against cyber threats. The triad of confidentiality, integrity and availability are at the center of our comprehensive information security framework. The approach covers all aspects of prevention, detection and response. Keeping customer priorities in mind, we follow a ‘defense in depth’ approach in implementing the cyber security solutions. The Bank also lays emphasis on customer protection aspects such as phishing, adaptive authentication and awareness initiatives. We have been enabling customers to easily configure control parameters related to their cards such as limits, international access and other parameters on a self-service and real-time basis from the internet and mobile channels of the Bank. This enables customers to protect their cards from misuse. Additionally, we have devised multiple key risk indicators and dashboards to review system stability, continuity and availability and network uptime. The Bank’s Information Security Policy, Cyber Security Policy and Information Security Standards and Procedures are based on various industry standards, regulatory requirements of various jurisdictions in which the Bank operates and other inputs like internal audits and benchmarking exercises. As part of our Secure by Design philosophy, we aim to ensure that every new piece of infrastructure or application inducted is put through rigorous security testing. The Bank has a 24x7 Security Operation Centre for monitoring and surveillance of information technology systems. Considering the criticality and vitality of data protection, we have deployed a Data Leakage/Loss Prevention system with data protection rules for sensitive data exposure from the Bank’s endpoints, emails and web gateways. We also conduct and participate in cyber security drills and table top exercises to continuously fine tune our response mechanisms. See also “Risk Factors—Risks Relating to Our Technology—We face security risks, including denial of service attacks, hacking, social engineering attacks targeting our colleagues and customers, malware intrusion or data corruption attempts, and identity theft that could result in the disclosure of confidential information, adversely affect our business or reputation, and create significant legal and financial exposure”.
We have made arrangements for all key activities to be performed on a work-from-home model through a secure Virtual Private network and Virtual Desktop Interface. Our 24x7 Security Operation Centre has also configured specific rules to continually monitor logs from virtual private network services and generate alerts in case of any unusual events.
Audit
The Internal Audit Group, governed by a Group Audit Charter and Internal Audit Policy approved by the Board of Directors, provides independent, objective assurance on the effectiveness of internal controls, risk management and corporate governance and suggests improvements. It helps us accomplish our objectives by evaluating and improving the effectiveness of risk management, internal controls and governance processes, through a systematic and disciplined approach. The Internal Audit Group acts as an independent entity and reports to the Audit Committee of the Board.
The Internal Audit Group maintains staff with sufficient knowledge, skills, experience and professional certifications. It deploys audit resources with expertise in audit execution and adequate understanding of business activities. An assessment of the quality of assurance provided by the Internal Audit Group is conducted through an independent external firm once in three years. The processes within Internal Audit Group are certified under ISO 9001-2015.
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The Internal Audit Group has adopted a risk based audit methodology in accordance with the Reserve Bank of India guidelines. The risk based audit methodology is outlined in the Internal Audit Policy. An annual risk based audit plan is drawn up based on the risk-based audit methodology and is approved by the Audit Committee of the Board. Accordingly, the Internal Audit Group undertakes a comprehensive audit of all branches, business groups and other functions in accordance with the risk based audit plan. Resources required for implementing the risk based audit plan are also approved by the Audit Committee.
The Internal Audit Group also has a dedicated team responsible for information technology and information security (including cyber security) audits. The annual audit plan covers various components of information technology including applications, infrastructure, information technology governance/risk management and information technology general controls. Cyber security is a key focus area for audit, and activities undertaken by the information security function are also subjected to audit.
The Reserve Bank of India requires banks to have a process of concurrent audits of risk sensitive areas identified as per specific business models. Centralized Processing Centres are required to be under purview of concurrent audit. The coverage of branches/business areas under purview of concurrent audit and scope of work to be entrusted to concurrent auditors are required to be approved by the Audit Committee. In adherence with the requirements, the Internal Audit Group has put in place a systematic and structured approach for concurrent audit covering a review of high risk financial transactions originated by domestic retail liability branches, pan India. Additionally, domestic retail liability branches having high volume of high risk financial transactions are under purview of separate concurrent audit. Various other areas including treasury related functions are also under purview of concurrent audit. Concurrent audits are also carried out at centralized and regional processing centers and at centralized operations units with a focus on areas that are identified as needing transaction testing and also to test the existence of and adherence to internal controls. Some of the head office functions are also under purview of continuous audit. The details of the concurrent audit coverage are outlined in the annual risk based audit plan, approved by the Audit Committee.
The audit of overseas banking subsidiaries and domestic non-banking subsidiaries is carried out by a dedicated team of resident auditors attached to the respective subsidiaries. These audit teams functionally report to the Audit Committees of the respective subsidiary and to the Internal Audit Group. The audit of overseas branches and representative offices is carried out by audit teams consisting of auditors from India as well as a resident auditor based at the Singapore branch. International operations outsourced to India are audited by a team of internal auditors in India.
Legal and Regulatory Risk
We are involved in various litigations and are subject to a wide variety of banking and financial services laws and regulations in each of the jurisdictions in which we operate. We are also subject to a large number of regulatory and enforcement authorities in each of these jurisdictions. The uncertainty of the enforceability of the obligations of our customers and counter-parties, including the enforcement of collateral, creates legal risk.
Changes in laws and regulations could adversely affect us. Legal risk is higher in new areas of business where the law is often untested by the courts. We seek to minimize legal risk with the Legal Group providing legal, security or other documentation, identifying, mitigating and advising on legal risks for our transactions, products and services, assessing legal compliance requirements of the various business, operations and other functions, assessing legal cases or claims against the Bank for provisioning (when case or claim assessed as probable) and reporting as part of contingent liabilities in the financial statements (when case or claim assessed as possible), employing procedures designed to ensure that transactions are properly authorized and consulting internal and external legal advisors. We are also adopting an online dispute resolution mechanism (entailing mediation, conciliation or arbitration or combination thereof administered by an independent institution) for speedy resolution of claims and disputes of certain retail assets and services as an alternative to approaching courts or tribunals. Such online dispute resolution mechanism and its continuing usage will be subject to changes in law or court decisions. See also “Risk Factors—Risks Relating to Our Business—We are involved in various litigations. Any final judgment awarding material damages against us could have a material adverse impact on our future financial performance and our stockholders’ equity”, “Risk Factors—Risks that arise as a result of our presence in a highly regulated sector—The enhanced supervisory and compliance environment in the financial sector increases the risk of regulatory action against us, whether formal or informal.” and “—Legal and Regulatory Proceedings”.
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Risk Management Framework for International Operations
We have adopted a risk management framework for our international banking operations, including overseas branches, our International Financial Services Centre Banking Unit and Offshore Banking Unit. Under the framework, the Bank’s credit, investment, asset liability management and anti-money laundering policies apply to all the overseas branches, our International Financial Services Centre Banking Unit and Offshore Banking Unit, with modifications to meet local regulatory or business requirements. These modifications may be made with the approval of our Board of Directors or the committees designated by the Board of Directors. The Board of Directors/designated committee of the Board approve their respective risk management policies, based on applicable laws and regulations as well as the Bank’s corporate governance and risk management framework. Policies at the overseas banking subsidiaries are approved by Board of Directors of the respective subsidiaries and are framed in consultation with the related groups in the Bank as per the risk management framework.
The Compliance Group oversees regulatory compliance at the overseas branches, its International Financial Services Centre Banking Unit and Offshore Banking Unit. Compliance risk assessment along with the key risk indicators pertaining to our domestic and international banking operations are presented to the Risk Committee of our Board of Directors on a periodic basis. Management of regulatory compliance risk is considered as an integral component of the governance framework at the Bank and its subsidiaries along with the internal control mechanisms.
Risk Management in Certain Subsidiaries and Affiliates
ICICI Bank UK PLC
The key risks to which ICICI Bank UK PLC is exposed to include credit risk (including concentration risk, climate change risk and geo-political risk), market risk (including interest rate and credit spread risks), liquidity risk, operational risk (including compliance, legal risk and conduct risks) and information security risk.
The Board of Directors of ICICI Bank UK PLC is responsible for oversight and control of the functioning of ICICI Bank UK PLC and approves all major policies and procedures. The Board is assisted by its sub-committees, the Audit Committee, Governance Committee, Risk Committee, Conduct Risk Committee and Credit Committee which have been constituted to facilitate focused oversight on various risks. ICICI Bank UK PLC’s risk appetite and policies approved by the Board/or the Board’s committees form the governing framework for each type of risk. Business activities are undertaken within the approved risk appetite and policy framework.
All credit risk related issues are governed by ICICI Bank UK PLC’s Credit Risk Management Policy. ICICI Bank UK PLC takes a two-tier approach to assessment of credit risk. The first review is carried out by the commercial officer proposing the transaction and the second review comprises of an independent assessment and evaluation by an officer from the risk team. Credit risk is also managed at the portfolio level by monitoring key parameters of risk concentration such as industry exposures, country exposures, internal rating category based exposures and large exposures.
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ICICI Bank UK PLC has a Board approved Internal Liquidity Adequacy Assessment process document, which outlines the liquidity management process of ICICI Bank UK PLC. ICICI Bank UK PLC uses various tools for measurement of liquidity risk including the statement of structural liquidity, liquidity ratios and stress testing through scenario analysis. In line with its liquidity risk appetite, ICICI Bank UK PLC maintains adequate high quality liquid assets/central bank reserves to cover projected stressed outflows under various scenarios. High quality liquid assets are maintained to comply with the liquidity coverage requirements stipulated by the Prudential Regulation Authority.
ICICI Bank UK PLC has Board/Board committee approved policies for managing market risk such as its treasury policy manual and mandate, interest rate risk in the banking book management policy, valuation policy, model validation policy and independent price verification policy. For monitoring and managing market risk, it uses various risk metrics, including the duration of equity, delta net interest income, delta economic value of equity, portfolio limits, price value of one basis point change in interest rate, price value of one basis point change in credit spread, stop loss limits and value at risk limits.
The management of operational risk (including fraud risk) is governed by the Operational Risk Management Policy approved by the Board Risk Committee. Operational risk elements include operational incident management, techniques for risk identification and measurement, monitoring through key risk indicators and risk mitigation techniques. ICICI Bank UK PLC has also implemented an outsourcing policy, reviewed and approved by the Board Risk Committee on an annual basis, to mitigate outsourcing risks and ensure the application of a standardized approach for all outsourcing arrangements.
ICICI Bank UK PLC’s Conduct Risk Appetite Framework is approved by the Board of ICICI Bank UK PLC and reviewed on an annual basis by the Board Risk Committee as part of the overall risk appetite framework of the Bank. ICICI Bank UK PLC’s Conduct Risk Appetite is closely aligned to the FCA requirements and expectations. It balances the need of all stakeholders by acting as both a governor of risk and driver of current and future business strategy, with particular focus on delivering fair outcomes to the customers of ICICI Bank UK PLC. ICICI Bank UK PLC has also established a Conduct Risk Policy, which is aligned with the Conduct Risk Appetite Framework and ensures that effective governance arrangements are in place for managing and monitoring conduct risk exposure of ICICI Bank UK PLC.
ICICI Bank UK PLC has implemented an integrated approach to IT security and made significant progress in enhancing its information security governance through monitoring at the Information Technology and Security Committee. Additionally, periodic presentations are provided to the Board Risk Committee on cyber threat landscape and the measures like periodic vulnerability and penetration testing, Application security life cycle assessment, information security awareness programs and cyber incident management undertaken to mitigate risks. At March 31, 2022, ICICI Bank UK PLC was in the process of renewing its “Cyber Essentials” certificate and badge which demonstrates that ICICI Bank UK PLC’s information security processes and procedures meet the UK baseline standards.
ICICI Bank Canada
ICICI Bank Canada is exposed to risks such as credit risk, market risk, operational risk, structural interest rate risk, liquidity risk, compliance and reputation risk. ICICI Bank Canada has developed an Enterprise Risk Management Framework designed to ensure that the risks are identified, measured and monitored effectively. The framework also requires the establishment of policies and procedures to monitor and mitigate the risks.
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The Board of Directors of ICICI Bank Canada has oversight on all risks assumed by ICICI Bank Canada. The Board has established committees and assigned specific mandates to the committees for providing oversight for the various risks facing it. The policies approved by the Board create the governing framework for managing various risks faced by ICICI Bank Canada. Business activities are undertaken within this policy framework.
The Risk Committee of the Board has delegated the operational responsibility for credit risk management to the Management Credit Committee within the broad parameters and limits laid down in the Corporate and Commercial Credit and Recovery Policy, Retail Credit Recovery Policy, and Residential Mortgage Underwriting Policy. The Management Credit Committee approves credit proposals before recommending them to Risk Committee, which manages the credit risk on a portfolio basis and reviews asset quality and portfolio quality on a monthly basis.
The Risk Committee has delegated operational responsibility for market risk management, structural interest rate risk management and liquidity risk management to the Asset Liability Committee within the broad parameters and limits laid down in the Market Risk Management Policy and Liquidity Management Policy respectively. The Asset Liability Committee reviews matters pertaining to Investment and Treasury operations and the implementation of risk mitigation measures and recommends major policy changes governing treasury activities to the Risk Committee. Asset Liability Committee reviews adherence to market risk and liquidity risk requirements of the Office of the Superintendent of Financial Institutions (Canada’s banking regulator), internal control guidelines and limits.
The Risk Committee has delegated operational responsibility for management of operational risk to the Non-Financial Risk Committee under the Management Committee. Non-Financial Risk Committee is responsible for managing operational risks in the day-to-day operations of ICICI Bank Canada, Fraud Risk and Compliance related risk. The Non-Financial Risk Committee under the oversight of Management Committee reviews the Operational, Compliance and Fraud Risk Management implementation and risk profiles on a monthly basis.
Canada experienced market-wide liquidity tightening and higher volatilities in the fixed income and foreign exchange markets at the beginning of the pandemic. ICICI Bank Canada observed higher than usual collateral posting requirements with foreign exchange swap counterparties due to currency price movements. ICICI Bank Canada proactively maintained higher liquid assets and took all internal approvals for participation in Bank of Canada’s standing term liquidity facility for liquidity requirements towards unforeseen contingency events.
Following the outbreak of the Covid-19 pandemic, our overseas banking subsidiaries conducted detailed reviews of their portfolios as well as their underwriting norms. While these subsidiaries have made additional Covid-19 related provisions, the extent of impact of the pandemic on their loan portfolios is uncertain. The pandemic and its economic impact may negatively impact growth and profitability in these subsidiaries.
ICICI Securities Primary Dealership
ICICI Securities Primary Dealership is a primary dealer and has Government of India securities as a significant proportion of its portfolio. The Corporate Risk Management Group at ICICI Securities Primary Dealership has developed comprehensive risk management policies which seek to manage the risks generated by the activities of the organization. The Corporate Risk Management Group develops and maintains models to assess market risks which are constantly updated to capture the dynamic nature of the markets. The Corporate Risk Management Group also participates in the evaluation and introduction of new products and business activities.
ICICI Securities Primary Dealership has an internal Risk Management Committee and Information Technology Strategy Committee which is chaired by an Independent Director and comprises members of its Board of Directors. The Risk Management and Information Technology Strategy Committee is responsible for analyzing and monitoring the risks associated with the different business activities of ICICI Securities Primary Dealership and overseeing adherence to the risk and investment limits set by its Board of Directors.
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ICICI Prudential Life Insurance Company
The risk governance structure of ICICI Prudential Life Insurance Company consists of the Board, Board Risk Management Committee, Executive Risk Committee and its sub-committees. The Board, on the recommendation of the Board Risk Management Committee, has approved the risk policy which covers the identification, measurement, monitoring and control standards relating to various individual risks, namely investment (market, credit and liquidity), insurance, reputation and operational (including legal, compliance, outsourcing, customer dissonance, business continuity, information and cyber security) risks. The Board periodically reviews the potential impact of strategic risks such as changes in macro-economic factors, government policies, regulatory environment and tax regime on the business plan of the Company. In addition to these risks, the life insurance industry faces sustainability risks related to environmental, social and governance issues. One of the most prominent environmental, social and governance risks is that of climate change which could potentially have wide-ranging implications including (but not limited to) adverse impact on economic growth and investment markets and higher than expected claims due to increased risk of future weather related catastrophes, pandemics as well as possible changes in long-term mortality/morbidity rates. Apart from climate change, there are emerging risks associated with public health trends such as increase in obesity related disorders and demographic changes such as population urbanization and ageing. Other important environmental, social and governance elements include data privacy which has an increasing material impact on the Company’s reputation. The risk management framework of the Company seeks to identify, measure and control its exposures to all these risks within its overall risk appetite. During the year, the Company has integrated sustainability risks in its risk management framework.
The risk policy sets out the governance structure for risk management in ICICI Prudential Life Insurance Company. The Board Risk Management Committee, which consists of non-executive directors, formulates the risk management policy, including asset liability management, monitors all risks across various lines of business and establishes appropriate systems to mitigate such risks. The Board Risk Management Committee also defines ICICI Prudential Life Insurance Company’s risk appetite and risk profile, oversees the effective operation of the risk management system and advises the Board on key risk issues.
The Executive Risk Committee, which comprises senior management, is responsible for assisting the Board and the Board Risk Management Committee in their risk management duties by guiding, coordinating and overseeing compliance with the risk management policies and, in particular, is responsible for the approval of all new products launched by ICICI Prudential Life Insurance Company.
The risk management model of ICICI Prudential Life Insurance Company comprises a four-stage continuous cycle, namely identification and assessment, measurement, monitoring and control of risks. ICICI Prudential Life Insurance Company’s risk policy details the strategy and procedures adopted to follow the risk management cycle at the enterprise level. A risk report detailing the key risk exposures faced by ICICI Prudential Life Insurance Company and mitigation measures is placed before the Board Risk Management Committee on a quarterly basis.
After a surge of claims during the second wave of the pandemic witnessed in the first half of fiscal 2022, the Covid-19 related claims intimation to ICICI Prudential Life Insurance Company tapered down in the third quarter of fiscal 2022 and continued to show a declining trend in the fourth quarter of fiscal 2022. However, there remains uncertainty around the outlook for Covid-19 pandemic. The long-term impact on mortality and morbidity is dependent on the extent of natural immunity that develops in the general population, the efficacy of new healthcare treatments, possible future strains that may emerge and the implications from other factors such as long-term post-Covid-19 symptoms (although there is currently no consensus on the longer-term impact on mortality/morbidity). ICICI Prudential Life Insurance Company continues to closely watch the evolving situation for appropriate risk mitigation and management.
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ICICI Lombard General Insurance Company
ICICI Lombard General Insurance Company is principally exposed to risks arising out of the nature of business underwritten and credit risk on its total investment assets as well as the credit risk it carries on its reinsurers. In respect of business risk, ICICI Lombard General Insurance Company seeks to diversify its insurance business across product classes, industry sectors and geographical regions. ICICI Lombard General Insurance Company focuses on achieving a balance between the corporate and retail business mix to achieve favorable claim ratio and risk diversification. ICICI Lombard General Insurance Company has a risk retention and reinsurance policy whereby tolerance levels are set as per risk and on a per event basis. ICICI Lombard General Insurance Company also has the ability to limit its risk exposure by way of re-insurance arrangements. Investments of the Company are governed by the investment policy approved by its Board of Directors within the norms stipulated by the Insurance Regulatory and Development Authority of India. As per the Insurance Regulatory and Development Authority of India’s Investment Regulations, the Company is required to invest a certain portion of its investment assets in central government securities and state government securities/loans. The regulations also have a stipulation to invest in AAA or equivalent rating debt instruments. The Investment Committee oversees the implementation of this policy and reviews it periodically. Exposure to any single non-government issuer is restricted to maximum 5.0% of the total investment assets, by cost. The regulatory stipulation for such exposure is capped at 10.0% of the investment assets. The Company invests a minimum of 5.0% of its investment assets in money market instruments to ensure adequate liquidity in the investment portfolio.
ICICI Lombard General Insurance Company would continue to closely watch the evolving situation for appropriate risk mitigation and management.
Our gross loan portfolio increased by 14.9% from Rs. 8,246.6 billion at year-end fiscal 2021 to Rs. 9,475.1 billion at year-end fiscal 2022. At year-end fiscal 2022, 88.4% of our gross loans were rupee loans. See also “Operating and Financial Review and Prospects—Financial Condition—Assets—Advances”.
Collateral—Completion, Perfection and Enforcement
Our loan portfolio largely consists of corporate finance and working capital loans to corporate borrowers, loans to retail customers, including home loans, automobile loans, commercial business loans, personal loans and credit card receivables and agricultural financing. Our unsecured loans primarily include personal loans, credit card receivables and loans to higher-rated corporate borrowers. For loans which are secured, we generally stipulate that the loans should be collateralized at the time of loan origination. However, it should be noted that obstacles within the Indian legal system can create delays in enforcing collateral. See “Risk Factors—Risks Relating to Our Business— If the level of our non-performing assets increases and the overall quality of our loan portfolio deteriorates, our business will suffer”. In India, there are no regulations stipulating loan-to-collateral limits, except in the case of home loans and loan against gold ornaments and jewelry.
Secured consumer loan portfolio
Secured consumer loans for the purchase of assets, such as mortgage loans and automobile loans are secured by the assets being financed (predominantly property and vehicles).
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Depending on the type of borrower and the asset being financed, the borrower may also be required to contribute towards the cost of the asset. Accordingly, the security value is generally higher than the loan amount at the date of loan origination.
For other secured consumer loans, such as loans against property and property overdrafts, we generally require collateral of 125.0% of the loan amount at origination.
Commercial loans
The Bank generally requires collateral at origination for commercial loans. We may also extend unsecured facilities in certain circumstances. Such circumstances may include working capital limits outside consortium, short term requirements of the borrower, regulatory norms/restrictions on taking security and facilities where adequate structural comforts are available to mitigate the envisaged credit risks and retail loans such as credit cards and personal loans. We also provide unsecured loans to higher rated, well-established corporates. The collateral for project and other corporate loans are usually immovable assets which are typically mortgaged in the Bank’s favor, or movable assets, which are typically hypothecated or pledged in the Bank’s favor, except for projects such as road/airport and other concession based projects. These security interests must be perfected by the registration of these interests within time limits stipulated under the Companies Act with the Registrar of Companies pursuant to the provisions of the Companies Act when borrowers are constituted as companies. Security interests upon immovable property are generally required to be registered with the relevant Sub- Registrar in terms of the Registration Act, 1908. This registration amounts to a constructive public notice of the security interests. We may also take security of a pledge of financial assets like marketable securities, and obtain corporate guarantees and personal guarantees and sponsors wherever appropriate. In certain cases, the terms of financing include covenants relating to sponsor shareholding in the borrower and restrictions on the sponsors’ ability to sell all or part of their shareholding. Covenants involving equity shares generally have a top-up mechanism based on price triggers. See also “Risk Factors—Risks Relating to Our Business—The value of our collateral may decrease or we may experience delays in enforcing our collateral when borrowers default on their obligations to us which may result in failure to recover the expected value of collateral security exposing us to a potential loss”.
The Bank generally requires collateral value at 150.0% of the outstanding loan amounts for loans to real estate companies and lease rental discounting facilities. Our lease rental discounting facility is a loan facility offered to borrowers where the loans are granted against confirmed future lease rental payments to be received by the borrowers. Further, the Bank has also laid down limits for unsecured exposures which restrict the exposure to unsecured facilities.
For working capital facilities, the current assets of borrowers are generally taken as collateral. Each borrower is required to declare the value of current assets periodically. The borrower’s credit limit is subject to an internally approved ceiling that applies to all borrowers. We calculate a borrower’s credit limits as a certain percentage of the value of the collateral, which is intended to provide us with an adequate margin, should the borrower default.
Additionally, in some cases, we may take further security on fixed assets, a pledge of financial assets like marketable securities, or obtain corporate guarantees and personal guarantees of sponsors wherever appropriate. We also accept post-dated checks or cash (by way of term deposits of the Bank duly lien marked our favor) as additional comfort for the facilities provided to various entities.The Bank has an internal framework for updating the collateral values of commercial loans on a periodic basis. In the case of lending under consortium banking arrangement, a valuation report is obtained as per the timelines stipulated by the lead bank. The Bank is generally entitled, by the terms of security documents, to enforce security and appropriate the proceeds towards the borrower’s loan obligations without reference to the courts or tribunals unless a client makes a reference to such courts or tribunals to challenge such enforcement. As per the credit policy of the Bank, we comply with the extant regulatory guidelines with respect to collateral valuation in the case of non-performing accounts.
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In case of consumer installment loans, we obtain direct debit mandates or post-dated checks towards repayment on pre-specified dates. Post-dated checks, if dishonored, may entitle us on occurrence of certain events to initiate criminal proceedings against the issuer of the checks. We are also adopting online dispute resolution mechanism (entailing mediation, conciliation or arbitration or combination thereof administered by an independent institution) for speedy resolution of claims and disputes of certain retail assets and services as an alternative to approaching courts or tribunals. Such online dispute resolution mechanism and its continuing usage will be subject to changes in law or court decisions.
We recognize that our ability to realize the full value of the collateral in respect of current assets is affected adversely by, among other things, delays on our part in taking immediate action, delays in bankruptcy proceedings, defects in the perfection of collateral (including due to inability to obtain approvals that may be required from various persons, agencies or authorities) and fraudulent transfers by borrowers and other factors, including current legislative provisions or changes thereto and past or future judicial pronouncements. The value and time to dispose the collateral could also be impacted by policy decisions. In addition, the Bank generally has a right of set-off for amounts due to us on these facilities. The Bank generally requires its working capital loan customers to submit data on their working capital position on a regular basis, so that we can take any actions required before the loan becomes impaired. On a case-by-case basis, we may also stop or limit the borrower from drawing further credit from its facility.
Loan Pricing
Based on the revised guidelines of the Reserve Bank of India, all rupee loans sanctioned and credit limits renewed with effect from April 1, 2016 are required to be priced with reference to marginal cost of funds based lending rate. As required by the guidelines, we publish the ICICI Bank marginal cost of funds based lending rate for various tenures on a monthly basis.
The Reserve Bank of India, through its circular dated September 4, 2019 and February 26, 2020, amended the Master Direction – Interest Rate on advances and mandated banks to link all new floating rate personal or retail loans (housing, auto, etc.) and floating rate loans to micro, small and medium enterprises extended by banks to specified external benchmarks. The interest rate of external benchmark linked floating rate loans shall be reset at least once in three months. For borrowers other than retail and micro, small and medium enterprises, the Bank has the option to offer floating rate loans linked to external benchmark or marginal cost of funds based lending rate. Currently, ICICI Bank links its external benchmark linked floating rate loans to the Reserve Bank of India Policy Repo Rate and 3-months Treasury bill rates as published by Financial Benchmarks India Pvt. Ltd.
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Subsidiaries, Associates and Joint Ventures
The following table sets forth certain information relating to our subsidiaries, joint ventures and consolidated entities at year-end fiscal 2022.
Name |
Year of formation |
Activity |
Ownership interest |
Total income(1) |
Net worth(2) |
Total assets(3) |
| (in millions, except percentages) | ||||||
| ICICI Venture Funds Management Company Limited | January 1988 | Private equity/venture capital fund management | 100.00% | Rs. 626 | Rs. 2,462 | Rs. 2,855 |
| ICICI Securities Primary Dealership Limited(4) | February 1993 | Securities investment, trading and underwriting | 100.00%
|
10,480
|
15,898
|
202,724
|
| ICICI Prudential Asset Management Company Limited(4) | June 1993 | Asset management company for ICICI
Prudential Mutual Fund
|
51.00%
|
26,353
|
20,174
|
24,803
|
| ICICI Prudential Trust Limited | June 1993 | Trustee company for ICICI Prudential Mutual Fund | 50.80%
|
11
|
18
|
20
|
| ICICI Securities Limited(4) | March 1995 | Securities broking and merchant banking | 74.89%
|
34,369
|
24,092
|
136,176
|
| ICICI International Limited | January 1996 | Asset management | 100.00%
|
28
|
104
|
117
|
| ICICI Trusteeship Services Limited | April 1999 | Trusteeship services | 100.00%
|
2
|
9
|
10
|
| ICICI Home Finance Company Limited(4) | May 1999 | Housing finance | 100.00% | 15,918 | 21,051 | 159,405 |
| ICICI Investment Management Company Limited | March 2000 | Asset management and investment advisory | 100.00%
|
164
|
96
|
156
|
| ICICI Securities Holdings Inc.(4)(5) | June 2000 | Holding company | 100.00%
|
1
|
131
|
131
|
| ICICI Securities Inc.(4)(5) | June 2000 | Securities broking | 100.00% | 196 | 304 | 383 |
| ICICI Prudential Life Insurance Company Limited | July 2000 | Life Insurance | 51.32% | 635,538 | 91,631(6) | 2,444,402 |
| ICICI Bank UK PLC | February 2003 | Banking | 100.00% | 5,120 | 23,941 | 169,925 |
| ICICI Bank Canada | September 2003 | Banking | 100.00% | 9,513 | 23,437 | 347,459 |
| ICICI Prudential Pension Fund Management Company Limited(7) | April 2009 | Pension fund management and Points of Presence | 100.00% | Rs. 125 | Rs. 549 | Rs. 590 |
| ICICI Strategic Investments Fund(8) | February 2003 | Venture capital fund | 100.00% | Rs. 542 | Rs. 112 | Rs. 149 |
| (1) | Total income represents gross income from operations and other income. |
| (2) | Net worth represents share capital, share application money and reserves and surplus. |
| (3) | Total assets represent fixed assets, advances, investments and gross current assets (including cash and bank balances). |
| (4) | Number as per respective entity Ind AS financial statements pursuant to migration to Ind AS by these entities. |
| (5) | ICICI Securities Holdings Inc. and ICICI Securities Inc. are a wholly owned subsidiary of ICICI Securities Limited. |
| (6) | Includes share capital, share application money-pending allotment, securities premium and fair value reserve. |
| (7) | ICICI Prudential Pension Funds Management Company Limited is a wholly owned subsidiary of ICICI Prudential Life Insurance Company Limited. |
| (8) | This entity has been consolidated as per Accounting Standard 21 – Consolidated Financial Statements. |
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The following table sets forth certain information on our affiliates whose results were included in the consolidated financial statements under Indian GAAP at year-end fiscal 2022.
Name |
Year of formation |
Activity |
Ownership interest |
Total income(1) |
Net worth(2) |
Total assets(3) |
| (in millions, except percentages) | ||||||
| ICICI Lombard General Insurance Company Limited(4)(5) | October 2000 | General insurance | 48.04% | Rs. 224,949 | Rs. 94,690(6) | Rs. 508,483 |
| I-Process Services (India) Private Limited(5) | April 2005 | Services related to back end operations | 19.00% | 8,456 | 272 | 1,281 |
| NIIT Institute of Finance, Banking and Insurance Training Limited(5) | June 2006 | Education and training in banking, finance and insurance | 18.79% | 158 | 143 | 193 |
| ICICI Merchant Services Private Limited(5) | July 2009 | Merchant acquiring and servicing | 19.01% | 5,543 | 5,985 | 9,060 |
| India Infradebt Limited(5) | October 2012 | Infrastructure finance | 42.33% | 14,671 | 24,565 | 169,228 |
| India Advantage Fund-III(5) | June 2005 | Venture capital fund | 24.10% | 6 | 626 | 910 |
| India Advantage Fund-IV(5) | August 2005 | Venture capital fund | 47.14% | 1 | 571 | 579 |
| Arteria Technologies Private Limited(5) | February 2007 | Software company | 19.98% | Rs. 299 | Rs. 254 | Rs. 459 |
| (1) | Total income represents gross income from operations and other income of the entity. |
| (2) | Net worth represents share capital/unit capital (in case of venture capital funds) and reserves and surplus of the entity. |
| (3) | Total assets represent fixed assets, advances, investments and gross current assets (including cash and bank balances) of the entity. |
| (4) | From April 1, 2021, ICICI Lombard General Insurance Company Limited ceased to be a subsidiary and was accounted as an equity affiliate. |
| (5) | These entities have been accounted for as per the equity method as prescribed by AS 23 on ‘Accounting for Investments in Associates in Consolidated Financial Statements’. |
| (6) | Includes share capital, share application money-pending allotment, securities premium and fair value reserve. |
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At year-end fiscal 2022, all of our subsidiaries and joint ventures were incorporated in India, except the following five companies:
| · | ICICI Securities Holdings Inc., incorporated in the United States; |
| · | ICICI Securities Inc., incorporated in the United States; |
| · | ICICI Bank UK PLC, incorporated in the United Kingdom; |
| · | ICICI Bank Canada, incorporated in Canada; |
| · | ICICI International Limited, incorporated in Mauritius. |
ICICI Securities Holdings Inc. is a wholly owned subsidiary of ICICI Securities Limited and ICICI Securities Inc. is a wholly owned subsidiary of ICICI Securities Holdings Inc. ICICI Securities Holdings Inc. and ICICI Securities Inc. are consolidated in ICICI Securities’ Limited’s financial statements.
Technology organization
The digital channels group focuses on internet and mobile banking solutions. Dedicated technology groups support core banking and other systems used by business groups and corporate functions. The technology infrastructure and technology management group are responsible for providing and maintaining the required infrastructure. A start-up investment and partnerships team focuses on collaborating with and investing in fintech start-ups and piloting strategic digital projects.
Digital platforms and journeys for retail customers
We use artificial intelligence and machine learning based engines to develop personas of customers and curate personalized offerings for them. We offer various solutions such as account opening, payment solutions, home loans, automobile loans, personal loans, credit cards, term life insurance, health insurance and investment solutions to our customers suiting their life-stage needs through our digital channels viz retail internet banking platform and our mobile banking application, iMobile Pay. Our retail internet banking platform offers users a native dashboard, semantic and personalized search options and an interface that can be personalized by them to suit their requirements and preferences. The open architecture based feature of iMobile Pay allows users to make payments using unified payments interface even if they do not have an account with us. There have been 6.3 million activations of iMobile Pay from non-ICICI Bank account holders at March 31, 2022. The feature ‘Pay to contact’ enables users to automatically see the unified payments interface IDs of their phone contacts and enables customers to easily transfer money to any payment application or digital wallet via unified payments interface. The ‘Scan to Pay’ feature allows users to make bill payments by scanning the quick response code. These features have led to an increase in adoption of iMobile Pay. We continuously look to improve user experience on iMobile Pay to attract more customers. During fiscal 2022, we introduced a contactless payment facility on iMobile Pay which enables users of android based smartphones to make credit and debit card payments on Point of Sale terminals in a safe and secure manner by tapping their phones. We also introduced a feature which allows users to link credit card of any bank in iMobile Pay and make payments directly using the application. We have gone live with end-to-end digital journeys for new-to-bank customers on iMobile Pay for products such as credit cards, personal loans, savings accounts and demat account. We also recently introduced an outward remittances feature, Money2World, on iMobile Pay for seamless cross-border transfer of funds.
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We use video interaction for carrying out Know Your Customer while onboarding new customers. Our proprietary iScore for non-ICICI Bank account holders developed from their digital footprint helps them to understand their eligibility for various products. We offer instant home loan sanctions, car loan disbursements, personal loan disbursements and credit cards that are accessible entirely through our retail internet banking platform and iMobile Pay. The processing of loans is digitized end-to-end enabling instant disbursement to pre-approved customers. We also offer an instant digital credit facility, PayLater, on iMobile Pay which enables pre-approved customers to avail instant credit for buying small ticket items through unified payments interface. Approximately 34% of our mortgage sanctions and 44% of our personal loan disbursements, by volume, were end-to-end digital in fiscal 2022. During fiscal 2022, we introduced iLens, an integrated, end-to-end digital lending solution for mortgages which covers all facets of loan lifecycle starting from sales till disbursement including property appraisal. It is a single interface for employees, third party agencies and distribution channels with the objective of providing smooth transacting experience and enhanced operational efficiency. It also offers seamless experience to new-to-bank and existing customers through instant sanction letters, option for disbursement initiation and real time loan tracking.
We have also introduced digital conversion of three-in-one accounts for non-resident Indian customers. We also introduced mutual fund investment through iMobile Pay for non-resident Indian customers.
While creating seamless and convenient banking experiences for customers, we also recognize the customers’ need to understand personal finance better through reliable information that is easily accessible. We launched a digital initiative “The Orange Book” in fiscal 2022, a monthly e-magazine that educates customers about personal finance and helps them to take better financial decisions. The Orange Book covers an array of financial topics from investment planning, safe banking tips to tax savings, financial preparedness and much more.
Digital payments and partnerships
We have continued to strengthen our position in the digital payments ecosystem by designing seamless journeys for customers, facilitating higher volumes and prompting recurrent transactions. Our strategy is to participate in unified payments interface payments both directly through our own platforms and partner with third party players in the peer-to-peer and peer-to-merchant space . The total number of our unified payments interface person-to-merchant transactions increased by 57.5% year-on-year in fiscal 2022. The value of unified payments interface person-to-merchant transactions in fiscal 2022 was 2.3 times the value of unified payments interface peer-to-merchant transactions in fiscal 2021.
FASTag is an electronic toll collection system in India operated by the National Highways Authority of India through prepaid radio frequency identification tags. We are one of the leading banks in electronic toll collection on highways through FASTag. Our value of electronic toll collections through FASTag grew by 55.4% year-on-year in fiscal 2022. We had a market share of approximately 35% in electronic toll collections through FASTag in fiscal 2022 and were ranked first in the industry.
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We have partnered with Amazon Pay, a leading global ecommerce company and MakeMyTrip, a leading Indian online travel portal to offer co-branded credit cards. We offer these credit cards to our customers as well as non-ICICI Bank account holders. Over three million Amazon Pay credit cards were issued until year-end fiscal 2022. We aim to provide 360-degree solutions to the new-to-bank customers that have been acquired through Amazon Pay credit cards. We have recently tied up with Emirates Skywards, the award-winning loyalty programme of Emirates and FlyDubai, to launch a range of cobranded credit cards that enable customers to earn reward points on travel, lifestyle and everyday spends. We have tied up with Hindustan Petroleum Corporation Limited to offer a cobranded credit card called ‘ICICI Bank HPCL Super Saver Credit Card’ which offers rewards and benefits to customers on their everyday spends on fuel as well as other categories. Our credit cards in force increased by 22.6% year-on-year to 13 million at year-end fiscal 2022. Our market share in credit cards in force increased from 17.1% at year-end fiscal 2021 to 17.6% at year-end fiscal 2022. The value of credit card transactions in fiscal 2022 was 2.1 times the value of transactions in fiscal 2021. The growth in credit card transactions was driven by higher activation rate through digital onboarding of customers, including Amazon Pay credit cards, automated and effective portfolio management and diversification through commercial cards. Our market share in credit card transactions by value increased from 14.6% in fiscal 2021 to 20.1% in fiscal 2022.
We offer a host of Application Programme Interfaces and software developer kits through our Application Programme Interfaces Banking Portal which enable third party apps to offer payment, trade, investment and credit solutions for their retail customers.
Digital platforms and solutions for rural customers
We use imagery from Earth observation satellites to measure an array of parameters related to the land, irrigation and crop patterns which is used in combination with demographic and financial parameters to make expeditious lending decisions for farmers. This has helped in reducing the time taken for credit assessment.
Technology in debt service management
We invest in big data initiatives involving artificial intelligence and machine learning to manage our collections effectively. We use an artificial intelligence based pre-delinquency management engine which uses more than 100 variables to create multiple microsegments and accurately forecast most of the bounces for the right intervention at the right time. The Bank has also tied up with various merchant platforms to facilitate collections through digital means from customers and also uses Application Programme Interface based integrations with large payment channels to ensure timely credit of the overdue amounts.
Digital platforms and journeys for business banking customers, small and medium enterprise customers, merchant ecosystem and ecommerce ecosystem
Our digital platform, InstaBIZ, offers various services such as instant overdraft facility, payment of goods and services tax, foreign exchange deal booking, business loans based on revenues reported in goods and service tax returns, automatic bank reconciliations, inward and outward remittances. We had more than 1 million active customers on InstaBIZ as of year-end fiscal 2022. The value of financial transactions on InstaBIZ grew by about 70.9% year-on-year in fiscal 2022. In line with the philosophy of open architecture, we recently made the InstaBIZ interoperable. Various features of InstaBIZ are now available to all merchants including those who do not have a current account with us. Merchants, including those who do not have a current account with us, can instantly create digital collection solutions like unified payments interface ID and quick response code and start collecting money from their customers immediately. They can digitally apply for Point of Sale devices as well. Merchants can open a current account instantly and digitally on InstaBIZ. This end-to-end paperless process leverages our Application Programme Interfaces that auto fill the account opening form and validate the identity of the merchant instantly. Through ‘InstaOD Plus’, customers of any bank can avail an overdraft up to Rs. 2.5 million instantly. Our customers can activate the overdraft facility into their current account instantly, while customers of other banks can do so after opening of a current account with us digitally by using Know Your Customer video.
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Our Trade Online platform allows customers to perform most of their trade finance and foreign exchange transactions such as regularization of bill of entry and export bills, availing letters of credit and fixed deposit backed bank guarantees, export credit, and import and export bill collections among others digitally. The value of transactions on the Trade Online platform grew by 76.2% year-on-year in fiscal 2022. Customers can also avail bank guarantees on the go through our mobile and internet banking platforms using our express bank guarantee facility. We have created an online repository of bank guarantees called Bank Guarantee Repository Solution which can be used by government departments and institutions to view and authenticate bank guarantees issued in their favor.
Our strategy in the merchant ecosystem space involves onboarding merchants through acquiring platforms or by providing them payment gateways and then cross-selling other financial products and services seamlessly. During fiscal 2022, we launched “Merchant STACK” which offers an array of banking and value-added services to retailers, online businesses and large e-commerce firms. The main pillars of the Merchant STACK include a zero-balance Super Merchant Current Account which offers various benefits such as digital account opening and instant overdraft facilities based on point-of-sale transactions. Merchants can also perform instant reconciliation by using the Connected Banking services, which integrates banking with the merchants’ accounting system. The Merchant STACK also offers a digital store management feature for invoicing, inventory and collections management.
The e-commerce ecosystem lends significant opportunities for us to offer digital solutions to customers and merchants selling their goods through e-commerce websites. We introduced ‘Cardless Equated Monthly Instalment (EMI)’ facility, which enables our pre-approved customers to convert their transactions into equated monthly installments at the check-out section of the e-commerce website or mobile application. In another initiative, we partnered with Amazon India and Flipkart to offer instant overdraft facility to their registered sellers with end-to-end digital processing. Some key solutions offered to e-commerce entities and their sellers include overdraft facility, composite pay Application Programme Interfaces enabling payments through various channels, foreign currency fixed deposit, working capital and easy payment solutions.
We also provide platforms and solutions that go beyond banking and support the growth of small and medium enterprises like providing an online marketplace to buy and sell products and avenues for networking, building knowledge on businesses and global best practices.
Digital platforms and solutions for corporate and institutional customers and their ecosystems
During fiscal 2022, we launched “ICICI STACK for Corporates” offering comprehensive solutions to corporates and their ecosystem like channel partners, dealers, vendors, employees and other stakeholders, thus bringing the full bank to the customer. Using ICICI STACK for Corporates we offer customized digital banking services to companies in over 20 key industries. The four main pillars of ‘ICICI STACK for Corporates’ include digital banking solutions for companies; digital banking services for channel partners, dealers and vendors; digital banking services for employees and curated services for promoters, directors and signatories. Our digital banking services for companies and their ecosystems include digital platforms for domestic and international trade and industry specific solutions across the value chain. Platforms offered to corporate customers as a part of ICICI STACK for Corporates include corporate internet banking platform, Trade online and FX online, among others. During fiscal 2022, we launched ‘Trade Emerge’, an online platform for cross-border trade. It offers an array of banking and value-added services in one place, and eliminates the need for companies to coordinate with multiple touchpoints. The list of banking services includes current/saving account offerings, comprehensive trade services, state-of-the-art foreign exchange solutions, payment and collection solutions and credit cards. Trade Emerge is a step towards developing banking as a platform, targeted at emerging businesses. With this, we aim to ensure a holistic approach to trade fulfilment, and offer a unique competitive advantage because of the end-to-end coverage of the trade journey. Trade Emerge has also been integrated with Corporate Internet Banking and InstaBIZ.
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Our solutions to meet the needs of customers and their ecosystems are supported by robust online channels and Application Programme Interfaces that aim to impart convenience and efficiency to our clients. The volume of payment and collection transactions through these Application Programme Interface based solutions in fiscal 2022 was 2.9 times the volume of transactions in fiscal 2021.
Supply chain financing is an integral part of the small and medium enterprise business and a focus area towards deepening our coverage of the corporate ecosystem. Our supply chain solutions, CorpConnect and DigitalLite, enable corporates to seamlessly manage supply chain financing, payments, collection and reconciliation requirements of their dealers and vendors in a convenient and paperless process. These platforms also automatically assess the eligibility of the corporate’s dealers and vendors for credit through business rule engine, Goods and Services Tax returns, intelligent algorithm with automated bureau checks, dedupe checks, digital approval letter generation automation and e-sign features which requires minimal or no manual intervention. During fiscal 2022, we launched a revamped OneSCF, an integrated supply chain platform providing corporate customers, their vendors and dealers with a one-stop solution to efficiently manage their working capital requirements. The corporate clients can also experience a seamless end-to-end supply chain financing by integrating with our platform through various modes for improving operational efficiency.
During fiscal 2022, a facility to download ‘Easy Balance Confirmation Certificate’ through the Corporate Internet Banking platform was introduced which reduces the turnaround time for obtaining confirmations for financial reporting and regulatory purposes. To give a one-stop solution for all statutory requirements of the customer, we facilitated online payment of customs duty along with direct taxes, Goods and Services Tax and various others tax payments. For addressing the challenges and risks associated with the transfer of physical documents, we partnered with leading electronic bill of lading service providers for facilitating digital transfer of trade documents over the platform. Electronic bill of lading imparts value to the customer by providing operational efficiency and improved cash flow management. These embedded solutions ensure stable business for us by enhancing customer satisfaction and improved wallet share.
Our treasury-trading infrastructure has an internet protocol telephony based architecture. We have enhanced our existing process of automation in the treasury business, thus reducing trading risks and enhancing market competitiveness. The iTreasury feature on our corporate internet banking platforms offers a unified, intuitive, one-view dashboard to corporates to meet their treasury requirements. We have centralized the processing systems of treasuries of all our overseas branches and banking subsidiaries. As a result, the processing of transactions as well as the applications used for deal entry are now centrally located and maintained in India.
Transforming into BankTech
We are continuously investing in key technological and operational capabilities. The priorities driving our technology focus include building a secure and resilient technology infrastructure, improving customers’ digital experiences, operational efficiency and enabling sales and cross-sell of products and services. We have embarked on a journey to transform from a Bank to BankTech, with a focus on creating an enterprise architecture framework across digital platforms, data and analytics, micro services based architecture, cloud computing, cognitive intelligence and other emerging technologies. This is based on the founding pillars of scalability, modularity, flexibility and agility, resilience and reliability, and creating delightful and digitally native customer experiences to enable sustainable profitable growth. The key priorities that dominate our technology requirements include our technology platforms, embedded banking, cloud adoption and data platforms and analytics.
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We have a dedicated data science and analytics team that works across business areas on projects relating to business analytics, decision strategies, forecasting models, machine learning, rule engines and performance monitoring. We maintain a comprehensive enterprise wide data warehouse and employ statistical and modelling tools for leading-edge analytics.
In driving an innovation and start-up mindset, we have set up an Innovation Centre to collaborate with and invest in fintech startups and co-develop products aligned with the Bank’s digital roadmap. The engagements with the startups are focused on payments, digital lending, customer experience, risk management and platforms.
Data Centre and Disaster Recovery System
We have a data center at Hyderabad, which is designed to optimize energy efficiency and accommodate high server densities. We also have a disaster recovery data center at Jaipur. We have developed business continuity plans, which would help facilitate continuity of critical businesses in the event of a disaster. These plans are tested periodically and have been prepared in line with the guidelines issued by the Reserve Bank of India and have been approved by our Board of Directors. The Bank has also equipped itself with state-of-the-art infrastructure management systems which leverage Internet of Things based technology at its data center for optimal utilization of energy and reduction of operational costs.
We face competition in all our principal areas of business from Indian and foreign commercial banks, housing finance companies, non-banking financial companies, new differentiated banks in the private sector such as payments banks and small finance banks, non-bank entities offering retail payments and other services, mutual funds and investment banks. We seek to gain competitive advantage over our competitors by offering innovative products and services, using technology, building customer relationships and developing a team of highly motivated and skilled employees. We evaluate our competitive position separately in respect of our products and services for retail and corporate customers.
Commercial banks in India meet the short-term financial needs, or working capital requirements, of industry, trade and agriculture, provide long-term financing to sectors like infrastructure and provide retail loan products. At March 31, 2022, there were 136 scheduled commercial banks in the country, with a network of 151,320 branches serving approximately Rs. 170.2 trillion in deposit accounts. Scheduled commercial banks are banks that are listed in the second schedule of the Reserve Bank of India Act, 1934, and are further categorized as public sector banks, private sector banks and foreign banks. Scheduled commercial banks have a presence throughout India, with approximately 63.2% of bank branches located in rural or semi-urban areas of the country.
Commercial Banking Products and Services for Retail Customers
In the retail markets, competition has traditionally been from foreign and Indian commercial banks, non-banking financial companies and housing finance companies. In recent years, competition is also emerging from new types of banks that have entered the financial market such as small finance banks and payments banks and non-bank entities offering payments and other services.
Non-financial companies, particularly international technology companies including large e-commerce players and internet-based service providers, are increasing their presence in the financial sector and are offering payment platforms and select services. We are currently partnering with some of these entities to jointly offer payment and credit products and services. Some or all of these entities, which have substantially more resources than us and other Indian banks, may eventually seek a larger share of the banking and financial services market in India and compete with us.
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We seek to compete in this market through a full product portfolio and effective distribution channels, which include digital channels, branches, agents, partnerships and experienced professionals. We offer a comprehensive suite of products and services to customers. These include savings, investment, credit and protection products based on customer needs, along with convenient payment and transaction banking services. Cross-selling appropriate products to existing customers based on analytics is a key element of our strategy. We seek to adopt a ‘Fair to Customer, Fair to Bank’ approach across all our businesses.
Commercial Banking Products and Services for Agricultural and Rural Customers
In our commercial banking operations for agricultural and rural customers, we face competition from public sector banks that have large branch networks in rural India. Other private sector banks and non-banking finance companies have also increased their focus on rural markets. We also face competition from specialized players such as rural-focused financial institutions and micro-finance companies. The Reserve Bank of India has issued licenses to specialized small finance banks, which have higher directed lending targets compared to banks and will compete in the rural and unorganized sectors. We seek to compete in this business based on our product strategy, capturing ecosystems, technological capabilities and having multiple channels and an approach to holistically meet the financial needs of customers in this segment.
Commercial Banking Products and Services for Corporate Customers
We seek to compete in this segment based on our service and prompt turnaround time that we believe are significantly faster than public sector banks, as well as the significant improvement in our funding base and funding cost in recent years which enables us to participate profitably in higher rated corporate credit. We seek to compete with the large branch networks of the public sector banks through our multi-channel distribution, ecosystem branches and technology-driven delivery capabilities.
We compete with foreign banks in cross-border trade finance based on our wider geographical reach in India relative to foreign banks and our technology-based customized trade financing solutions enabling most transactions to be undertaken digitally. We have established strong fee-based cash management services and leverage our balance sheet size, wider branch network, strong technological capabilities and our international presence to compete in treasury-related products and services.
Other private sector banks also compete in the corporate banking market on the basis of efficiency, service delivery and technology. However, we believe that our size, capital base, strong corporate relationships, wider geographical reach and ability to use technology to provide innovative, value-added products and services provide us with a competitive edge.
Commercial Banking Products and Services for International Customers
In our international operations, we face competition from Indian public sector banks with overseas operations, foreign banks with products and services targeted at non-resident Indians and Indian businesses and other service providers such as remittance services. Foreign banks have become more competitive in providing financing to Indian businesses leveraging their strength of access to lower cost foreign currency funds. We are seeking to position ourselves as an Indian bank offering products and services focused on non-resident Indians, capturing the ecosystem of multi-national corporates and India-linked trade and funds corridors with an extensive distribution network in India, to gain competitive advantage. We seek to leverage our technology capabilities developed in our domestic businesses to offer convenience and efficient services to our international customers. We also seek to leverage our strong relationships with Indian corporations in our international business.
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Insurance and Asset Management
Our insurance and asset management businesses face competition from existing dominant public sector players as well as new private sector players. We believe that our subsidiaries, ICICI Prudential Life Insurance Company Limited and ICICI Prudential Asset Management Company Limited and our affiliate, ICICI Lombard General Insurance Company Limited, have built strong product, distribution and risk management capabilities, achieving strong market positions in their respective businesses. We believe that the ability to leverage ICICI Bank’s retail franchise and distribution network is a key competitive advantage for our insurance and asset management subsidiaries.
At year-end fiscal 2022, we had 130,542 employees, including sales executives, employees on fixed term contracts and interns. Of these, ICICI Bank employed 105,844 employees at year-end fiscal 2022. Of our 130,542 employees at year-end fiscal 2022, 71,047 were professionally qualified, holding degrees in management, accountancy, engineering, law, computer science, economics or banking. From April 1, 2021, ICICI Lombard General Insurance Company Limited ceased to be a subsidiary of the Bank and became an affiliate. Accordingly, the number of employees in fiscal 2022 is not comparable with the number of employees in fiscal 2021.
We dedicate a significant amount of senior management time in ensuring that employees remain highly motivated and are aligned to the organization’s core employee proposition. Employee compensation is linked to performance of the Bank and we encourage the involvement of our employees in the overall performance and profitability of the Bank. Performance and succession planning systems have been instrumental in assisting management in career development. Management believes that it has good working relationships with its employees.
The eligibility of each employee is determined based on an evaluation including criticality of the individual and the job performed. ICICI Bank pays performance linked retention pay to its front-line employees and junior management and performance bonus to its middle and senior management. Performance linked retention pay aims to reward front-line and junior managers mainly on the basis of skill maturity attained through experience and continuity in role which is a key differentiator for customer services. The Bank uses a higher proportion of variable pay at senior levels and lower variable pay at front-line staff and junior management levels. The quantum of bonus for an employee does not exceed a certain percentage of the total fixed pay in a year. Within this percentage, if the bonus exceeds a predefined limit, a part of the bonus is deferred and paid over a period. Senior managers and employees in senior management are also given employee stock options as variable pay. The deferred portion of variable pay pertaining to the assessment year or previous year/s (as defined in the policy) is subject to malus, under which the Bank prevents vesting of all or part or none of the unvested variable pay in the event of the assessed divergence in the Bank’s provisioning for Non Performing Assets or in the event of. a reasonable evidence of deterioration in financial performance or in the event of gross misconduct and/or other acts as mentioned in the policy. In such cases (other than assessed divergence), variable pay already paid out may also be subjected to claw back arrangements, as applicable. See also “Management—Compensation and Benefits to Directors and Officers—Employee Stock Option Scheme”.
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ICICI Bank has training centers, where various training programs designed to meet the changing skill requirements of its employees are conducted. These training programs include orientation sessions for new employees and management development programs for mid-level and senior executives. The training centers regularly offer courses conducted by faculty, both national and international, drawn from industry, academia and ICICI Bank’s own organization. Training programs are also conducted for developing functional as well as managerial skills. Products and operations training are also conducted through web-based training modules. ICICI Bank has focused on providing blended learning solutions to the employees. Digital and behavioral learning interventions have been introduced along with functional trainings for various business groups in retail, wholesale, transaction banking and others. These programs are customized and presented after detailed need analysis based on role, vintage and functions. The Bank has worked for creating a structure where every role under each business unit has suitable learning programs.
In addition to basic compensation, employees of ICICI Bank are eligible to receive loans from ICICI Bank at subsidized rates and to participate in its provident fund and other employee benefit plans. See also “Management—Compensation and Benefits to Directors and Officers—Employee Stock Option Scheme”.
Our existing registered office is located at ICICI Bank Tower, Near Chakli Circle, Old Padra Road, Vadodara 390 007, Gujarat, India. Our corporate headquarters are located at ICICI Bank Towers, Bandra-Kurla Complex, Mumbai 400 051, Maharashtra, India. The Board of Directors at their Meeting held on May 9, 2020 approved the shifting of registered office to its corporate headquarters. The Shareholders at the Annual General Meeting held on August 14, 2020 also approved the shifting of registered office of the Bank.
ICICI Bank had a domestic branch network consisting of 5,418 branches and 13,626 ATMs at March 31, 2022 compared to 5,266 branches and 14,136 ATMs at March 31, 2021. These facilities are located throughout India. In addition to branches, extension counters and ATMs, ICICI Bank has 52 controlling or administrative offices, including our registered office at Vadodara and our corporate headquarters at Mumbai, 66 processing centers and 46 currency chests.
At March 31, 2022, we had branches in Bahrain, Dubai International Financial Centre, Hong Kong, Singapore, the United States (New York), South Africa, China and representative offices in the United Arab Emirates (Dubai, Abu Dhabi and Sharjah), Bangladesh, Indonesia, Sri Lanka, the United States (Texas and California) and Malaysia (Kuala Lumpur). During fiscal 2021, we closed our branch in Sri Lanka.
We also provide residential facilities to employees in India. At March 31, 2022, we owned 488 apartments for providing the United States residential facilities to our employees.
Legal and Regulatory Proceedings
We are involved in various litigations and are subject to a wide variety of banking and financial services laws and regulations in each of the jurisdictions in which we operate. We are also subject to a large number of regulatory and enforcement authorities in each of these jurisdictions. We are involved in a number of legal proceedings and regulatory relationships in the ordinary course of our business, some of which have resulted in penalties imposed on and paid by us in the past.
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The following penalties were imposed and paid by us in the past five years:
| · | In March 2017, the Insurance Regulatory and Development Authority of India imposed a penalty of Rs. 2 million on ICICI Prudential Life Insurance Company Limited for non-compliance with certain regulations/guidelines issued by the Insurance Regulatory and Development Authority towards marketing support fees and expenses, payouts to corporate agents and rewards and recognition programs for distribution partners. |
| · | In October 2017, the Reserve Bank of India advised ICICI Securities Primary Dealership Limited to pay a penalty of Rs. 12,637 for having availed the liquidity support in excess of the limit. ICICI Securities Primary Dealership Limited has requested the Reserve Bank of India to reconsider the penalty levied on it. |
| · | In November 2017, an overseas regulator imposed a total sum of US$ 0.6 million (Rs. 38 million) for non-adherence of rules under Anti-Money Laundering regulations at one of ICICI Bank’s overseas branches, resulting from regulatory inspection conducted in 2013 and pursuant to a consultant’s review of records, relating to the period of May 2012 to April 2014. There were no dealings with sanctioned entities and the remediation primarily required improvement to the branch’s Anti-Money Laundering /Combating the Financing of Terrorism controls, which has since been undertaken. The overseas regulator in that jurisdiction has also acknowledged the efforts undertaken by the branch in addressing the issues identified in these reports. |
| · | In March 2018, the Reserve Bank of India imposed a monetary penalty of Rs. 589 million on ICICI Bank for non-compliance with directions/guidelines issued by the Reserve Bank of India. This penalty has been imposed in exercise of powers vested in the Reserve Bank of India under the provisions of Section 47A(1)(c) read with Section 46(4)(i) of the Banking Regulation Act, 1949. |
| · | In February 2019, the Reserve Bank of India imposed an aggregate penalty of Rs. 10 million on ICICI Bank for delay in compliance with directions/guidelines issued by the Reserve Bank of India on “Time-bound implementation and strengthening of SWIFT related controls. This penalty has been imposed in exercise of powers vested in the Reserve Bank of India under the provisions of Section 47A(1)(c) read with Section 46(4)(i) of the Banking Regulation Act, 1949. |
| · | In December 2019, Securities and Exchange Board of India imposed a penalty of Rs. 0.3 million on ICICI Prudential Asset Management Company Limited and Rs. 0.2 million ICICI Prudential Trust Limited for certain violations of Securities and Exchange Board of India (Mutual Funds) Regulations. |
| · | In January 2020, Insurance Regulatory and Development Authority of India levied a penalty of Rs. 10 million for violations of certain provisions of Insurance Regulatory and Development Authority of India (Health) Regulation, 2013 on ICICI Lombard General Insurance Company Limited. |
| · | In May 2021, the Reserve Bank of India imposed a penalty of Rs. 30 million on the Bank under the provisions of section 47A(1)(c) read with sections 46(4)(i) of the Banking Regulation Act, 1949 for shifting certain investments from held-to-maturity category to available-for-sale category in May 2017. The Bank had transferred two separate categories of securities on two different dates from held-to-maturity to available-for-sale in April and May of 2017, which it believed was permissible as per Master Circular on Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks’ dated July 01, 2015. The Reserve Bank of India has held that the shifting of securities the second time in May 2017 without explicit permission was in contravention of Reserve Bank of India directions. |
| · | In December 2021, the Reserve Bank of India imposed a monetary penalty of Rs. 3 million on the Bank under Banking Regulation Act 1949 for non-compliance with certain directions issued by the Reserve Bank of India on ‘levy of penal charges on non-maintenance of minimum balance in savings bank accounts’ dated November 20, 2014. The Bank has taken steps to align the charge levied for non-maintenance of minimum average balance with the above direction of the Reserve Bank of India. |
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| · | Certain investors of real estate investment funds, registered in Mauritius (“Mauritius Funds”), which had invested in Indian funds namely India Advantage Fund III and India Advantage Fund IV (jointly referred as “Indian Funds”), had filed complaints with the Securities and Exchange Board of India against ICICI Venture Funds Management Company Limited, the Indian Funds and the Mauritius Funds. |
The Securities and Exchange Board of India issued showcause notices dated April 27, 2018 to ICICI Venture Funds Management Company Limited, the Indian Funds and the Mauritius Funds (together referred to as “Noticees”) to show cause as to why inquiry should not be held against the Noticees. Noticees had filed their reply with the Securities and Exchange Board of India contesting the allegations made in the show cause notices. With a view to avoid costly and lengthy litigation, all the Noticees had filed settlement applications with the Securities and Exchange Board of India on a “no admission or denial of default” basis.
Pursuant to the settlement applications, ICICI Venture Funds Management Company Limited paid an aggregate amount of Rs. 52 million in fiscal 2020 to the Securities and Exchange Board of India towards settlement of the notices received by all the Noticees, the terms of which were set out in the settlement orders issued by the Securities and Exchange Board of India to the Noticees. However, one of the investors in the real estate investment fund, registered in Mauritius has filed a writ petition in the Bombay High Court against, among others, the Securities and Exchange Board of India and ICICI Venture in respect of the settlement order. In the said writ petition, no reliefs have been sought as against ICICI Venture. At present the writ petition has not been admitted and no notice to ICICI Venture has been issued by the Bombay High Court.
The following matters have been settled under settlement regulations with the Securities and Exchange Board of India:
| · | In July 2018, ICICI Prudential Asset Management Company Limited, our asset management subsidiary received a showcause letter from Securities and Exchange Board of India advising that it would be required to pay compensation together with interest to five schemes of ICICI Prudential Mutual Fund, in connection with shares allotted to these schemes in the initial public offering of ICICI Securities Limited in March 2018 as well as compensate the investors in these schemes who had redeemed their units since the March 2018 allotment. In accordance with the advice and with due approval, the relevant shares were sold in the secondary market and the difference of the sale proceeds of these shares and the allotment amount of such shares in the ICICI Securities Limited’s initial public offering as well as interest at 15% per annum were paid to the five schemes and the investors in these schemes were also compensated, who had redeemed their units since the March 2018 allotment amounting to Rs. 1.1 billion. Further, in the same matter, an adjudication proceeding was initiated by the Securities and Exchange Board of India. Pursuant to the above, ICICI Prudential Asset Management Company Limited had applied for settlement of proceedings with Securities and Exchange Board of India and paid settlement charges of Rs. 9 million to Securities and Exchange Board of India. The Securities and Exchange Board of India through its order dated November 29, 2018, disposed of the said pending proceedings. |
| · | ICICI Securities Limited has paid an amount of Rs. 3 million to the Securities and Exchange Board of India towards settlement amount under the Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018. The same was in relation to a settlement application submitted by ICICI Securities Limited to the Securities and Exchange Board of India in the matter of two trading accounts that were opened at ICICI Securities Limited in January 2007 and July 2008 by account holders by misrepresenting their identities. Following the payment, a settlement order dated November 27, 2019 was passed by the Securities and Exchange Board of India in relation to alleged violation of Code of Conduct as specified in the Securities and Exchange Board of India (Stock Brokers and Sub-brokers) Regulations, 1992 and the Securities and Exchange Board of India (Intermediaries) Regulations, 2008. |
| · | ICICI Bank Limited has paid an amount of Rs. 2.8 million in fiscal 2021 to the Securities and Exchange Board of India towards settlement amount under the Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018. The same was in relation to a settlement application submitted by the Bank with respect to violation of the provisions of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015. |
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| · | In September 2019, Securities and Exchange Board of India imposed a penalty of Rs. 1 million on ICICI Bank Limited and a penalty of Rs. 0.2 million on the former Compliance Officer of ICICI Bank for alleged delayed disclosure of an agreement relating to merger of ICICI Bank Limited with erstwhile Bank of Rajasthan. The former Compliance Officer and the Bank had filed an appeal against the order of Securities and Exchange Board of India with the Securities Appellate Tribunal which converted the monetary penalty imposed on the Bank and former Compliance Officer to a warning. |
Subsequently, Securities Exchange Board of India filed an appeal with the Supreme Court of India against the order passed by the Securities Appellate Tribunal against the appeal filed by ICICI Bank whereby the monetary penalty imposed on the Bank was modified to a warning. Separately, the Bank also filed an appeal with the Supreme Court of India against the Securities Appellate Tribunal order. These matters were heard by the Supreme Court of India wherein the Supreme Court directed an interim stay on the operation of the orders passed by the Securities Appellate Tribunal. The Bank and former Compliance Officer subsequently filed counter affidavits before the Supreme Court of India. To bring closure to the matter, the former Compliance Officer and the Bank filed the settlement application with Securities and Exchange Board of India under Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018 pursuant to which former Compliance Officer and the Bank has paid the settlement amount of Rs 3.1 million and Rs 5.5 million, respectively, to Securities and Exchange Board of India. The Supreme Court subsequently disposed off all the appeals in view of the settlement between the parties. Further, in May 2022, Securities and Exchange Board of India communicated to the Bank that in view of the order of the Supreme Court, the matter stands settled in respect of the appeals as mentioned in the said order.
Contingent tax liability
At year-end fiscal 2022, our contingent tax liability was assessed at an aggregate of Rs. 84.8 billion, mainly pertaining to income tax, service tax and sales tax/value added tax demands by the Government of India’s tax authorities for past years. We have appealed against each of these tax demands. The tax related inquiries by the tax authorities are not included in contingent liabilities as we believe that such proceedings are likely to be either dropped by the tax authorities or will not be upheld by judicial authorities. Based on consultation with counsel and favorable decisions in our own and other similar cases as set out below, management believes that the tax authorities are not likely to be able to substantiate their tax assessments and, accordingly, we have not provided for these tax demands at year-end fiscal 2022. Disputed tax issues that are classified as remote are not disclosed as contingent liabilities by us.
Of the contingent tax liability of Rs. 84.8 billion:
| · | Rs. 73.2 billion related to appeals filed by us or the tax authorities with respect to assessments mainly pertaining to income tax and interest tax, where we were relying on favorable precedent decisions of the appellate authorities and opinions from counsel. The key disputed liabilities were: |
| · | Rs. 29.6 billion related to whether interest expenses can be attributed to earning tax-exempt income. We believe that no interest can be allocated as there are no borrowings earmarked for investments in shares/tax free bonds and our interest free funds are sufficient to cover investments in the underlying tax free securities. We have relied on favorable opinion from counsel and past decisions by the appellate authorities in ICICI Group’s own cases and other similar cases; |
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| · | Rs. 15.0 billion related to the disallowance of mark-to-market losses on derivative transactions treated by the tax authorities as notional losses. We have relied on favorable opinion from counsel and past decisions by the appellate authorities in ICICI Group’s own cases and other similar cases, which had allowed the deduction of mark-to-market losses from business income; |
| · | Rs. 6.0 billion related to the disallowance of interest paid on perpetual bonds as the tax authorities do not deem these as borrowings and therefore the interest paid on these bonds has not been allowed as a deduction. We have relied on a favorable opinion from legal counsel and past decision by the appellate authorities in ICICI Group’s own case; |
| · | Rs. 4.7 billion related to the disallowance of depreciation claims on leased assets, due to treatment of the lease transactions as loan transactions by the tax authorities. We have relied on a favorable opinion from counsel and past decisions by the appellate authorities in ICICI Group’s own case and other similar cases; |
| · | Rs. 3.6 billion related to the disallowance of written-off amounts for credit cards for claiming bad debt write-offs. It was disallowed on the ground that the credit card business is neither a banking business nor pertaining to money lending and hence did not fulfill conditions for claim of bad debt write-off. We have relied on a favorable opinion from counsel and past decision by the appellate authorities in Group’s own case; |
| · | Rs. 3.4 billion relates to interest on non-performing assets de-recognized as per the Reserve Bank of India guidelines after 90 days. Interest income is assessed to tax on the ground that tax provisions have 180 days limit as against 90 days followed by the Bank. The Group has relied on favorable opinion from counsel and past decisions by the appellate authorities in other similar cases |
| · | Rs. 1.0 billion related to taxability of amounts withdrawn from the special reserve. ICICI Bank had maintained two special reserve accounts, which included a special reserve created up to assessment year fiscal 1998. Withdrawals from the account were assessed as taxable by the tax authorities for the assessment years fiscal 1999 to fiscal 2001. We have received favorable orders in respect of these assessment years. However, the income tax authorities have preferred further appeal against the favorable orders; |
| · | Rs. 10.2 billion was in respect of service tax matters which mainly pertains to the demands along with interest and penalty levied by the service tax authorities wherein we were relying on favorable opinion from counsel. The key disputed liabilities were: |
| · | Rs. 2.0 billion relates to disallowance of input credit on ATM interchange fees paid to acquiring banks and switching fee paid to settlement agency on the basis of monthly statement and 100% penalty on the same. The Group has relied on a favorable opinion from counsel; |
| · | Rs. 1.5 billion pertaining to life insurance subsidiary relates to levy of service tax on receipt of surrender/foreclosure charges under unit linked insurance plans or life insurance plans. The Group has relied on a favorable opinion from counsel; |
| · | Rs. 1.5 billion relates to service tax and interest on interchange fees received by the Bank as an issuing bank. The Group has relied on a favorable opinion from counsel; |
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| · | Rs. 1.1 billion pertaining to ICICI Strategic Investment Fund relates to retention of contribution received by the fund, being treated as income received towards the services rendered by the fund to its contributors. The Group has relied on a favorable opinion from counsel. |
| · | Rs. 1.3 billion pertained to sales tax/value added tax demand. The matters mainly relate to procedural issues like submission of statutory forms and adhoc additions in turnover. The Group has relied on favorable opinions from the counsels and decisions in own/other cases. |
Based on judicial precedents in our own and other cases, and upon consultation with the tax counsel, the management believes that it is more likely that our tax position will be sustained and accordingly, no provision has been made in the accounts.
The above contingent liabilities does not include Rs. 36.2 billion (March 31, 2021: Rs. 53.6 billion), considered as remote. Of the total disputed tax demands classified as remote, Rs. 30.8 billion (March 31, 2021: Rs. 29.4 billion) mainly pertained to the deduction of bad debts, broken period interest and levy of penalties which are covered by favorable Supreme Court of India decisions in own/other cases and Rs. 4.5 billion (March 31, 2021: Rs. 23.3 billion) pertained to error requiring rectification by tax authorities. Therefore, they were not required to be disclosed as contingent liability. The consequence of inquiries initiated by the tax authorities has not been quantified, as we believe that such proceedings are likely to be dropped by the tax authorities or would not be upheld by judicial authorities.
Litigation
A number of litigations and claims against ICICI Bank and its directors are pending in various forums. The claims on ICICI Bank mainly arise in connection with civil cases involving allegations of service deficiencies, property or labor disputes, fraudulent transactions, economic offences and other cases filed in the normal course of business. We are also subject to counterclaims arising in connection with our enforcement of contracts and loans. A provision is created where an unfavorable outcome is deemed probable and in respect of which a reliable estimate can be made. In view of the inherent unpredictability of litigation and for cases where the claim amount sought is substantial, the actual cost of resolving litigations may be substantially different from the provision held.
We held a total provision of Rs. 687 million at year-end fiscal 2022 for 622 cases with claims totaling to Rs. 1.6 billion, where an unfavorable outcome was deemed probable and in respect of which a reliable estimate could be made.
For cases where an unfavorable outcome is deemed to be reasonably possible but not probable, the amount of claims is included in contingent liabilities. At year-end fiscal 2022, such claims amounted to a total of Rs. 3.2 billion relating to 54 cases. It was not possible to estimate the possible loss or range of possible losses for these cases due to the nature of the cases and other external factors. For cases where the possibility of an unfavorable outcome is deemed remote, we have not made a provision, nor have we included the amount of the claims in these cases in contingent liabilities.
In some instances, civil litigants have named our directors as co-defendants in legal proceedings against ICICI Bank. There were 347 such cases at year-end fiscal 2022.
Management believes, based on consultation with counsel, that the claims and counterclaims filed against us in the above legal proceedings that are assessed as remote are frivolous and untenable and their ultimate resolution will not have a material adverse effect on our results of operations, financial condition or liquidity. Based on a review of other litigations by Legal Group, management believes that the outcome of such other matters will also not have a material adverse effect on our financial position, results of operations or cash flows.
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At year-end fiscal 2022, there were 111 ongoing litigations (including those where the likelihood of our incurring liability is assessed as “probable”, “possible” and “remote”), each involving a claim of Rs. 10 million or more against us, with an aggregate amount of Rs. 781.8 billion (to the extent quantifiable and including amounts claimed jointly and severally from us and other parties).
For proceedings filed by the former Managing Director and Chief Executive Officer relating to her termination, see “Risk Factors—Risks that arise as a result of our presence in a highly regulated sector—The board of directors of the Bank has, pursuant to an independent enquiry, taken action against the former Managing Director and CEO. In the event the Bank is found by any of the enquiries in the matter by government and regulatory agencies to have violated applicable laws or regulations, the Bank could become subject to legal and regulatory sanctions that may materially and adversely affect our results of operations or financial condition and reputation.”
We cannot predict the timing or form of any future regulatory or law enforcement initiatives, which we note are increasingly common for international banks, but we would expect to co-operate with any such regulatory investigation or proceeding.
American Depository Receipt Fees and Payments
Fees and Charges Payable by Holders of our ADSs
The fees and charges payable by holders of our ADSs include the following:
| i) | a fee not in excess of US$ 0.05 per ADS is charged for each issuance of ADSs including issuances resulting from distributions of shares, share dividends, share splits, bonuses and rights distributions; |
| ii) | a fee not in excess of US$ 0.05 per ADS is charged for each surrender of ADSs in exchange for the underlying deposited securities; |
| iii) | a fee for the distribution of the deposited securities pursuant to the deposit agreement, such fee being an amount equal to the fee for the execution and delivery of ADSs referred to in item (i) above which would have been charged as a result of the deposit of such securities, but which securities were instead distributed by the depositary, Deutsche Bank Trust Company Americas, to ADR holders. |
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Additionally, under the terms of our deposit agreement, the depositary is entitled to charge each registered holder the following:
| i) | taxes and other governmental charges incurred by the depositary or the custodian on any ADS or an equity share underlying an ADS including any applicable penalties thereon; |
| ii) | transfer or registration fees for the registration or transfer of deposited securities on any applicable register in connection with the deposit or withdrawal of deposited securities, including those of a central depository for securities (where applicable); |
| iii) | any cable, telex, facsimile transmission and delivery expenses incurred by the depositary; and |
| iv) | customary expenses incurred by the depositary in the conversion of foreign currency, including, without limitation, expenses incurred on behalf of registered holders in connection with compliance with foreign exchange control restrictions and other applicable regulatory requirements, together with all expenses, transfer and registration fees, taxes, duties, governmental or other charges payable by the Depositary. |
In the case of cash distributions, fees, if applicable, are generally deducted from the cash being distributed. Other fees may be collected from holders of ADSs in a manner determined by the depositary with respect to ADSs registered in the name of investors (whether certificated or in book-entry form) and ADSs held in brokerage and custodian accounts (via DTC). In the case of distributions other than cash (i.e., stock dividends, etc.), the depositary charges the applicable ADS record date holder concurrently with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or in book-entry form), the depositary sends invoices to the applicable record date ADS holders.
If any tax or other governmental charge is payable by the holders and/or beneficial owners of ADSs to the depositary, the depositary, the custodian or the Bank may withhold or deduct from any distributions made in respect of deposited securities and may sell for the account of the holder and/or beneficial owner any or all of the deposited securities and apply such distributions and sale proceeds in payment of such taxes (including applicable interest and penalties) or charges, with the holder and the beneficial owner thereof remaining fully liable for any deficiency.
Fees and Other Payments Made by the Depositary
In March 2020, we agreed to an amendment to an agreement previously entered into with the Depositary, Deutsche Bank Trust Company Americas in fiscal 2018. Under this amended agreement, the Depositary pays certain amounts to us and waives fees and expenses for services provided in exchange for the Deutsche Bank Trust Company Americas acting as the Depositary for the ADR program. We may use these payments to cover annual expenses incurred by the Bank towards investor relations or other expenses directly related to the ongoing maintenance of the ADR program. The amount of payment to us is tied to the amount of fees the depository collects from ADR holders, with certain exceptions. In the three months ended June 30, 2022, we received US$ 3 million relating to the ADR program.
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SELECTED STATISTICAL INFORMATION
The following information should be read together with our financial statements included in this report as well as “Management Discussion and Analysis of Financial Condition and Results of Operations”.
Average Balance Sheet
The average balances are the sum of daily average balances outstanding. The yield on average interest-earning assets is the ratio of interest earned to average interest-earning assets. The cost of average interest-bearing liabilities is the ratio of interest expended to average interest-bearing liabilities. The average balances of advances include non-performing advances and are net of allowance for loan losses. We have re-calculated tax-exempt income on a tax-equivalent basis. Other interest income has been bifurcated into rupee and foreign currency amounts in order to facilitate the explanation of movements of rupee and foreign currency spreads and margins. The rupee portion of other interest income primarily includes interest on income tax refunds and income from swaps. The foreign currency portion of other interest income primarily includes income from interest rate swaps in foreign currencies. These interest rate swaps are not part of our trading portfolio and are undertaken by us to manage the market risk arising from our assets and liabilities.
The following table sets forth, for the periods indicated, the average balances of the assets and liabilities outstanding, which contribute to the major components of interest earned, interest expended and net interest income.
Year ended March 31, | |||||||||||||
2020 |
2021 |
2022 | |||||||||||
Average balance |
Interest |
Average yield/cost |
Average balance |
Interest |
Average yield/cost |
Average balance |
Interest |
Average
yield/ | |||||
| (in millions, except percentages) | |||||||||||||
| Assets: | |||||||||||||
| Advances: | |||||||||||||
| Rupee | 5,470,818 | 562,002 | 10.27% | 6,064,280 | 573,393 | 9.46% | 7,343,983 | 649,387 | 8.84% | ||||
| Foreign currency | 1,238,309 |
47,281 |
3.82 | 1,098,730 |
29,226 |
2.66 | 975,114 |
19,482 |
2.00 | ||||
| Total advances | 6,709,127 | 609,283 | 9.08 | 7,163,010 | 602,619 | 8.41 | 8,319,097 | 668,869 | 8.04 | ||||
| Investments: | |||||||||||||
| Investments in Government securities | |||||||||||||
| Rupee | 2,107,005 | 152,375 | 7.23 | 2,761,476 | 177,881 | 6.44 | 2,925,123 | 185,203 | 6.33 | ||||
| Foreign currency | 47,379 | 743 | 1.57 | 48,668 | 310 | 0.64 | 41,872 | 235 | 0.56 | ||||
| Total investment in Government securities | 2,154,384 | 153,118 | 7.11 | 2,810,144 | 178,191 | 6.34 | 2,966,995 | 185,438 | 6.25 | ||||
| Other investments | |||||||||||||
| Rupee | 834,261 | 55,430 | 6.64 | 865,396 | 53,021 | 6.13 | 633,746 | 33,384 | 5.27 | ||||
| Foreign currency | 82,412 | 2,420 | 2.94 | 131,189 | 1,846 | 1.41 | 165,134 | 1,591 | 0.96 | ||||
| Total other investments | 916,673 | 57,850 | 6.31 | 996,585 | 54,867 | 5.51 | 798,880 | 34,975 | 4.38 | ||||
| Total investments: | |||||||||||||
| Rupee | 2,941,266 |
207,805 |
7.07 | 3,626,872 |
230,902 |
6.37 | 3,558,869 | 218,587 | 6.14 | ||||
| Foreign currency | 129,791 |
3,163 |
2.44 | 179,857 |
2,156 |
1.20 | 207,006 |
1,826 |
0.88 | ||||
| Total investments | 3,071,057 | 210,968 | 6.87 | 3,806,729 | 233,058 | 6.12 | 3,765,875 | 220,413 | 5.85 | ||||
123
| Other interest-earning assets: | |||||||||
| Lending under liquidity adjustment facility with the Reserve Bank of India | |||||||||
| Rupee | 65,320 | 3,310 | 5.07 | 448,570 | 15,470 | 3.45 | 398,765 | 14,858 | 3.73 |
| Foreign currency | - | - | - | - | - | - | - | - | - |
| Total lending under liquidity adjustment facility with the Reserve Bank of India | 65,320 | 3,310 | 5.07 | 448,570 | 15,470 | 3.45 | 398,765 | 14,858 | 3.73 |
| Repo lending | |||||||||
| Rupee | 27,635 | 270 | 0.98 | 47,523 | 310 | 0.65 | 49,439 | 371 | 0.75 |
| Foreign currency | - | - | - | - | - | - | - | - | - |
| Total repo lending | 27,635 | 270 | 0.98 | 47,523 | 310 | 0.65 | 49,439 | 371 | 0.75 |
| Deposits in other banks | |||||||||
| Rupee | 21,649 | 1,854 | 8.56 | 36,691 | 2,381 | 6.49 | 42,636 | 2,522 | 5.92 |
| Foreign currency | 71,703 | 1,949 | 2.72 | 180,174 | 347 | 0.19 | 269,470 | 418 | 0.16 |
| Total deposits in other banks | 93,352 | 3,803 | 4.07 | 216,865 | 2,728 | 1.26 | 312,106 | 2,940 | 0.94 |
| Other assets | |||||||||
| Rupee | 560,758 | 14,047 | 2.51 | 529,797 | 12,264 | 2.31 | 661,740 | 10,220 | 1.54 |
| Foreign currency | 89,695 | 1,635 | 1.82 | 213,271 | 536 | 0.25 | 236,568 | 380 | 0.16 |
| Total other assets | 650,453 | 15,682 | 2.41 | 743,068 | 12,800 | 1.72 | 898,308 | 10,600 | 1.18 |
| Total other interest-earning assets: | |||||||||
| Rupee | 675,362 |
19,481 |
2.88 | 1,062,581 |
30,425 |
2.86 | 1,152,580 | 27,971 | 2.43 |
| Foreign currency | 161,398 |
3,584 |
2.22 | 393,445 |
883 |
0.22 | 506,038 |
798 |
0.16 |
| Total other interest-earning assets | 836,760 | 23,065 | 2.76 | 1,456,026 | 31,308 | 2.15 | 1,658,618 | 28,769 | 1.73 |
| Other interest income: | |||||||||
| Rupee | 5,729 | 21,491 | 33,705 | ||||||
| Foreign currency | 568 |
3,570 |
2,849 |
||||||
| Total other interest income | 6,297 | 25,061 | 36,554 | ||||||
| Interest-earning assets: | |||||||||
| Rupee | 9,087,446 |
795,017 |
8.75 | 10,753,733 |
856,211 |
7.96 | 12,055,432 | 929,650 | 7.71 |
| Foreign currency | 1,529,498 |
54,596 |
3.57 | 1,672,032 |
35,835 |
2.14 | 1,688,158 |
24,955 |
1.48 |
| Total interest-earning assets | 10,616,944 | 849,613 | 8.00 | 12,425,765 | 892,046 | 7.18 | 13,743,590 | 954,605 | 6.95 |
| Fixed assets | 98,653 | 106,100 | 103,407 | ||||||
| Other assets | 1,892,945 |
2,044,392 |
2,097,041 |
||||||
| Total non-earning assets | 1,991,598 |
2,150,492 |
2,200,448 |
||||||
| Total assets | Rs. 12,608,542 |
Rs. 849,613 |
Rs. 14,576,257 |
Rs. 892,046 |
Rs. 15,944,038 |
Rs. 954,605 |
|||
| Liabilities: | |||||||||
| Savings account deposits: | |||||||||
| Rupee | Rs. 2,102,360 | Rs. 76,310 | 3.63 | Rs. 2,452,568 | Rs. 77,687 | 3.17 | Rs. 3,028,734 | Rs.95,390 | 3.15 |
| Foreign currency | 81,500 |
953 |
1.17 | 98,475 |
803 |
0.82 | 80,149 |
321 |
0.40 |
| Total savings account deposits | 2,183,860 | 77,263 | 3.54 | 2,551,043 | 78,490 | 3.08 | 3,108,883 | 95,711 | 3.08 |
| Time deposits: | |||||||||
| Rupee | 3,574,791 | 243,945 | 6.82 | 4,530,836 | 250,515 | 5.53 | 5,094,105 | 236,169 | 4.64 |
| Foreign currency | 399,051 |
11,034 |
2.77 | 377,247 |
8,190 |
2.17 | 290,939 |
4,252 |
1.46 |
| Total time deposits | 3,973,842 | 254,979 | 6.42 | 4,908,083 | 258,705 | 5.27 | 5,385,044 | 240,421 | 4.46 |
| Other demand deposits: | |||||||||
| Rupee | 647,602 | 812,042 | 1,055,999 | ||||||
| Foreign currency | 86,463 |
112,869 |
156,310 |
||||||
| Total other demand deposits | 734,065 | 924,911 | 1,212,309 | ||||||
| Total deposits: | |||||||||
| Rupee | 6,324,753 | 320,255 | 5.06 | 7,795,446 | 328,202 | 4.21 | 9,178,838 | 331,559 | 3.61 |
| Foreign currency | 567,014 |
11,987 |
2.11 | 588,591 |
8,993 |
1.53 | 527,398 |
4,573 |
0.87 |
| Total deposits | 6,891,767 | 332,243 | 4.82 | 8,384,037 | 337,196 | 4.02 | 9,706,236 | 336,132 | 3.46 |
124
| Long term borrowings | |||||||||
| Rupee | 800,266 | 65,728 | 8.21 | 685,178 | 53,862 | 7.86 | 723,083 | 53,294 | 7.37 |
| Foreign currency | 686,554 | 24,790 | 3.61 | 544,123 | 15,899 | 2.92 | 389,810 | 9,678 | 2.48 |
| Total long term borrowings | 1,486,820 | 90,518 | 6.09 | 1,229,301 | 69,761 | 5.67 | 1,112,893 | 62,972 | 5.66 |
| Short-term borrowings: | |||||||||
| Borrowings under liquidity adjustment facility with the Reserve Bank of India | |||||||||
| Rupee | 24,579 | 1,004 | 4.08 | 103,528 | 4,497 | 4.34 | 720 | 30 | 4.17 |
| Foreign currency | - | - | - | - | - | - | - | - | - |
| Total borrowings under liquidity adjustment facility with the Reserve Bank of India | 24,579 | 1,004 | 4.08 | 103,528 | 4,497 | 4.34 | 720 | 30 | 4.17 |
| Repo borrowings | |||||||||
| Rupee | 189,214 | 9,447 | 4.99 | 358,938 | 10,845 | 3.02 | 204,643 | 6,815 | 3.33 |
| Foreign currency | 12,771 | 369 | 2.89 | 7,264 | 189 | 2.60 | 5,676 | 167 | 2.94 |
| Total repo borrowings | 201,985 | 9,816 | 4.86 | 366,202 | 11,034 | 3.01 | 210,319 | 6,982 | 3.32 |
| Other short term borrowings | |||||||||
| Rupee | 70,388 | 5,819 | 8.27 | 49,208 | 3,259 | 6.62 | 101,520 | 4,904 | 4.83 |
| Foreign currency | 297,256 | 7,255 | 2.44 | 128,681 | 841 | 0.65 | 102,347 | 646 | 0.63 |
| Total other short term borrowings | 367,644 | 13,074 | 3.56 | 177,889 | 4,100 | 2.30 | 203,867 | 5,550 | 2.72 |
| Short term borrowings | |||||||||
| Rupee | 284,181 | 16,270 | 5.73 | 511,674 | 18,601 | 3.64 | 306,883 |
11,749 | 3.83 |
| Foreign currency | 310,027 | 7,624 | 2.46 | 135,945 | 1,030 | 0.76 | 108,023 | 813 | 0.75 |
| Total short term borrowings | 594,208 | 23,894 | 4.02 | 647,619 | 19,631 | 3.03 | 414,906 | 12,562 | 3.03 |
| Total borrowings: | |||||||||
| Rupee | 1,084,447 | 81,998 | 7.56 | 1,196,852 | 72,463 | 6.05 | 1,029,966 | 65,043 | 6.32 |
| Foreign currency | 996,581 |
32,414 |
3.25 | 680,068 |
16,929 |
2.49 | 497,833 |
10,491 |
2.11 |
| Total borrowings | 2,081,028 | 114,412 | 5.50 | 1,876,920 | 89,392 | 4.76 | 1,527,799 | 75,534 | 4.94 |
| Interest-bearing liabilities: | |||||||||
| Rupee | 7,409,200 | 402,253 | 5.43 | 8,992,298 | 400,665 | 4.46 | 10,208,804 | 396,602 | 3.88 |
| Foreign currency | 1,563,595 |
44,401 |
2.84 | 1,268,659 |
25,922 |
2.04 | 1,025,231 |
15,064 |
1.47 |
| Total interest-bearing liabilities | 8,972,795 | 446,654 | 4.98 | 10,260,957 | 426,588 | 4.16 | 11,234,035 | 411,666 | 3.66 |
| Other liabilities | 2,430,276 |
2,880,817 |
3,041,905 |
||||||
| Total liabilities | 11,403,071 | 446,654 | 13,141,774 | 426,588 | 14,275,940 | 411,666 | |||
| Stockholders’ equity | 1,205,471 |
1,434,483 |
1,668,098 |
||||||
| Total liabilities and stockholders’ equity | Rs. 12,608,542 |
Rs. 446,654 |
Rs. 14,576,257 |
Rs. 426,588 |
Rs. 15,944,038 |
Rs. 411,666 |
| (1) | Previous period figures have been re-grouped/re-classified where necessary to conform to current period classification. |
Analysis of Changes in Interest Earned and Interest Expended: Volume and Rate Analysis
The following table sets forth, for the periods indicated, the changes in the components of net interest income. The changes in net interest income between periods have been reflected as attributed either to volume or rate changes. For the purpose of this table, changes which are due to both volume and rate have been allocated solely to volume.
125
| Fiscal 2021 vs. Fiscal 2020 | Fiscal 2022 vs. Fiscal 2021 | |||||||||||||||||||||||
| Increase (decrease) due to | Increase (decrease) due to | |||||||||||||||||||||||
| Net change | Change in average volume | Change in average rate | Net change | Change in average volume | Change in average rate | |||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||
| Interest earned: | ||||||||||||||||||||||||
| Advances: | ||||||||||||||||||||||||
| Rupee | Rs. 11,391 | Rs. 56,113 | Rs. (44,722) | Rs. 75,994 | Rs. 113,157 | Rs. (37,163) | ||||||||||||||||||
| Foreign currency | (18,055 | ) | (3,713 | ) | (14,342 | ) | (9,744 | ) | (2,470 | ) | (7,274 | ) | ||||||||||||
| Total advances | (6,664 | ) | 52,400 | (59,064 | ) | 66,250 | 110,687 | (44,437 | ) | |||||||||||||||
| Investment: | ||||||||||||||||||||||||
| Investment in Government securities | ||||||||||||||||||||||||
| Rupee | 25,506 | 42,158 | (16,651 | ) | 7,322 | 10,361 | (3,039 | ) | ||||||||||||||||
| Foreign currency | (433 | ) | 8 | (441 | ) | (75 | ) | (38 | ) | (37 | ) | |||||||||||||
| Total investment in Government securities | 25,073 | 42,166 | (17,092 | ) | 7,247 | 10,323 | (3,076 | ) | ||||||||||||||||
| Other investments | ||||||||||||||||||||||||
| Rupee | (2,409 | ) | 1,491 | (3,901 | ) | (19,637 | ) | (12,203 | ) | (7,434 | ) | |||||||||||||
| Foreign currency | (574 | ) | 592 | (1,166 | ) | (255 | ) | 327 | (582 | ) | ||||||||||||||
| Total other investments | (2,983 | ) | 2,083 | (5,067 | ) | (19,892 | ) | (11,876 | ) | (8,016 | ) | |||||||||||||
| Total investments | ||||||||||||||||||||||||
| Rupee | 23,097 | 43,649 | (20,552 | ) | (12,315 | ) | (4,177 | ) | (8,138 | ) | ||||||||||||||
| Foreign currency | (1,007 | ) | 600 | (1,607 | ) | (330 | ) | 239 | (569 | ) | ||||||||||||||
| Total investments | 22,090 | 44,249 | (22,159 | ) | (12,645 | ) | (3,938 | ) | (8,707 | ) | ||||||||||||||
| Other interest-earning assets: | ||||||||||||||||||||||||
| Lending under liquidity adjustment facility with the Reserve Bank of India | ||||||||||||||||||||||||
| Rupee | 12,160 | 13,217 | (1,057 | ) | (612 | ) | (1,856 | ) | 1,244 | |||||||||||||||
| Foreign currency | - | - | - | - | - | - | ||||||||||||||||||
| Total lending under liquidity adjustment facility with the Reserve Bank of India | 12,160 | 13,217 | (1,057 | ) | (612 | ) | (1,856 | ) | 1,244 | |||||||||||||||
| Repo lending | ||||||||||||||||||||||||
| Rupee | 40 | 130 | (90 | ) | 61 | 14 | 47 | |||||||||||||||||
| Foreign currency | - | - | - | - | - | - | ||||||||||||||||||
| Total repo lending | 40 | 130 | (90 | ) | 61 | 14 | 47 | |||||||||||||||||
| Deposits in other banks | ||||||||||||||||||||||||
| Rupee | 527 | 976 | (449 | ) | 141 | 352 | (211 | ) | ||||||||||||||||
| Foreign currency | (1,602 | ) | 209 | (1,811 | ) | 71 | 139 | (68 | ) | |||||||||||||||
| Total deposits in other banks | (1,075 | ) | 1,185 | (2,260 | ) | 212 | 491 | (279 | ) | |||||||||||||||
| Other assets | ||||||||||||||||||||||||
| Rupee | (1,783 | ) | (3,236 | ) | 1,453 | (2,044 | ) | 2,038 | (4,082 | ) | ||||||||||||||
| Foreign currency | (1,099 | ) | 312 | (1,411 | ) | (156 | ) | 37 | (193 | ) | ||||||||||||||
| Total other assets | (2,882 | ) | (2,924 | ) | 42 | (2,200 | ) | 2,075 | (4,275 | ) | ||||||||||||||
| Other interest-earning assets: | ||||||||||||||||||||||||
| Rupee | 10,944 | 11,087 | (143 | ) | (2,454 | ) | 2,184 | (4,638 | ) | |||||||||||||||
| Foreign currency | (2,701 | ) | 521 | (3,222 | ) | 85 | 178 | (263 | ) | |||||||||||||||
| Total other interest earning asset | 8,243 | 11,608 | (3,365 | ) | (2,539 | ) | 2,362 | (4,901 | ) | |||||||||||||||
| Other interest income | ||||||||||||||||||||||||
| Rupee | 15,762 | - | 15,762 | 12,214 | - | 12,214 | ||||||||||||||||||
| Foreign currency | 3,002 | - | 3,002 | (721 | ) | - | (721 | ) | ||||||||||||||||
| Other interest income | 18,764 | - | 18,764 | 11,493 | - | 11,493 | ||||||||||||||||||
| Total interest earned: | ||||||||||||||||||||||||
| Rupee | 61,194 | 110,849 | (49,655 | ) | 73,439 | 111,164 | (37,725 | ) | ||||||||||||||||
| Foreign currency | (18,761 | ) | (2,592 | ) | (16,169 | ) | (10,880 | ) | (2,053 | ) | (8,827 | ) | ||||||||||||
| Total interest earned | 42,433 | 108,257 | (65,824 | ) | 62,559 | 109,111 | (46,552 | ) | ||||||||||||||||
| Interest expense: | ||||||||||||||||||||||||
| Savings account deposits: | ||||||||||||||||||||||||
| Rupee | 1,377 | 11,093 | (9,716 | ) | 17,703 | 18,146 | (443 | ) | ||||||||||||||||
| Foreign currency | (150 | ) | 138 | (288 | ) | (482 | ) | (73 | ) | (409 | ) | |||||||||||||
| Total savings account deposits | 1,227 | 11,231 | (10,004 | ) | 17,221 | 18,073 | (852 | ) | ||||||||||||||||
| Time deposits: | ||||||||||||||||||||||||
| Rupee | 6,570 | 52,861 | (46,291 | ) | (14,346 | ) | 26,114 | (40,460 | ) | |||||||||||||||
| Foreign currency | (2,844 | ) | (473 | ) | (2,371 | ) | (3,938 | ) | (1,261 | ) | (2,677 | ) | ||||||||||||
| Total time deposits | 3,726 | 52,388 | (48,662 | ) | (18,284 | ) | 24,853 | (43,137 | ) | |||||||||||||||
| Total deposits: | ||||||||||||||||||||||||
| Rupee | 7,947 | 63,954 | (56,007 | ) | 3,357 | 44,260 | (40,903 | ) | ||||||||||||||||
| Foreign currency | (2,994 | ) | (335 | ) | (2,659 | ) | (4,420 | ) | (1,334 | ) | (3,086 | ) | ||||||||||||
| Total deposits | 4,953 | 63,619 | (58,666 | ) | (1,063 | ) | 42,926 | (43,989 | ) | |||||||||||||||
| Borrowings: | ||||||||||||||||||||||||
| Long term borrowings | ||||||||||||||||||||||||
| Rupee | (11,866 | ) | (9,047 | ) | (2,819 | ) | (568 | ) | 2,794 | (3,362 | ) | |||||||||||||
| Foreign currency | (8,891 | ) | (4,162 | ) | (4,729 | ) | (6,221 | ) | (3,831 | ) | (2,390 | ) | ||||||||||||
| Total long term borrowings | (20,757 | ) | (13,209 | ) | (7,548 | ) | (6,789 | ) | (1,037 | ) | (5,752 | ) | ||||||||||||
| Borrowings under liquidity adjustment facility with the Reserve Bank of India | ||||||||||||||||||||||||
| Rupee | 3,493 | 3,429 | 64 | (4,467 | ) | (4,284 | ) | (183 | ) | |||||||||||||||
| Foreign currency | - | - | - | - | - | - | ||||||||||||||||||
| Total borrowings under liquidity adjustment facility with the Reserve Bank of India | 3,493 | 3,429 | 64 | (4,467 | ) | (4,284 | ) | (183 | ) | |||||||||||||||
| Repo borrowings | ||||||||||||||||||||||||
| Rupee | 1,398 | 5,128 | (3,730 | ) | (4,030 | ) | (5,138 | ) | 1,108 | |||||||||||||||
| Foreign currency | (180 | ) | (143 | ) | (37 | ) | (22 | ) | (47 | ) | 25 | |||||||||||||
| Total repo borrowings | 1,218 | 4,985 | (3,767 | ) | (4,052 | ) | (5,185 | ) | 1,133 | |||||||||||||||
| Other short term borrowings | ||||||||||||||||||||||||
| Rupee | (2,560 | ) | 10,982 | (13,542 | ) | 1,645 | 2,527 | (882 | ) | |||||||||||||||
| Foreign currency | (6,414 | ) | (3,574 | ) | (2,840 | ) | (195 | ) | (166 | ) | (29 | ) | ||||||||||||
| Total other short term borrowings | (8,974 | ) | 7,408 | (16,382 | ) | 1,450 | 2,361 | (911 | ) | |||||||||||||||
| Short term borrowings | ||||||||||||||||||||||||
| Rupee | 2,331 | 19,539 | (17,208 | ) | (6,852 | ) | (6,895 | ) | 43 | |||||||||||||||
| Foreign currency | (6,594 | ) | (3,717 | ) | (2,877 | ) | (217 | ) | (213 | ) | (4 | ) | ||||||||||||
| Total short term borrowings | (4,263 | ) | 15,822 | (20,085 | ) | (7,069 | ) | (7,108 | ) | 39 | ||||||||||||||
| Total borrowings | ||||||||||||||||||||||||
| Rupee | (9,535 | ) | 6,806 | (16,341 | ) | (7,420 | ) | (10,539 | ) | 3,119 | ||||||||||||||
| Foreign currency | (15,485 | ) | (7,879 | ) | (7,606 | ) | (6,438 | ) | (3,840 | ) | (2,598 | ) | ||||||||||||
| Total borrowings | (25,020 | ) | (1,073 | ) | (23,947 | ) | (13,858 | ) | (14,379 | ) | 521 | |||||||||||||
| Total interest expended: | ||||||||||||||||||||||||
| Rupee | (1,588 | ) | 70,760 | (72,348 | ) | (4,063 | ) | 33,721 | (37,784 | ) | ||||||||||||||
| Foreign currency | (18,479 | ) | (8,214 | ) | (10,265 | ) | (10,858 | ) | (5,174 | ) | (5,684 | ) | ||||||||||||
| Total interest expended | (20,067 | ) | 62,546 | (82,613 | ) | (14,921 | ) | 28,547 | (43,468 | ) | ||||||||||||||
| Net interest income: | ||||||||||||||||||||||||
| Rupee | 62,782 | 40,089 | 22,693 | 77,502 | 77,443 | 59 | ||||||||||||||||||
| Foreign currency | (282 | ) | 5,622 | (5,904 | ) | (22 | ) | 3,121 | (3,143 | ) | ||||||||||||||
| Total net interest income | Rs. 62,500 | Rs. 45,711 | Rs. 16,789 | Rs. 77,480 | Rs. 80,564 | Rs. (3,084) | ||||||||||||||||||
126
Investment portfolio
Maturity profile wise yields on debt securities
The following table sets forth, at the date indicated, the maturity profile wise yields of our investments in debt securities classified as available-for-sale. This maturity profile is based on repayment dates and does not reflect re-pricing dates of floating rate investments.
| At March 31, 2021 | At March 31, 2022 |
| Up to one year | One to five years | Five to ten years | More than ten years | Up to one year | One to five years | Five to ten years | More than ten years | |
| Corporate debt securities | 7.8% | 6.8% | 6.7% | 3.1% | 6.4% | 6.7% | 5.0% | 6.1% |
| Government securities | 4.2% | 5.5% | 6.1% | 5.0% | 4.5% | 5.2% | 4.5% | 5.2% |
| Other securities | 5.7% | 8.9% | 8.9% | 9.0% | 5.3% | 6.2% | 5.5% | 7.1% |
| Total debt securities1 | 5.1% | 6.2% | 7.2% | 5.5% | 4.8% | 5.9% | 4.7% | 5.5% |
| (1) | Includes securities denominated in different currencies |
| (2) | Yield on average interest-earning assets is the ratio of interest earned on available-for-sale debt securities to average available-for-sale debt securities. |
| (3) | The maturity is computed based on the contractual maturity of the portfolio. |
The following table sets forth, at the date indicated, the maturity profile-wise yields of our investments in debt securities classified as held-to-maturity. This maturity profile is based on repayment dates and does not reflect re-pricing dates of floating rate investments.
| At March 31, 2021 | At March 31, 2022 | |||||||
| Up to one year | One to five years | Five to ten years | More than ten years | Up to one year | One to five years | Five to ten years | More than ten years | |
| Corporate debt securities | 7.4% | 7.6% | 7.7% | 7.5% | 5.9% | 6.6% | 7.4% | 7.5% |
| Government securities | 6.2% | 6.7% | 7.0% | 6.6% | 7.7% | 6.6% | 6.8% | 6.4% |
| Other securities | 4.1% | .. | .. | .. | 4.2% | .. | .. | .. |
| Total debt securities1 | 6.5% | 6.7% | 7.1% | 6.6% | 6.7% | 6.6% | 6.9% | 6.4% |
| (1) | Includes securities denominated in different currencies |
| (2) | Yield on average interest-earning assets is the ratio of interest earned on held-to-maturity debt securities to average held-to-maturity securities. |
| (3) | The maturity is computed based on the contractual maturity of the portfolio. |
| (4) | ICICI Lombard General Insurance Company Limited has been accounted as an equity affiliate in the consolidated financial statements from April 2021 due to reduction in the Bank’s shareholding in ICICI General to below 50.0%. Accordingly, the disclosure is not comparable with the previous period. |
127
Investment portfolio of our overseas branches and banking subsidiaries
The following table sets forth a summary of the investment portfolio of our overseas branches and banking subsidiaries based on the category of investments.
At March 31 | ||||||||
| Category | 2021 | 2022 | ||||||
| (in millions) | ||||||||
| Bonds | ||||||||
| Banks and financial institutions | Rs. 18,885 | Rs. 26,065 | ||||||
| Corporate | 41,932 | 33,591 | ||||||
| Total bonds | 60,817 | 59,656 | ||||||
| Asset backed securities | 1,266 | - | ||||||
| Others(1) | 4,752 | 4,925 | ||||||
| Total | Rs. 66,835 | Rs. 64,581 | ||||||
| (1) | Includes investments in certificates of deposits. |
Investment in India-linked securities of corporate entities was 43.2% at year-end fiscal 2022 as compared to 38.4% at year-end fiscal 2021.
The investments in these securities are governed by the respective investment policies of ICICI Bank and its banking subsidiaries. To mitigate significant concentrations in credit risk, the investment policy lays down a number of limits that need to be adhered to before investments can be made. The investment policy lays down rating and issuer wise investment limits at each of these units. Further, there are counterparty limits for individual banks and financial institutions. Country exposure limits have also been established for various countries. In addition, ICICI Bank monitors the credit spread risk arising out of such investments while ICICI Bank UK PLC has instituted credit spread sensitivity limits on its portfolio. Any exceptions to the above limits are made with due approvals from the appropriate forums. ICICI Bank has not bought credit protection against any of its international investments.
Investments in corporate and financial sector debt securities by our overseas branches and banking subsidiaries
The following table sets forth, at the date indicated, investments in corporate and financial sector debt securities and mortgage and asset backed securities by our overseas branches and banking subsidiaries by region and the mark-to-market and realized losses thereon.
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| At March 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||
Asset backed securities (1),(2) | Bonds(2),(3) | Others | Total | |||||||||||||||||||||||||||||||||||||||||
| Trading | Available-for-sale and held-to-maturity | Trading | Available-for-sale and held-to-maturity | Trading | Available-for-sale and held-to-maturity | Trading | Available-for-sale and held-to-maturity | Mark-to-market gain/ (loss) in fiscal 2021 | Realized gain/(loss)/ Impairment loss in income statement for fiscal 2021 | Mark-to-market gain/ (loss) at March 31, 2021 | ||||||||||||||||||||||||||||||||||
| (Rs. in millions) | ||||||||||||||||||||||||||||||||||||||||||||
| U.S. | – | – | – | 638 | – | – | – | 638 | (46 | ) | 170 | 25 | ||||||||||||||||||||||||||||||||
| Canada | – | – | – | 22,503 | – | – | – | 22,503 | - | 97 | ||||||||||||||||||||||||||||||||||
| Europe | – | 1,266 | – | 757 | – | – | – | 2,023 | 784 | - | (119 | ) | ||||||||||||||||||||||||||||||||
| India | – | – | - | 34,973 | – | – | - | 34,973 | 2,371 | 270 | 568 | |||||||||||||||||||||||||||||||||
| Rest of Asia | – | – | – | 1,946 | – | 4,752 | – | 6,698 | 74 | 103 | ||||||||||||||||||||||||||||||||||
| Total portfolio | – | 1,266 | - | 60,817 | – | 4,752 | - | 66,835 | 3,183 | 537 | 577 | |||||||||||||||||||||||||||||||||
| (1) | Includes residential mortgage backed securities, commercial mortgage backed securities and other asset backed securities. |
| (2) | Includes asset backed securities and bonds classified under loans and receivable by our UK subsidiary. |
| (3) | Includes corporate bonds classified under loans and receivables by our Canadian subsidiary. |
| At March 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
Asset backed securities (1),(2) | Bonds(2),(3) | Others | Total | |||||||||||||||||||||||||||||||||||||||||
| Trading | Available-for-sale and held-to-maturity | Trading | Available-for-sale and held-to-maturity | Trading | Available-for-sale and held-to-maturity | Trading | Available-for-sale and held-to-maturity | Mark-to-market gain/ (loss) in fiscal 2022 | Realized gain/(loss)/ Impairment loss in income statement for fiscal 2022 | Mark-to-market gain/ (loss) at March 31, 2022 | ||||||||||||||||||||||||||||||||||
| (Rs. in millions) | ||||||||||||||||||||||||||||||||||||||||||||
| U.S. | – | – | – | 1,809 | – | – | – | 1,809 | (130 | ) | 33 | (106 | ) | |||||||||||||||||||||||||||||||
| Canada | – | – | – | 17,480 | – | – | – | 17,480 | - | 130 | - | |||||||||||||||||||||||||||||||||
| Europe | – | – | 716 | – | – | – | 716 | 89 | (0 | ) | (33 | ) | ||||||||||||||||||||||||||||||||
| India | – | – | 1,491 | 37,034 | – | – | 1,491 | 37,033 | (672 | ) | 91 | (95 | ) | |||||||||||||||||||||||||||||||
| Rest of Asia | – | – | – | 1,126 | – | 4,925 | – | 6,052 | (124 | ) | 58 | (20 | ) | |||||||||||||||||||||||||||||||
| Total portfolio | – | – | 1,491 | 58,165 | – | 4,925 | 1,491 | 63,090 | (837 | ) | 312 | (254 | ) | |||||||||||||||||||||||||||||||
| (1) | Includes residential mortgage backed securities, commercial mortgage backed securities and other asset backed securities. |
| (2) | Includes asset backed securities and bonds classified under loans and receivable by our UK subsidiary including those transferred in fiscal 2009 from investment to loans and receivables pursuant to Accounting Standard Board issuing amendments to FRS 26 – ‘Financial Instruments: Recognition and Measurement’ which permitted reclassification of financial assets in certain circumstances from ‘held-for-trading’ and ‘available-for-sale categories’ to the ‘loans and receivables’ category. |
| (3) | Includes corporate bonds classified under loans and receivables by our Canadian subsidiary. |
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Funding
Our funding operations are designed to ensure stability of funding, minimize funding costs and effectively manage liquidity. Our primary source of domestic funding is deposits raised from both retail and corporate customers. We also raise funds through short-term rupee borrowings, refinance borrowings and domestic or overseas bond offerings. Our domestic bond borrowings include long-term bond borrowings for financing infrastructure projects and affordable housing in accordance with the Reserve Bank of India guidelines. See also— “Business—Overview of Our Products and Services—Commercial Banking for Retail Customers—Retail Deposits”.
Maturity profile of deposits
The following table sets forth, at the date indicated, the contractual maturity profile of deposits, by type of deposit at March 31, 2021.
Up to one year | After one year and within three years | After three years | Total | |||||||||||||
| (in millions) | ||||||||||||||||
| Interest-bearing deposits: | ||||||||||||||||
| Savings deposits | Rs. 3,039,179 | Rs. — | Rs. — | Rs. 3,039,179 | ||||||||||||
| Time deposits | 3,889,956 | 1,023,131 | 254,295 | 5,167,381 | ||||||||||||
| Non-interest-bearing deposits: | ||||||||||||||||
| Other demand deposits | 1,392,840 | — | — | 1,392,840 | ||||||||||||
| Total deposits | Rs. 8,321,975 | Rs. 1,023,131 | Rs. 254,295 | Rs. 9,599,400 | ||||||||||||
| (1) | Savings and other demand deposits are payable on demand and hence are classified in the ‘Up to one year’ category. |
The following table sets forth, at the date indicated, the contractual maturity profile of deposits, by type of deposit at March 31, 2022.
Up to one year | After one year and within three years | After three years | Total | |||||||||||||
| (in millions) | ||||||||||||||||
| Interest-bearing deposits: | ||||||||||||||||
| Savings deposits | Rs. 3,670,306 | Rs. — | Rs. — | Rs. 3,670,306 | ||||||||||||
| Time deposits | 3,895,554 | 1,256,777 | 456,834 | 5,609,165 | ||||||||||||
| Non-interest-bearing deposits: | ||||||||||||||||
| Other demand deposits | 1,634,187 | — | — | 1,634,187 | ||||||||||||
| Total deposits | Rs. 9,200,047 | Rs. 1,256,777 | Rs. 456,834 | Rs. 10,913,658 | ||||||||||||
| (1) | Savings and other demand deposits are payable on demand and hence are classified in the ‘Up to one year’ category. |
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Uninsured deposits
The following table sets forth, for the periods indicated, the estimated amount of time deposits that exceed the insurance limit, segregated by remaining maturity and the estimated amount of total deposits that are otherwise uninsured:
| At March 31, 2021 | ||||||||||||||||||||
| 3 months or less | Over 3 months through 6 months | Over 6 months through 12 months | Over 12 months | Total | ||||||||||||||||
| Uninsured time deposits | (in millions) | |||||||||||||||||||
| India | Rs.1,400,566 | Rs.721,428 | Rs.1,294,942 | Rs.975,266 | Rs.4,392,202 | |||||||||||||||
| Outside India | 30,548 | 9,397 | 20,847 | 16,883 | 77,675 | |||||||||||||||
| Total uninsured time deposits | Rs.1,431,114 | Rs.730,825 | Rs.1,315,789 | Rs.992,149 | Rs.4,469,877 | |||||||||||||||
| At March 31, 2022 | ||||||||||||||||||||
| 3 months or less | Over 3 months through 6 months | Over 6 months through 12 months | Over 12 months | Total | ||||||||||||||||
| Uninsured time deposits | (in millions) | |||||||||||||||||||
| India | Rs.1,262,407 | Rs.736,621 | Rs.1,373,221 | Rs.1,439,422 | Rs.4,811,671 | |||||||||||||||
| Outside India | 22,484 | 11,989 | 19,441 | 11,443 | 65,357 | |||||||||||||||
| Total uninsured time deposits | Rs.1,284,891 | Rs.748,610 | Rs.1,392,662 | Rs.1,450,865 | Rs.4,877,028 | |||||||||||||||
Total uninsured deposits at March 31, 2021 were Rs. 7,213,831 million and at March 31, 2022 were Rs. 8,315,811 million.
The classification between “in India” and “outside India” is based on the domicile of the booking unit. In India, the insured deposit calculations are based on guidelines prescribed by Deposit Insurance and Credit Guarantee Corporation. The insured amount limit prescribed by Deposit Insurance and Credit Guarantee Corporation is upto a maximum amount of Rs. 5,00,000 per depositor (included all type of deposits), per insured bank. The standard insurance amount for time deposits outside India is based on the insurance limits approved by the regulator in the respective foreign jurisdiction. The insurance coverage is allocated first to savings account deposits, then to current account deposits and lastly to time deposits of a depositor. For time deposits, the highest residual maturity buckets are considered for allocation of insurance coverage.
Risk Management
Asset liability gap
The following table sets forth, at the date indicated, our asset-liability gap position.
|
At March 31, 2021(1) |
|
Less than or equal to one year |
Greater than one year and up to five years |
Greater than five years |
Total | |
| (in millions) | ||||
| Advances (loans), net | Rs. 6,741,749 | Rs 1,109,902 | Rs. 66,363 | Rs. 7,918,014 |
| Investments | 901,989 | 1,636,839 | 2,826,958 | 5,365,786 |
| Other assets(2) |
1,065,496 |
184,692 |
1,099,328 |
2,349,516 |
| Total assets |
8,709,234 |
2,931,433 |
3,992,649 |
15,633,316 |
| Capital | — | — | 1,575,875 | 1,575,875 |
| Borrowings | 640,243 | 650,660 | 148,096 | 1,438,999 |
| Deposits | 5,003,584 | 4,572,218 | 23,598 | 9,599,400 |
| Other liabilities(3) |
21,108 |
2,437 |
3,100,303 |
3,123,848 |
| Total liabilities |
5,664,935 |
5,225,315 |
4,847,872 |
15,738,122 |
| Total gap before risk management positions | 3,044,299 | (2,293,882) | (855,223) | (104,806) |
| Off-balance sheet positions(4) |
(67,778) |
13,566 |
56,891 |
2,678 |
| Total gap after risk management positions |
Rs. 2,976,520 |
Rs. (2,280,315) |
Rs. (798,332) |
Rs. (102,127) |
| (1) | Assets and liabilities are classified into the applicable categories based on residual maturity or re-pricing whichever is earlier. Classification methodologies are generally based on asset liability management guidelines, including behavioral studies, as per local policy/regulatory norms of the entities. Items other than current and savings account deposits that neither re-price nor have a defined maturity are included in the ‘greater than five years’ category. This includes investments in the nature of equity, cash and balances with the Reserve Bank of India, balances with banks and money at call and short notice and miscellaneous assets and liabilities. Fixed assets (other than leased assets) have been excluded from the above table. Current and savings account deposits are classified based on behavior study. |
| (2) | Includes cash and balances with the Reserve Bank of India, balances with banks and money at call and short notice and other assets. |
| (3) | Includes minority interest, liabilities on policy in force, and other liabilities and provisions. |
| (4) | Off-balance sheet positions comprise notional amount of derivatives, including foreign exchange forward contacts. |
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At March 31, 2022(1) | ||||
Less than or equal to one year |
Greater than one year and up to five years |
Greater than five years |
Total | |
| (in millions) | ||||
| Advances (loans), net | Rs. 7,937,695 | Rs.1,189,111 | Rs. 76,275 |
Rs. 9,203,081 |
| Investments | 1,271,030 | 1,362,786 | 3,037,161 | 5,670,977 |
| Other assets(2) | 1,246,050 |
158,385 |
1,145,081 |
2,549,516 |
| Total assets | 10,454,775 |
2,710,282 |
4,258,517 |
17,423,574 |
| Capital | — | — | 1,820,525 | 1,820,525 |
| Borrowings | 739,947 | 613,594 | 262,486 | 1,616,027 |
| Deposits | 5,133,624 | 5,764,171 | 15,863 | 10,913,658 |
| Other liabilities | 96,553 |
7,084 |
3,072,527 |
3,176,164 |
| Total liabilities | 5,970,124 |
6,384,849 |
5,171,401 |
17,526,373 |
| Total gap before risk management positions | 4,484,651 | (3,674,567) | (912,884) | (102,799) |
| Off-balance sheet positions(3) | (88,581) |
26,799 |
42,866 |
(18,917) |
| Total gap after risk management positions | Rs. 4,396,070 |
Rs. (3,647,768) |
Rs. (870,018) |
Rs. (121,716) |
| (1) | Assets and liabilities are classified into the applicable categories based on residual maturity or re-pricing whichever is earlier. Classification methodologies are generally based on asset liability management guidelines, including behavioral studies, as per local policy/regulatory norms of the entities. Items other than current and savings account deposits that neither re-price nor have a defined maturity are included in the ‘greater than five years’ category. This includes investments in the nature of equity, cash and cash equivalents and miscellaneous assets and liabilities. Fixed assets (other than leased assets) have been excluded from the above table. Current and savings account deposits are classified based on behavior study. |
| (2) | Includes cash and balances with the Reserve Bank of India, balances with banks and money at call and short notice and other assets. |
| (3) | Off-balance sheet positions comprise notional amount of derivatives, including foreign exchange forward contacts. |
Loan portfolio - fixed-floating interest rate
The following table sets forth, at the date indicated, the amount of our loans with residual maturities greater than one year that had fixed and variable interest rates.
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| At March 31, 2021 | ||||||||||||
| Fixed rate loans | Variable rate loans | Total | ||||||||||
| (in millions) | ||||||||||||
| Commercial loans | 126,168 | 1,250,940 | 1,377,108 | |||||||||
| Consumer loans and credit card receivable | 1,036,178 | 2,333,165 | 3,369,343 | |||||||||
| Lease financing | 436 | — | 436 | |||||||||
| Total loans | 1,162,782 | 3,584,105 | 4,746,887 | |||||||||
| At March 31, 2022 | ||||||||||||
| Fixed rate loans | Variable rate loans | Total | ||||||||||
| (in millions) | ||||||||||||
| Commercial loans | 133,270 | 1,273,869 | 1,407,139 | |||||||||
| Consumer loans and credit card receivable | 1,126,546 | 2,817,494 | 3,944,040 | |||||||||
| Lease financing | 187 | — | 187 | |||||||||
| Total loans | 1,260,003 | 4,091,363 | 5,351,366 | |||||||||
Impact of interest rate movement on loan portfolio
The following table sets forth, using the balance sheet at year-end fiscal 2021 as the base, one possible prediction of the impact of adverse changes in interest rates on net interest income for fiscal 2022, assuming a parallel shift in the yield curve at year-end fiscal 2021.
At March 31, 2021 | ||||||||||||||||
Change in interest rates (in basis points) | ||||||||||||||||
(100) | (50) | 50 | 100 | |||||||||||||
| (in millions) | ||||||||||||||||
| Rupee portfolio | Rs. (22,416) | Rs. (11,208) | Rs. 11,208 | Rs. 22,416 | ||||||||||||
| Foreign currency portfolio | (2,786 | ) | (1,393 | ) | 1,393 | 2,786 | ||||||||||
| Total | Rs. (25,202) | Rs. (12,601) | Rs. 12,601 | Rs. 25,202 | ||||||||||||
The following table sets forth, using the balance sheet at year-end fiscal 2022 as the base, one possible prediction of the impact of adverse changes in interest rates on net interest income for fiscal 2023, assuming a parallel shift in the yield curve at year-end fiscal 2022.
133
At March 31, 2022 | ||||||||||||||||
Change in interest rates (in basis points) | ||||||||||||||||
(100) | (50) | 50 | 100 | |||||||||||||
| (in millions) | ||||||||||||||||
| Rupee portfolio | Rs. (35,655) | Rs. (17,827) | Rs. 17,827 | Rs. 35,655 | ||||||||||||
| Foreign currency portfolio | (1,893 | ) | (946 | ) | 946 | 1,893 | ||||||||||
| Total | Rs. (37,548) | Rs. (18,774) | Rs. 18,774 | Rs. 37,548 | ||||||||||||
Sensitivity analysis, which is based upon static interest rate risk profile of assets and liabilities, is used for risk management purposes only and the model above assumes that during the course of the year no other changes are made in the respective portfolios. Actual changes in net interest income will vary from the model.
Price Risk (Trading Book)
The following table sets forth, using the fixed income portfolio at year-end fiscal 2021 as the base, one possible prediction of the impact of changes in interest rates on the value of our fixed income held-for-trading portfolio, assuming a parallel shift in interest rate curve.
| At March 31, 2021 | ||||||||||||||||||||
| Change in interest rates (in basis points) - Rupee | ||||||||||||||||||||
| Portfolio Size | (100) | (50) | 50 | 100 | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Indian government securities | Rs. 161,956 | Rs. 3,075 | Rs. 1,545 | Rs. (1,544) | Rs. (3,073) | |||||||||||||||
| Rupee corporate debt securities | 32,142 | 558 | 280 | (280 | ) | (556 | ) | |||||||||||||
| Total | Rs. 194,098 | Rs. 3,633 | Rs. 1,825 | Rs. (1,824) | Rs. (3,629) | |||||||||||||||
At March 31, 2021 | ||||||||||||||||||||
Change in interest rates (in basis points) – Foreign currency | ||||||||||||||||||||
Portfolio Size | (100) | (50) | 50 | 100 | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Foreign government securities | Rs. 149,873 | Rs. 201 | Rs. 101 | Rs. (101) | Rs. (201) | |||||||||||||||
| Total | Rs. 149,873 | Rs. 201 | Rs. 101 | Rs. (101) | Rs. (201) | |||||||||||||||
The following table sets forth, using the fixed income portfolio at year-end fiscal 2022 as the base, one possible prediction of the impact of changes in interest rates on the value of our fixed income held-for-trading portfolio, assuming a parallel shift in interest rate curve.
| At March 31, 2022 | ||||||||||||||||||||
| Change in interest rates (in basis points) | ||||||||||||||||||||
| Portfolio Size | (100) | (50) | 50 | 100 | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Indian government securities | Rs.176,474 | Rs. 2,421 | Rs. 1,206 | Rs. (1,206) | Rs. (2,421) | |||||||||||||||
| Corporate debt securities | 60,011 | 677 | 339 | (339 | ) | (675 | ) | |||||||||||||
| Total | Rs. 236,485 | Rs. 3,099 | Rs. 1,545 | Rs. (1,544) | Rs. (3,096) | |||||||||||||||
134
At March 31, 2022 | ||||||||||||||||||||
Change in interest rates (in basis points) | ||||||||||||||||||||
Portfolio Size | (100) | (50) | 50 | 100 | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Foreign government securities | Rs. 90,181 | Rs. 157 | Rs. 78 | Rs. (78) | Rs. (157) | |||||||||||||||
| Foreign corporate debt securities | 1,491 | 93 | 46 | (46 | ) | (93 | ) | |||||||||||||
| Total | Rs. 91,672 | Rs. 250 | Rs. 124 | Rs. (124) | Rs. (250) | |||||||||||||||
Value at risk on equity shares (Proprietary trading book)
ICICI Bank computes value-at-risk using historical simulation model for limit monitoring purposes. The value-at-risk is calculated using the previous one-year market data at a 99% confidence level and a holding period of one day.
The following table sets forth the high, low, average and period-end value-at-risk for the equities portfolio of the proprietary trading group for fiscal 2021 and fiscal 2022.
| Rs. in million | ||||||||
| Fiscal 2021 | At March 31, 2021 | Fiscal 2022 | At March 31, 2022 | |||||
| High | Low | Average | High | Low | Average | |||
| Value-at-risk | 250.4 | 4.7 | 88.9 | 63.4 | 234.9 | 6.8 | 90.9 | 54.1 |
We monitor the effectiveness of the value-at-risk model by regularly back-testing its performance. Statistically, we would expect to see losses in excess of value-at-risk only 1% of the time over a one-year period. During fiscal 2022, there were two instances of hypothetical loss exceeding the value-at-risk estimates for the equities portfolio of the proprietary trading group.
The following table sets forth a comparison of the hypothetical daily profit/(loss), computed on the assumption of no intra-day trading, and value-at-risk calculated using the historical simulation model during fiscal 2021 and fiscal 2022.
| Rs. in million | ||||
| Fiscal 2021 | At March 31, 2021 | Fiscal 2022 | At March 31, 2022 | |
| Average | Average | |||
| Hypothetical daily profit(loss) | 3.4 | (2.7) | 9.0 | 14.8 |
| Value-at-risk | 88.9 | 63.4 | 90.9 | 54.1 |
The high and low hypothetical daily profit/(loss) during fiscal 2022 was Rs. 600.9 million and Rs. (106.5) million respectively.
135
While value-at-risk is an important tool for measuring market risk under normal market conditions, it has inherent limitations that should be taken into account, including its inability to accurately predict future losses when extreme events are affecting the markets, because it is based on the assumption that historical market data is indicative of future market performance. Moreover, different value-at-risk calculation methods use different assumptions and hence may produce different results, and computing value-at-risk at the close of the business day would exclude intra-day risk. There is also a general possibility that the value-at-risk model may not fully capture all the risks present in the portfolio.
Derivative and Foreign Exchange Risk (Trading)
The following table sets forth, using the outstanding notional principal of trading derivatives and foreign exchange portfolio at year-end as the base, one possible prediction of the impact of changes in interest rates on the value of our trading derivatives and foreign exchange portfolio, assuming a parallel shift in interest rate curve.
At March 31, 2021 | ||||||||||||||||||||
Change in interest rates (in basis points) | ||||||||||||||||||||
Portfolio Size(1) | (100) | (50) | 50 | 100 | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Interest rate derivatives | Rs. 19,167,948 | Rs. (4,201) | Rs. (2,100) | Rs. 2,100 | Rs. 4,201 | |||||||||||||||
| Currency derivatives(2) | 1,091,895 | 2,569 | 1,285 | (1,285 | ) | (2,569 | ) | |||||||||||||
| Foreign exchange | 7,230,181 | 72 | 36 | (36 | ) | (72 | ) | |||||||||||||
| Total | Rs. 27,490,024 | Rs. (1,560) | Rs. (779) | Rs. 779 | Rs. 1,560 | |||||||||||||||
| (1) | Notional principal |
| (2) | Includes futures, options and cross currency interest rate swaps |
At March 31, 2022 | ||||||||||||||||||||
Change in interest rates (in basis points) | ||||||||||||||||||||
Portfolio Size(1) | (100) | (50) | 50 | 100 | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Interest rate derivatives | Rs. 31,560,088 | Rs. (8,341) | Rs. (4,170) | Rs. 4,170 | Rs. 8,339 | |||||||||||||||
| Currency derivatives(2) | 1,193,153 | 2,313 | 1,156 | (1,156 | ) | (2,313 | ) | |||||||||||||
| Foreign exchange | 9,769,228 | (42 | ) | (21 | ) | 21 | 42 | |||||||||||||
| Total | Rs. 42,522,469 | Rs. (6,070) | Rs. (3,035) | Rs. 3,035 | Rs. 6,068 | |||||||||||||||
| (1) | Notional principal |
| (2) | Includes futures, options and cross currency interest rate swaps |
136
The following table sets forth the possible prediction of the impact of change in foreign exchange rates on the value of the net open position of the Group.
At March 31, 2021 | ||||||||||||
Change in forex rates on the value of the net open position (in basis points) | ||||||||||||
Net open position | (100) | 100 | ||||||||||
| (in millions) | ||||||||||||
| Total open position for the Group | Rs. 4,601 | Rs. (46) | Rs. 46 | |||||||||
At March 31, 2022 | ||||||||||||
Change in forex rates on the value of the net open position (in basis points) | ||||||||||||
Net open position | (100) | 100 | ||||||||||
| (in millions) | ||||||||||||
| Total open position for the Group | Rs. 6,654 | Rs. (64) | Rs. 64 | |||||||||
Credit spread risk
The following table sets forth, using our held-for-trading portfolio at year-end as the base, one possible prediction of the impact of changes in credit spreads on the value of the trading portfolio, assuming a parallel shift in credit spreads.
| At March 31, 2021 | |||||
| Change in credit spread (in basis points) | |||||
| Portfolio Size | (100) | (50) | 50 | 100 | |
| (in millions) | |||||
| Corporate debt securities | Rs. 32,142 | Rs. 558 | Rs. 280 | Rs. (280) | Rs. (556) |
| At March 31, 2022 | |||||
| Change in credit spread (in basis points) | |||||
| Portfolio Size | (100) | (50) | 50 | 100 | |
| (in millions) | |||||
| Corporate debt securities | Rs. 61,502 | Rs. 770 | Rs. 386 | Rs. (385) | Rs. (768) |
Loan Concentration
We follow a policy of portfolio diversification and evaluate our total financing exposure to a particular industry in the light of our forecasts of growth and profitability for that industry. ICICI Bank’s policy is to limit its portfolio to any particular industry (other than retail loans) to 15.0% of its total exposure. In addition, we have a framework for managing concentration risk with respect to single borrower and group exposures, based on the internal rating and track- record of the borrowers. See also -“Risk Management-Credit Risk”. The exposure limits for lower rated borrowers and groups are substantially lower than the regulatory limits.
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The following table sets forth, at the dates indicated, the composition of our gross advances.
| At March 31, | |||||
| 2021 | 2022 | ||||
| Amount | As a % | Amount | Amount | As a % | |
| (In millions, except percentages) | |||||
| Retail finance(1) | Rs. 4,316,138 | 52.3% | Rs.5,040,347 | US$66,434 | 53.2% |
| Rural finance | 738,977 | 9.0 | 795,064 | 10,479.3 | 8.4 |
| Services—finance | 574,442 | 7.0 | 716,294 | 9,441 | 7.6 |
| Roads, port, telecom, urban development & other infrastructure | 302,648 | 3.7 | 308,905 | 4,072 | 3.3 |
| Wholesale/retail trade | 229,331 | 2.8 | 296,358 | 3,906 | 3.1 |
| Power | 213,749 | 2.6 | 202,294 | 2,666 | 2.1 |
| Services—non finance | 202,353 | 2.5 | 202,096 | 2,664 | 2.1 |
| Construction | 145,456 | 1.8 | 155,286 | 2,047 | 1.6 |
| Iron and steel (including iron and steel products) | 130,739 | 1.6 | 150,757 | 1,987 | 1.6 |
| Crude petroleum/refining & petrochemicals | 155,174 | 1.9 | 132,908 | 1,752 | 1.4 |
| Electronics & engineering | 112,083 | 1.4 | 130,558 | 1,721 | 1.4 |
| Manufacturing products (excluding metal) | 84,973 | 1.0 | 121,190 | 1,597 | 1.3 |
| Textile | 81,438 | 1.0 | 100,791 | 1,328 | 1.1 |
| Others(2) | 959,095 | 11.6 | 1,122,259 | 14,792 | 11.8 |
| Gross advances (loans) | 8,246,596 | 100.0% | 9,475,107 | 124,886 | 100.0% |
| Allowance for advances (loan) losses | (328,582) | (272,025) | (3,585) | ||
| Net advances (loans) | Rs. 7,918,014 | Rs. 9,203,082 | US$ 121,301 | ||
| (1) | Includes home loans, automobile loans, commercial business loans, dealer financing and personal loans, credit cards, two wheeler loans and loans against securities. |
| (2) | Primarily include developer financing portfolio, gems and jewelry, mining, cement, drugs and pharmaceuticals, shipping metal and metal products (excluding iron and steel), food & beverages, chemicals and fertilizers, automobiles and fast moving consumer goods. |
Our capital allocation is focused on building a granular portfolio and sustainably improving our portfolio quality. We are focused on capitalizing on opportunities in retail lending, including cross-selling additional products to our existing customers and growing our lending to small businesses, while adopting a selective approach to corporate lending. Given the focus on the above priorities, gross retail finance advances increased by 16.8% in fiscal 2022 compared to an increase of 14.9% in total gross advances in fiscal 2021. As a result, retail finance increased from 52.3% of gross loans at year-end fiscal 2021 to 53.2% of gross loans at year-end fiscal 2022.
At year-end fiscal 2022, our 20 largest borrowers accounted for 8.2% of our gross loan portfolio, with the largest borrower accounting for 2.6% of our gross loan portfolio. The largest group of companies under the same management control accounted for 1.5% of our gross loan portfolio at year-end fiscal 2022.
At year-end fiscal 2022, our exposure to largest single counterparty accounted for 16.3% of our Tier I capital fund. The exposure to largest group of connected counterparties accounted for 26.5% of our Tier I capital fund at year-end fiscal 2022.
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Maturity profile of loans
The following table sets forth, for the periods indicated, the maturity profile of loans
| March 31, 2021 | ||||||||||||||||||||
| Due within 1 year | Due between 1 to 5 year | Due between 5 to 15 years | Due in more than 15 years | Total | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Commercial loans | Rs. | 1,805,587 | Rs. | 838,275 | Rs. | 531,615 | Rs. | 7,218 | Rs. | 3,182,695 | ||||||||||
| Consumer loans | 1,365,251 | 1,738,131 | 1,442,163 | 189,050 | 4,734,595 | |||||||||||||||
| Lease financing | 287 | 436 | — | — | 723 | |||||||||||||||
| Total | Rs. | 3,171,125 | Rs. | 2,576,842 | Rs. | 1,973,778 | Rs. | 196,268 | Rs. | 7,918,013 | ||||||||||
| March 31, 2022 | ||||||||||||||||||||
| Due within 1 year | Due between 1 to 5 year | Due between 5 to 15 years | Due in more than 15 years | Total | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Commercial loans | Rs. | 2,221,031 | Rs. | 881,662 | Rs. | 523,871 | Rs. | 1,606 | Rs. | 3,628,170 | ||||||||||
| Consumer loans | 1,630,457 | 1,948,475 | 1,670,240 | 325,325 | 5,574,497 | |||||||||||||||
| Lease financing | 230 | 187 | — | — | 417 | |||||||||||||||
| Total | Rs. | 3,851,718 | Rs. | 2,830,324 | Rs. | 2,194,111 | Rs. | 326,931 | Rs. | 9,203,084 | ||||||||||
Directed Lending
The Reserve Bank of India requires banks to lend to certain sectors of the economy. Such directed lending comprises priority sector lending and export credit. ICICI Bank is required to comply with the priority sector lending requirements prescribed by the Reserve Bank of India from time to time. As prescribed in the Reserve Bank of India guideline, the Bank’s priority sector lending achievement is computed on quarterly average basis. During fiscal 2022, the Bank purchased Priority Sector Lending Certificates amounting to Rs. 673.1 billion (fiscal 2021: Rs. 357.7 billion) and sold Priority Sector Lending Certificates amounting to Rs. 972.3 billion (fiscal 2021: Rs. 417.9 billion). See also “Supervision and Regulation—Regulations Relating to Advancing Loans—Directed Lending—Priority Sector Lending”.
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The following table sets forth, for the periods indicated, ICICI Bank’s average priority sector lending:
| Fiscal 2021 | Fiscal 2022 | |||||
| Amount | % of adjusted net bank credit | Amount | % of adjusted net bank credit | Target (% of adjusted net bank credit) | ||
| (in billions, except percentages) | ||||||
| Agriculture Sector | Rs. 1,019.5 | 17.00% | Rs. 1,226.5 | US$ 16.2 | 17.80% | 18.00% |
- Small and marginal farmers |
514.3 | 8.60 | 636.4 | 8.4 | 9.20 | 9.00 |
| - Non-corporate farmers | 731.6 | 12.20 | 873.8 | 11.5 | 12.70 | 12.73 |
| Micro, small and medium enterprises | 1,228.8 | - | 1,473.7 | 19.4 | - | - |
| - Micro enterprises | 448.5 | 7.50 | 550.7 | 7.3 | 8.00 | 7.50 |
| Other priority sector | 200.1 | - | 145.2 | 1.9 | - | - |
| Total priority sector lending | Rs. 2,448.4 | 40.90% | Rs. 2,845.4 | US$ 37.5 | 41.30% | 40.00% |
| - Weaker sections | Rs. 641.6 | 10.70% | Rs. 762.0 | US$ 10.0 | 11.10% | 11.00% |
| 1. | The above includes the impact of Priority Sector Lending Certificate purchased/sold by the Bank. |
The priority sector lending master circular issued by the Reserve Bank of India requires that banks having any shortfall in lending to priority sector shall be allocated amounts for contribution to the Rural Infrastruture Development Fund established with National Bank for Agriculture and Rural Development and other Funds as decided by the Reserve Bank of India from time to time. The Bank may be required by the Reserve Bank of India to deposit with the Rural Infrastruture Development Fund and other related funds, certain amounts as specified by the Reserve Bank of India in the coming year due to the shortfall in the above-mentioned sub-categories of priority sector lending targets. At year-end fiscal 2022, our total investment in funds of government sponsored development banks due to shortfall in lending to priority sectors was Rs. 264.2 billion, which was fully eligible for consideration in overall priority sector achievement.
Export Credit
The Reserve Bank of India also requires banks to make loans to exporters at concessional interest rates, as part of directed lending. Export credit is provided for pre-shipment and post-shipment requirements of exporter borrowers in rupees and foreign currencies. At least 12.0% of a bank’s adjusted net bank credit is required to be in the form of export credit. This requirement is in addition to the priority sector lending requirement but credits extended to exporters that are small scale industries or small businesses may also meet part of the priority sector lending requirement. The Reserve Bank of India provides export refinancing to banks for an eligible portion of total outstanding export loans in rupees in line with the current Reserve Bank of India guidelines in India as amended from time to time. The interest income earned on export credits is supplemented through fees and commissions earned from these exporter customers from other fee-based products and services taken by them from us, such as foreign exchange products and bill handling. At March 31, 2022, ICICI Bank’s export credit was Rs. 102.4 billion, which amounted to 1.42% of the Bank’s adjusted net bank credit against the requirement of 12.0% of adjusted net bank credit.
Non-performing loans
The following table sets forth, at the dates indicated, gross (net of write-offs, interest suspense and derivatives income reversal) non-performing loans by borrowers’ industry or economic activity and as a percentage of total non-performing loans.
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2021 |
2022 | ||||
Amount |
As a percentage of non-performing loans |
Amount |
Amount |
As a percentage of non-performing loans | |
(in millions, except percentages) | |||||
| Retail finance(1) | Rs. 126,063 | 29.5% | Rs. 87,383 | US$ 1,152 | 25.3% |
| Construction | 61,317 | 14.4 | 55,217 | 728 | 16.0 |
| Rural Retail | 25,940 | 6.1 | 37,080 | 489 | 10.7 |
| Power | 46,072 | 10.8 | 31,671 | 417 | 9.2 |
| Crude petroleum/refining and petrochemicals | 27,832 | 6.5 | 25,051 | 330 | 7.3 |
| Electronics and engineering | 16,852 | 3.9 | 16,045 | 211 | 4.6 |
| Roads, ports, telecom, urban development & other infrastructure | 21,673 | 5.1 | 14,488 | 191 | 4.2 |
| Services—non finance | 17,544 | 4.1 | 14,203 | 187 | 4.1 |
| Mining | 8,088 | 1.9 | 10,934 | 144 | 3.2 |
| Wholesale/retail trade | 7,867 | 1.8 | 6,501 | 86 | 1.9 |
| Iron/steel and products | 7,881 | 1.8 | 5,918 | 78 | 1.7 |
| Manufacturing products (excluding metal) | 6,665 | 1.6 | 5,311 | 70 | 1.5 |
| Shipping | 5,863 | 1.4 | 4,176 | 55 | 1.2 |
| Food and beverages | 4,942 | 1.2 | 3,322 | 44 | 1.0 |
| Other Industries(2) | 42,430 |
9.9 |
28,214 |
372 |
8.1 |
| Gross non-performing loans (3) | Rs. 427,029 |
100.0% |
Rs. 345,514 |
US$ 4,554 |
100.0% |
| Aggregate provision for loan losses | (327,680) |
(269,105) |
(3,547) |
||
| Net non-performing loans | Rs. 99,349 |
Rs. 76,409 |
US$ 1,007 |
||
(1) Includes home loans, commercial business loans, rural loans, automobile loans, business banking, credit cards, personal loans, loans against securities and dealer financing portfolio.
(2) Other industries primarily include developer financing portfolio, automobiles, manufacturing products (excluding metal), drugs and pharmaceuticals and fast moving consumer goods.
(3) Does not include Rs. 3,694.5 million at March 31, 2021, where asset classification benefits were extended due to moratorium on repayment based on the guidelines issued by the Reserve Bank of India, post outbreak of Covid-19 pandemic.
See “Operating and Financial Review and Prospects—Executive Summary—Certain Factors Affecting Our Results of Operations—Trends in fiscal 2022”.
Restructured loans
The following table sets forth, at the dates indicated, gross restructured loans by borrowers’ industry or economic activity and as a percentage of total gross restructured loans.
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At March 31, | |||||
2021 |
2022 | ||||
Amount |
As a percentage of restructured loans |
Amount |
Amount |
As a percentage of restructured loans | |
(in millions, except percentages) | |||||
| Retail finance | Rs. 23,307 | 60.1% | Rs. 69,073 | US$ 910 | 74.1% |
| Power | 1,173 | 3.0 | 6,106 | 80 | 6.5 |
| Roads, port, telecom, urban development & other infrastructure | — | — | 2,851 | 38 | 3.1 |
| Construction | 8,534 | 22.0 | 1,924 | 25 | 2.1 |
| Services-non finance | 393 | 1.0 | 1,117 | 15 | 1.2 |
| Others(1) | 5,369 |
13.9 |
12,195 | 161 | 13.0 |
| Gross restructured loans | Rs. 38,776 |
100.0% |
Rs. 93,266 |
US$ 1,229 |
100.0% |
| Aggregate provision for loan losses | (897) |
(2,914) |
(38) |
||
| Net restructured loans | Rs. 37,789 |
Rs. 90,352 |
US$ 1,191 |
||
| (1) | Others primarily include real estate, automobile, textiles, food and beverages and gems and jewellery. |
| (2) | In addition, the Bank holds general provision amounting to Rs. 23,562 million at year-end fiscal 2022 (year-end fiscal 2021: Rs. 4,560 million) on these restructured loans, subject to minimum provisioning requirement as per the guidelines issued by the Reserve Bank of India. |
Key ratios-Asset quality
The following table sets forth, for the periods indicated, our key ratios on asset quality.
At or for the year ended March 31, | ||||
2021 |
2022 |
|||
(in millions, except percentages) |
||||
| Gross restructured loans as a percentage of gross loans | 0.47% | 0.98% | ||
| -Gross restructured loans | 38,776 | 93,266 | ||
| -Total gross loans | 8,246,596 | 9,475,107 | ||
| Gross non-performing loans as a percentage of gross loans | 5.18 | 3.65 | ||
| -Gross non-performing loans | 427,029 | 345,514 | ||
| -Total gross loans | 8,246,596 | 9,475,107 | ||
| Net restructured loans as a percentage of net loans | 0.48 | 0.98 | ||
| -Net restructured loans | 37,879 | 90,352 | ||
| -Total net loans | 7,918,014 | 9,203,081 | ||
| Net non-performing loans as a percentage of net loans (1) | 1.25 | 0.83 | ||
| -Net non-performing loans | 99,349 | 76,409 | ||
| -Total net loans | 7,918,014 | 9,203,081 | ||
| Provision on restructured loans as a percentage of gross restructured loans (2) | 2.31 | 3.12 | ||
| -Provision on restructured loans | 897 | 2,914 | ||
| -Gross restructured loans | 38,776 | 93,266 | ||
| Provision on non-performing loans as a percentage of gross non-performing loans | 76.73 | 77.89 | ||
| -Provision on non-performing loans | 327,680 | 269,105 | ||
| -Gross non-performing loans | 427,029 | 345,514 | ||
| Provision as a percentage of gross loans(3) | 5.47% | 4.45% | ||
| -Provisions | 451,166 | 421,315 | ||
| -Total gross loans | 8,246,596 | 9,475,107 | ||
| (1) | Includes loans identified as non-performing/impaired in line with the guidelines issued by regulators of the respective subsidiary. |
| (2) | In addition, the Bank holds 15% general provision on restructured assets (including general provision required as per the guidelines issued by the Reserve Bank of India). |
| (3) | Includes general provision on standard assets. |
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Net loan write-offs and Provision on non-performing loans
The table presents net loan write-offs and percentage of average loans for the periods indicated.
| March 31, 2021 | March 31, 2022 | |||||||||||||||
| Average loan portfolio | Net loan charge-offs1 | % of
average gross loans | Net loan charge-offs1 | % of
average gross loans | ||||||||||||
| (in millions, except percentages) | ||||||||||||||||
| Commercial loans | Rs. 76,697 | 2.32 | % | Rs. 42,528 | 1.17 | % | ||||||||||
| Consumer loans | 28,026 | 0.65 | 52,712 | 1.03 | ||||||||||||
| Lease financing | — | — | 1 | 0.1 | ||||||||||||
| Total loans | Rs. 104,723 | 1.37 | % | Rs. 95,241 | 1.09 | % | ||||||||||
| (1) | Net loan write offs is the difference between gross loan write-offs and recoveries from write-offs. |
Net loan write-offs as a percentage of our average total loan portfolios were 1.09% in the fiscal 2022 as compared to 1.37% in the fiscal 2021 respectively.
The following table shows an allocation of the Group’s total provision on non-performing loans and the percentage of loans in each category to total gross loans for the periods indicated.
| March 31, 2021 | March 31, 2022 | |||||||||||||||
| Amount | % of loans in each category to total gross loans | Amount | % of loans in each category to total gross loans | |||||||||||||
| (in millions, except percentages) | ||||||||||||||||
| Commercial loans | 246,612 | 41.7% | 203,023 | 41.8% | ||||||||||||
| Consumer loans | 81,068 | 58.3% | 66,082 | 58.2% | ||||||||||||
| Lease financing | — | 0.0% | — | 0.0% | ||||||||||||
| Total loans | 327,680 | 100.0% | 269,105 | 100.0% | ||||||||||||
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Operating and Financial Review and Prospects
You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements. The following discussion is based on our audited consolidated financial statements and accompanying notes prepared in accordance with Indian GAAP, which varies in certain significant respects from U.S. GAAP. For a reconciliation of net income and stockholders’ equity to U.S. GAAP, a description of significant differences between Indian GAAP and U.S. GAAP and certain additional U.S. GAAP information, see notes 21 and 22 to our consolidated financial statements included herein.
Executive Summary
Introduction
We are a diversified financial services group offering a wide range of banking and financial services to corporate and retail customers through a variety of delivery channels. Apart from banking products and services, we offer life and general insurance, asset management, securities broking and private equity products and services through specialized subsidiaries and affiliates. Our consolidated total assets at year-end fiscal 2022 were Rs. 17,526.4 billion. Our consolidated capital and reserves and surplus at year-end fiscal 2022 were Rs. 1,820.5 billion and our consolidated net profit (after minority interest) for fiscal 2022 was Rs. 251.1 billion.
Our primary business consists of commercial banking operations for retail and corporate customers. Our commercial banking operations for retail customers consist of retail lending, deposit taking, distribution of insurance and investment products and other fee-based products and services. We provide a range of commercial banking products and services, including loan products, fee and commission-based products and services, deposit products and foreign exchange and derivatives products to India’s leading corporations, middle market companies and small and medium enterprises. We also offer agricultural and rural banking products.
Our international franchise focusses on four strategic pillars, namely (a) the non-resident Indian ecosystem comprising deposits, remittances, investments and asset products; (b) multinational corporation ecosystem comprising both foreign multinational companies investing in India and Indian multinational companies branching out for their foreign currency and other India related requirements and also Global In-house Centres, which are back-offices of multinational companies; (c) trade ecosystem, comprising primarily India-linked trade transactions which are self-liquidating in nature; and (d) funds ecosystem, to capture fund flows into India through the Foreign Portfolio Investment and Foreign Direct Investment routes. ICICI Bank’s overseas branches raise borrowings and make loans and also engage in advisory and syndication activities for fund-raising by Indian companies and their overseas operations. At year-end fiscal 2022, we had banking subsidiaries in the United Kingdom and Canada, branches in China, Singapore, Dubai International Finance Centre, Hong Kong, the United States (New York), South Africa and Bahrain. We have representative offices in the United Arab Emirates (Dubai, Abu Dhabi and Sharjah), Bangladesh, Nepal, Malaysia (Kuala Lumpur), the United States (Texas and California), Sri Lanka and Indonesia. Our subsidiary in the United Kingdom has a branch in Germany.
Our treasury operations include the maintenance and management of regulatory reserves, proprietary trading in equity and fixed income and a range of foreign exchange and derivatives products and services for corporate customers, such as forward contracts and interest rate and currency swaps.
We are also engaged in insurance, asset management, securities broking business and private equity fund management through specialized subsidiaries and affiliates. Our subsidiaries, ICICI Prudential Life Insurance Company and ICICI Prudential Asset Management Company, provide a wide range of life insurance and asset management products respectively. Our associate ICICI Lombard General Insurance Company provides a wide range of general insurance products.
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Our subsidiaries ICICI Securities Limited and ICICI Securities Primary Dealership Limited are engaged in equity underwriting and securities broking and primary dealership in government securities and fixed income market operations, respectively. Our private equity fund management subsidiary ICICI Venture Funds Management Company manages funds that make private equity investments.
Certain Factors Affecting Our Results of Operations
Our loan portfolio, financial condition and results of operations have been and, in the future would be, influenced by economic conditions in India, global economic developments affecting our customers such as changes in commodity prices and geo-political risks, conditions in global financial markets, economic conditions in the United States and in foreign countries where we have a significant presence or which impact the Indian economy and global markets, evolving global and domestic regulations, and global and regional natural calamities and health epidemics such as Covid-19. For ease of understanding the following discussion of our results of operations, you should consider these macroeconomic factors and other key developments.
Trends in fiscal 2022
The global gross domestic product grew by 6.1% in calendar year 2021 compared to a decline of 3.1% in calendar year 2020. The gross domestic product of advanced economies grew by 5.2% and of emerging and developing economies by 6.8% in calendar year 2021, compared to a decline of 4.5% in advanced economies and 2.0% in emerging and developing economies in calendar year 2020. The recovery in global growth during the first half of calendar year 2021 lost momentum in the later half due to a resurgence of Covid-19 infections in parts of the world, supply chain disruptions and inflationary pressures rising in advanced as well as emerging market economies. The supply chain disruptions that had originated during the pandemic continued to impact economic activity and global merchandise trade slowed down towards the later part of the calendar year 2021 after recovering from the pandemic. Global crude oil and commodity prices increased during 2021. Rising inflation in developed and emerging economies induced monetary policy tightening by central banks in several economies, including by the U.S. Federal Reserve. The economic environment was further impacted by geo-political tensions following the Russia-Ukraine war that started in February 2022, leading to a sharp increase in crude oil prices and inflation, and volatility in financial markets. These developments and the re-imposition of restrictions in parts of China following a surge in Covid-19 cases created a challenging environment for global growth.
India’s gross domestic product grew by 8.7% in fiscal 2022 compared to a decline of 6.6% in fiscal 2021. The improvement in economic activity was sustained despite the resurgence of Covid-19 infections. In fiscal 2021, the Covid-19 pandemic in India in April-May 2020 resulted in a nation-wide lockdown, which substantially impacted economic activity. The easing of lockdown measures subsequently led to gradual improvement in economic activity. During fiscal 2022, the second wave of the Covid-19 pandemic in April-May 2021 led to the re-imposition of localised/regional lockdown measures in various parts of the country. The lockdown measures were lifted gradually, as the second wave subsided from June 2021 onwards. The impact of the third wave of Covid-19 pandemic in December 2021-January 2022 was mild, though it led to re-imposition of some localised/regional restrictive measures in the country. There was significant progress in the vaccination programme during fiscal 2022, with 1.84 billion vaccine doses administered by March 31, 2022, including 23 million precaution doses.
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Inflation as measured by the Consumer Price Index, increased from 5.5% in March 2021 to 7.0% in March 2022. Increase in inflation during fiscal 2022 was largely driven by food and fuel prices. Average Consumer Price Index inflation during fiscal 2022 was 5.5%.
As a measure to combat the impact of the first wave of Covid-19 pandemic, the Reserve Bank of India had reduced the repo rate by 75 basis points to 4.40% in March 2020 and further by 40 basis points to 4.00% in May 2020. The policy rate was kept unchanged till March 2022. The Monetary Policy Committee maintained an accommodative stance through fiscal 2022 with a view to sustain growth and mitigate the impact of the pandemic on the economy. As a result, systemic liquidity conditions remained in surplus and interest rates remained low through fiscal 2022.
During the three months ended March 31, 2022, inflation breached the upper threshold of 6.0% set by the Reserve Bank of India. In April 2022, the Monetary Policy Committee announced that it would remain accommodative while focusing on withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth. On April 8, 2022, the Reserve Bank of India introduced the standing deposit facility rate as the floor of the liquidity adjustment facility corridor compared to the earlier reverse repo rate. The standing deposit facility rate was set at 3.75%, thus narrowing the liquidity adjustment facility corridor to 50 basis points from the earlier 90 basis points. The Reserve Bank of India indicated that the balances held by banks with it under the standing deposit facility shall be an eligible statutory liquidity ratio asset and shall not be eligible for cash reserve ratio maintenance.
On May 4, 2022, the Monetary Policy Committee announced an increase in the repo rate by 40 basis points from 4.00% to 4.40%. Accordingly, the standing deposit facility rate was revised to 4.15% and the marginal standing facility rate to 4.65%. In line with the decision to withdraw liquidity, the cash reserve ratio was increased by 50 basis points from 4.00% to 4.50% of net demand and time liabilities. This was effective from the fortnight beginning May 21, 2022. On June 8, 2022, the Monetary Policy Committee announced a further 50 basis point increase in the repo rate to 4.90%. Accordingly, the standing deposit facility rate was revised to 4.65% and the marginal standing facility rate to 5.15%.
Merchandise trade grew during fiscal 2022 after two consecutive years of decline due to the Covid-19 pandemic. Merchandise exports grew by 45.1% and merchandise imports by 56.0% during fiscal 2022, compared to decline of 7.1% in exports and 17.1% in imports during fiscal 2021. The trade deficit increased to US$ 191.0 billion in fiscal 2022 compared to a trade deficit of US$ 102.0 billion in fiscal 2021. As a proportion of India’s gross domestic product, the current account deficit was 1.2% in fiscal 2022 compared to a surplus in the current account of 0.9% in fiscal 2021. Foreign direct investment inflows into India were US$ 56.2 billion and there was a net outflow of US$ 14.1 billion in fiscal 2022.
The equity market benchmark, the S&P BSE Sensex, increased by 18.3% in fiscal 2022. During the three months ended June 30, 2022, the index crossed a peak 60,000 on April 4, 2022, but has since declined to around 53,000 as of June 30, 2022. The rupee depreciated by 3.7% from Rs. 73.14 per U.S. dollar at March 31, 2021 to Rs. 75.87 per U.S. dollar at March 31, 2022. During the three months ended June 30, 2022, the rupee depreciated by 4.1% to Rs. 79.02 per U.S. dollar. In fiscal 2022, the yields on the benchmark 10-year government securities increased from 6.18% at March 31, 2021 to 6.84% at March 31, 2022. Following the increase in the repo rate announced by the Monetary Policy Committee during May-June 2022, the yield on the benchmark 10-year government securities increased by 78 basis points to a high of 7.62% at June 16, 2022. The yields eased to 7.45% at June 30, 2022.
The first year retail premium underwritten in the life insurance sector (on weighted received premium basis) grew by 15.7% to Rs. 875.7 billion in fiscal 2022 compared to Rs. 756.6 billion in fiscal 2021. Gross premium of the non-life insurance sector (excluding specialized insurance institutions) grew by 10.8% to Rs. 2,056.6 billion in fiscal 2022 compared to Rs. 1,856.1 billion in fiscal 2021. The average assets under management of mutual funds increased by 19.6% from Rs. 32.1 trillion for the three months ended March 31, 2021 to Rs. 38.4 trillion for the three months ended March 31, 2022.
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In the banking sector, non-food credit growth improved during fiscal 2022. Banking system non-food credit grew by 8.7% year-on-year at March 25, 2022 compared to a growth of 5.5% at March 26, 2021. In terms of sector-wise deployment of credit as of March 25, 2022, retail loans grew by 12.4% year-on-year, credit to industry by 7.1%, credit to the services sector by 8.9% and to the agriculture sector by 9.9%. Deposit growth was marginally higher compared to credit growth in fiscal 2022. Growth in deposits was 8.9% at March 25, 2022 compared to 11.4% at March 26, 2021. According to the Reserve Bank of India’s Financial Stability Report of June 2022, non-performing assets of scheduled commercial banks declined during fiscal 2022 with the gross non-performing assets ratio at 5.9% and net non-performing assets ratio at 1.7% at March 31, 2022 compared to a gross non-performing assets ratio of 7.5% and net non-performing assets ratio of 2.4% at March 31, 2021. Restructuring of loans for entities impacted by the second Covid-19 wave under Resolution Framework 2.0 was 1.6% of total advances as at December 31, 2021.
In the Union budget for fiscal 2023, the Indian government announced several banking sector specific measures including financial support for the digital payment ecosystem and introduction of the Digital Rupee by the Reserve Bank of India in fiscal 2023. The Indian government has proposed the setting up of 75 Digital Banking Units in 75 districts. The Emergency Credit Line Guarantee Scheme was extended further up to March 2023, and its guarantee cover expanded from the earlier Rs. 3.0 trillion to Rs. 5.0 trillion, with the additional amount earmarked exclusively for hospitality and related enterprises.
Key regulatory measures announced in fiscal 2022 were:
| · | A resolution framework 2.0 was announced by the Reserve Bank of India on May 5, 2021. As per the framework, for loans to individuals, business loans to individuals and loans to small businesses, banks were permitted to offer a limited window to implement resolution plans. This was subject to the condition that the borrower should not have availed the earlier announced resolution framework in fiscal 2021. The framework for micro, small and medium enterprises was an extension of the earlier resolution framework announced in August 2020. For both the resolution frameworks, an eligibility condition for availing the restructuring facility was that the aggregate exposure of all lending institutions to the borrower, including non-fund based facilities, should not have been in excess of Rs. 250.0 million at March 31, 2021. The borrowers would continue to be classified as standard upon implementation of the resolution plan. The last date for invocation of resolution under the frameworks was September 30, 2021, with the last date for implementation being December 31, 2021. |
| · | The Reserve Bank of India announced an increase in the priority sector lending targets for small and marginal farmers and weaker sections, in a phased manner, starting from fiscal 2022. The target for lending to small and marginal farmers was increased from 8.0% of adjusted net bank credit in fiscal 2021 to 9.0% in fiscal 2022, and further to 9.5% in fiscal 2023 and to 10.0% in fiscal 2024. The target for lending to identified weaker sections of society was increased from 10.0% in fiscal 2021 to 11.0% in fiscal 2022, 11.5% in fiscal 2023 and 12.0% in fiscal 2024. |
| · | In August 2021, the Reserve Bank of India issued clarifications with regard to compensation of wholetime directors/CEOs/material risk takers and control function staff. As per the notification, grant of share-linked compensation should be fair-valued and recognized as an expense in the books of accounts. This is applicable for all share-linked instruments granted after March 31, 2021. |
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| · | In September 2021, the Reserve Bank of India issued directions with regard to tokenization of card transactions, and permitted card issuers to offer card tokenisation services as Token Service Providers from January 1, 2022. The tokenization of card transactions refers to the generation of an unique alternate code, in place of the customer card details, at the time of undertaking a transaction through cards. Further, it was proposed that no entity in the card transaction/payment chain, other than the card issuers and/or card networks, may store the actual card data. Any such data stored previously was required to be purged. This will be effective from September 30, 2022. |
| · | With the objective of aligning with Basel Committee on Banking Supervision standards to manage liquidity risks, the Reserve Bank of India increased the threshold limit for deposits and other extension of funds made by non-financial small business customers from Rs. 50.0 million to Rs. 75.0 million for computation of liquidity coverage ratio and net stable funding ratio. |
Business Overview
While assessing our performance, we monitor key financial variables such as the movement in core operating profit (that is profit before provisions and tax, excluding treasury income), credit loss and return on equity. We also look at movement in yield on assets, cost of funds and net interest margin, movement in fee income and cost ratios. We also monitor key business indicators such as deposit growth, funding mix, loan growth and loan delinquency trends. We re-evaluate underwriting norms and risk management on an ongoing basis, and assess the financial impact of events on our capital, revenue and credit costs. We analyze changes in economic indicators such as interest rates, liquidity, exchange rates and the performance of various sectors and sub-sectors of the economy. In addition to these indicators, we monitor other non-financial indicators such as quality of customer service and the extent and nature of customer complaints, cyber threats, data security and preparedness to address them and estimates of market share in key areas of business. We have recently commenced the process of evaluating impact of climate change risks on the portfolio and the environmental, social and governance profile of our large borrowers. We also continuously look at improving capabilities that may be required to respond to crisis related events.
The growth in India’s gross domestic product of 8.7% in fiscal 2022 reflects a rebound in economic activity after a contraction in fiscal 2021 due to the Covid-19 pandemic. The improvement in economic activities were across most sectors during fiscal 2022, including hotel, travel and tourism industry. The economic impact of the third wave of the pandemic was moderate, aided by the progress and scale of vaccination during the year. Financial conditions remained stable as the Reserve Bank of India ensured significant surplus in systemic liquidity through the year and policy rates remained steady. See “Risk Factors—Risks Relating to India and other Economic and Market Risks—A prolonged slowdown in economic growth in India could cause our business to suffer”. For the Indian banking sector, there was significant improvement in asset quality, profitability and capital adequacy ratios during fiscal 2022. Growth in banking system non-food credit improved gradually during fiscal 2022, with growth being majorly driven by retail loans. Credit to industry increased by 7.1% at March 31, 2022 as compared to a decline of 0.4% at March 31, 2021. Growth in deposits, however, moderated during the year, as interest rates on savings deposits and term deposits remained stable for most part of the year, with an increase in term deposit interest rates only towards the end of the year. Lending rates declined further during fiscal 2022, with the average lending rate on fresh rupee loans sanctioned by banks decreasing by 29 basis points.
During the three months ended March 31, 2022, the business environment began to deteriorate due to global developments. The crisis in Ukraine and consequent increase in global crude oil and commodity prices, supply chain disruptions and global inflationary pressures led to uncertainties in sustaining the momentum in global economic recovery. Global merchandise trade slowed down. Central banks in key economies shifted to tightening of monetary policy, leading to volatility in financial markets. These new challenges emerged amidst uncertainty on the trajectory of the Covid-19 pandemic. The Indian economy was also impacted through the trade and financial channels. While the Reserve Bank of India has taken steps by increasing the policy rate, withdrawing excess systemic liquidity and measures to support the exchange rate, the economic situation remains uncertain.
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See also “—Executive Summary—Certain Factors Affecting Our Results of Operations—Trends in fiscal 2022”.
However, a prolonged period of economic and geo-political uncertainties could pose additional challenges for the Indian economy and in turn on the banking sector, including us. In this challenging environment, we continue to focus on maintaining a resilient balance sheet and strong capital levels.
We believe that the significant improvement in our deposit franchise and funding costs in the last six years, along with strengthened risk management practices enable us to pursue growth opportunities profitably. In general, trends in systemic liquidity, interest rates and inflation influence deposit growth, especially with respect to low cost savings and current account deposits. Our ability to grow our deposit base may be impacted by increasing competition for such deposits from existing banks and new entrants. Regulatory developments like the introduction of a digital currency by the Reserve Bank of India may also impact our ability to raise low cost deposits. We have focused on maintaining and enhancing our deposit franchise, including by leveraging technology. We have focused on capitalizing on opportunities in retail lending, including by cross-selling additional products to our existing customers, and growing our lending to small businesses, while adopting a selective approach to corporate lending, in order to build a more granular portfolio and sustainably improve portfolio quality. We aim to provide a complete range of financial products and services to meet personal and business needs of our customers and their ecosystems.
We continue to focus on maintaining capital adequacy ratios that are higher than regulatory requirements. We aim to grow the loan portfolio in a granular manner with a focus on risk and reward. Our provisioning policy for non-performing assets has been made more conservative, and as of March 31, 2022, we also held contingency provisions, including Covid-19 related provisions, with a view to protect the balance sheet and address any challenges that may emerge from the uncertain economic environment.
A discussion of our financial performance in fiscal 2022 is given below:
From April 1, 2021, ICICI Lombard General Insurance Company Limited ceased to be a subsidiary of the Bank and became an affiliate. Accordingly, financial performance in fiscal 2022 is not comparable with the financial performance in fiscal 2021.
Operating profit before provisions increased by 2.3% from Rs. 422.6 billion in fiscal 2021 to Rs. 432.2 billion in fiscal 2022 primarily due to an increase in net interest income and a decrease in operating expenses, offset, in part, by a decrease in other income.
Net interest income increased by 16.6% from Rs. 465.0 billion in fiscal 2021 to Rs. 542.4 billion in fiscal 2022, due to an increase of 10.6% in the average volume of interest earning assets and an increase of 20 basis points in net interest margin.
Other income decreased by 12.9% from Rs. 721.7 billion in fiscal 2021 to Rs. 628.8 billion in fiscal 2022 primarily due to a decrease in net earned premium and other operating income relating to insurance business and income from treasury related activities. This was partially offset by an increase in commission, exchange and brokerage income. Premium and other operating income relating to insurance business decreased by 18.7% from Rs. 479.2 billion in fiscal 2021 to Rs. 389.6 billion in fiscal 2022, primarily because operating income of ICICI Lombard General Insurance Company Limited is not consolidated in fiscal 2022 since it ceased to be a subsidiary from April 1, 2021 and was accounted as an equity affiliate. Income from treasury-related activities decreased from Rs. 99.5 billion in fiscal 2021 to Rs. 55.1 billion in fiscal 2022. In fiscal 2021, we sold equity shareholding in ICICI Lombard General Insurance Company Limited, ICICI Prudential Life Insurance Company Limited and ICICI Securities Limited and made a net gain of Rs.33.0 billion from these sales.
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Operating expenses decreased by 4.1% from Rs. 762.7 billion in fiscal 2021 to Rs. 731.5 billion in fiscal 2022 primarily due to a decrease in expenses related to insurance business, offset, in part, by an increase in other operating expenses. From April 1, 2021, ICICI Lombard General Insurance Company Limited ceased to be a subsidiary and was accounted as an equity affiliate. Accordingly, operating expenses of ICICI Lombard General Insurance Company Limited are not consolidated in fiscal 2022.
Provisions and contingencies (excluding provision for tax) decreased by 45.2% from Rs. 163.8 billion in fiscal 2021 to Rs. 89.8 billion in fiscal 2022 primarily due to a decrease in provision on advances and Covid-19 related provisions, offset, in part, by an increase in provisions on investments. The provision on advances decreased from Rs. 110.8 billion in fiscal 2021 to Rs. 63.8 billion in fiscal 2022. This decrease in provision on advances was because during fiscal 2022, there were higher upgrades and recoveries from non-performing loans resulting in lower provisioning requirement, offset, in part, by provision made on loans restructured under the Reserve Bank of India’s Resolution Framework and change in provisioning rate on certain non-performing loans to make them more conservative. The provision coverage ratio increased from 76.7% at March 31, 2021 to 77.9% at March 31, 2022.
During fiscal 2022, the Bank wrote-back Covid-19 related provision amounting to Rs. 10.5 billion as against net provision of Rs. 47.5 billion in fiscal 2021. Further, during fiscal 2022, the Bank made an additional contingency provision amounting to Rs. 10.3 billion on a prudent basis. The Bank holds a total contingency provision of Rs. 74.5 billion, including the Covid-19 related contingency provision of Rs. 64.3 billion, at year-end fiscal 2022.
Gross non-performing loans (net of write-offs) decreased from Rs. 427.0 billion at year-end fiscal 2021 to Rs. 345.5 billion at year-end fiscal 2022. Net non-performing loans decreased from Rs. 99.3 billion at year-end fiscal 2021 to Rs. 76.4 billion at year-end fiscal 2022. The net non-performing loan ratio decreased from 1.3% at year-end fiscal 2021 to 0.8% at year-end fiscal 2022. See also, “Risk Factors—Risks Relating to Our Business—If the level of our non-performing assets increases and the overall quality of our loan portfolio deteriorates, our business will suffer.”
The income tax expense increased from Rs. 56.6 billion in fiscal 2021 to Rs. 84.6 billion in fiscal 2022 primarily due to an increase in profit before tax and an increase in effective tax rate. The effective tax rate increased from 21.8% in fiscal 2021 to 24.2% in fiscal 2022 due to change in composition of income.
As a result of the above, the profit after tax increased by 32.5% from Rs. 183.8 billion in fiscal 2021 to Rs. 251.1 billion in fiscal 2022.
Net worth (equity share capital and reserves and surplus) increased from Rs. 1,575.9 billion at year-end fiscal 2021 to Rs. 1,820.5 billion at year-end fiscal 2022 primarily due to accumulation of retained earnings. Total assets and liabilities increased by 11.4% from Rs. 15,738.1 billion at year-end fiscal 2021 to Rs. 17,526.4 billion at year-end fiscal 2022. Total advances increased by 16.2% from 7,918.0 billion at year-end fiscal 2021 to Rs. 9,203.1 billion at year-end fiscal 2022. Total deposits increased by 13.7% from Rs. 9,599.4 billion at year-end fiscal 2021 to Rs. 10,913.7 billion at year-end fiscal 2022.
The changes in capital adequacy ratios of ICICI Bank on an unconsolidated basis (after deducting proposed dividend for fiscal 2022 from capital funds) in accordance with the Reserve Bank of India’s guidelines on Basel III were as follows: common equity Tier 1 risk-based capital ratio increased from 16.80% in fiscal 2021 to 17.60% is fiscal 2022; Tier 1 risk-based capital ratio increased from 18.06% in fiscal 2021 to 18.35% in fiscal 2022; and total risk-based capital ratio increased from 19.12% in fiscal 2021 to 19.16% in fiscal 2022. The changes in our capital adequacy ratios on a consolidated basis in accordance with the Reserve Bank of India’s guidelines on Basel III, at year-end fiscal 2022 were as follows: common equity Tier 1 risk-based capital ratio increased from 16.66% in fiscal 2021 to 17.34% in fiscal 2022; Tier 1 risk-based capital ratio increased from 17.81% in fiscal 2021 to 18.02% in fiscal 2022; and total risk-based capital ratio remained at similar level at 18.87% in fiscal 2021 and fiscal 2022.
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Business Outlook
Uncertainties in the global economy have increased considerably following the global geopolitical events, including the conflict between Russia and Ukraine and uncertain consequences, the macroeconomic environment and the future trajectory of the Covid-19 pandemic. Elevated crude oil and commodity prices as well as inflationary pressures in advanced and emerging economies have negatively impacted the recovery in global growth. Inflation has touched high levels across most economies, including in the United States and in Europe. The spillovers of these developments on emerging markets like India can be significant. Further, while there has been significant progress in vaccination rates globally, the emergence of new variants and possible mutations may result in re-imposition of related preventive measures in geographies affected by the ongoing pandemic and further cause slowdown in global economic recovery and exacerbate the ongoing supply chain constraints and inflationary pressures.
The Indian economy is vulnerable to these global developments, with spillover evident during the three months ended June 30, 2022 through the commodity and financial channels. While the Reserve Bank of India has begun taking steps to address concerns on inflation and exchange rate movement, the momentum in growth recovery may be impacted, as the economy, the banking sector, including us, and our customers realign to a higher interest rate environment. These developments may impact the growth, profitability, quality of the loan portfolio, and credit costs, of the banking sector, including us.
However, over the medium term, we see favorable prospects for the Indian economy. We expect India’s strong domestic consumption and investment drivers to continue to support healthy rates of growth in a normal environment. The banking sector is expected to benefit from the growing formalization of the economy, the insolvency resolution regime and the rapid adoption of technology in banking.
Our long-term strategy would continue to focus on growing our core operating profit within the guardrails of risk and compliance. We focus on creating holistic value propositions for our customers by adopting a 360-degree customer-centric approach and capturing opportunities across customer ecosystems, leveraging internal synergies, building partnerships and simplifying processes. Cross-functional collaboration among teams have been facilitated to tap into key customer and market segments, enabling 360-degree coverage of customers and increasing wallet share. We have also delayered our organisation structure and empowered teams at the local level to create flexibility and agility in capturing business opportunities. This improves our ability to connect with customers and respond to their needs.
Technology is core to our business strategy. We are creating digital experiences and aim to offer personalised and customized solutions to customers to suit their life-stage and business needs. We partner with technology companies and platforms to leverage opportunities for growth and enhancing service delivery and customer experience. We leverage technology and analytics for deeper insights into market opportunities, customer needs and behavior. We continue to invest in technology to enhance our offerings to customers as well as the scalability, flexibility and resilience of our technology architecture.
We have over the years re-balanced our deposit profile, improved the credit rating profile of the portfolio and reduced concentration risks. We also improved cost efficiency, scaled up retail loan growth, calibrated corporate loan growth and maintained high capital adequacy ratios. We have repositioned our international franchise to focus on non-resident Indians for deposits, wealth and remittances businesses and deepen relationships with well-rated Indian corporates in international markets and multinational companies for maximizing the India-linked trade, transaction banking and lending opportunities with strict limits on exposures including reduction in current exposure where required. Our gross non-performing loans ratio has decreased and the provisioning coverage on non-performing loans has increased in fiscal 2022. See also, “Business-Strategy.”
In the current uncertain environment, our success will be determined by our ability to respond to the evolving economic environment, maintain a strong balance sheet with adequate buffers of liquidity and capital, strong risk management and business continuity planning, as well as the behavior of our loan portfolio vis-à-vis comparable banks and finance companies. Generally, the success of our strategy depends on several factors, including our ability to grow our low-cost deposit base, grow our loan book profitably, contain non-performing loans, resolve stressed assets at an early stage, maintain regulatory compliance in an evolving regulatory environment, address regulators’ assessments of and observations on our operations, and compete effectively in the Indian corporate and retail financial services market. Regulations governing the financial sector in India, including banking, insurance and asset management, continue to evolve, with a potential impact on the growth and profitability of financial services groups such as us. The success of our strategy is also subject to the overall regulatory and policy environment in which we operate including the direction of monetary policy. Our ability to execute our strategy will also depend on the liquidity and interest rate environment. See also “Risk Factors—Risks Relating to Our Business—Our banking and trading activities are particularly vulnerable to interest rate risk and volatility in interest rates could adversely affect our net interest margin, the value of our fixed income portfolio, our income from treasury operations, the quality of our loan portfolio and our financial performance”. With regard to our overseas banking subsidiaries, the impact on the global economy due to ongoing Covid-19 pandemic, geopolitical factors, and other global developments, including movement in oil prices and the exit of the United Kingdom from the European Union, are expected to impact economic growth in Canada and the United Kingdom, which in turn could impact the business of our banking subsidiaries in these countries. See also “Risk Factors—Risks Relating to Our Business—The exposures of our international branches and banking subsidiaries could generally affect our business, financial condition and results of operations.”
For a detailed discussion of risks that we face in our business please refer to “Risk Factors”.
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Operating Results Data
The following table sets forth, for the periods indicated, our summary results data.
| Year ended March 31, | |||
| 2021 | 2022 | 2022(1) | |
| (in millions, except per common share data) | |||
| Selected income statement data: | |||
| Interest earned(2) | Rs. 891,627 | Rs. 954,069 | US$ 12,575 |
| Interest expended | (426,591) | (411,667) | (5,426) |
| Net interest income | 465,036 | 542,402 | 7,149 |
| Other income | 720,295 | 621,295 | 8,189 |
| Net total income | 1,185,331 | 1,163,696 | 15,338 |
| Operating expenses | |||
| Payments to and provisions for employees | (110,509) |
(123,416) | (1,627) |
| Expenses pertaining to insurance business | (470,513) | (398,763) | (5,256) |
| Other operating expenses(3) | (181,694) | (209,338) | (2,759) |
| Total operating expenses | (762,717) | (731,517) | 9,642 |
| Operating profit before provisions | 422,614 | 432,179 | 5,696 |
| Provisions and contingencies (excluding provision for tax) | (163,774) | (89,766) | (1,183) |
| Share of profit in associates | 1,443 | 7,544 | 99 |
| Profit before tax | 260,283 | 349,957 | 4,612 |
| Provision for tax | (56,644) | (84,574) | (1,115) |
| Profit after tax | 203,639 | 265,383 | 3,497 |
| Minority interest | (19,796) | (14,282) | (188) |
| Net profit (after minority interest) | 183,843 | 251,101 | 3,309 |
| Profitability: | |||
| Net profit (after minority interest) as a percentage of: | |||
| Average total assets | 1.26% | 1.57% | |
| Average stockholders’ equity | 12.82 | 15.05 | |
| Per common share: | |||
| Earnings-basic(4) | Rs. 27.26 | Rs. 36.21 | US$ 0.48 |
| Earnings-diluted(5) | 26.83 | 35.44 | 0.47 |
| Book value(6) | Rs. 214.21 | Rs. 250.41 | US$ 3.30 |
| Dividend payout ratio(7) | 7.52% | 13.84% | |
| Cost-to-income ratio(8) | 64.27 | 62.86 | |
| Cost-to-average assets ratio(9) | 5.23 | 4.59 | |
| Capital | |||
| Average stockholders’ equity as a percentage of average total assets(10) | 9.84% | 10.46% | |
| (1) | Rupee amounts for fiscal 2022 have been translated into U.S. dollars using the exchange rate of Rs. 75.87 = US$ 1.00 as set forth in the H.10 statistical release of the Federal Reserve Board at year-end fiscal 2022. |
| (2) | Interest earned includes interest on income tax refunds of Rs. 2.6 billion and Rs. 2.4 billion for fiscal 2021 and 2022 respectively. |
| (3) | Includes depreciation on fixed assets and other general office expenses. |
| (4) | Earnings per share is computed based on the weighted average number of shares and represents net profit/(loss) per share before dilutive impact. |
| (5) | Earnings per share is computed based on the weighted average number of shares and represents net profit/(loss) per share adjusted for full dilution. Options to purchase 56,990,290 and 24,643,450 equity shares granted to employees at a weighted average exercise price of Rs. 364.0 and Rs. 570.4 were outstanding at year-end fiscal 2021 and 2022 respectively, but were not included in the computation of diluted earnings per share as these options were anti-dilutive. |
| (6) | Represents capital, employees’ stock options outstanding and reserves and surplus reduced by deferred tax asset and goodwill. |
| (7) | Represents the ratio of total dividends paid on equity share capital as a percentage of net profit (after minority interest). Dividends for a fiscal year are normally paid in the following year. |
| (8) | Represents the ratio of operating expenses to total income. Total income represents the sum of net interest income and non-interest income. |
| (9) | Represents the ratio of operating expenses to average total assets. |
| (10) | Represents the ratio of average stockholders’ equity to average total assets. Average stockholders’ equity represents average capital, employees’ stock options outstanding and reserves and surplus reduced by preference share capital. Average total assets represents total of average interest-earning assets and average non-interest earning assets. |
| (11) | ICICI Lombard General Insurance Company Limited ceased to be a subsidiary of the Bank due to reduction in the Bank’s shareholding in ICICI Lombard General Insurance Company Limited below 50.0%. ICICI Lombard General Insurance Company Limited has been accounted as an affiliate in the financial statements from April 1, 2021. Accordingly, the financial results for fiscal 2022 are not comparable with the previous periods. |
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Consolidated Income Information
Net Interest Income
The following table sets forth, for the periods indicated, the principal components of net interest income.
Year ended March 31, | ||||
2021 |
2022 |
2022 |
2022/2021 | |
| (in millions, except percentages) | ||||
| Interest earned(1) | Rs. 891,627 | Rs. 954,069 | US$ 12,575 | 7.0% |
| Interest expense | (426,591) | (411,667) | (5,426) | (3.5) |
| Net interest income | Rs. 465,036 |
Rs. 542,402 |
US$ 7,149 |
16.6% |
| (1) | Tax exempt income has not been re-calculated on a tax-equivalent basis. |
Yields, Spreads and Margins
The following table sets forth, for the periods indicated, the yields, spreads and net interest margins on interest-earning assets.
Year ended March 31, | ||
2021 |
2022 | |
| (in millions, except percentages) | ||
| Interest earned(1) | Rs. 892,046 | Rs. 954,604 |
| Average interest-earning assets | 12,425,765 | 13,743,590 |
| Interest expense | 426,588 | 411,666 |
| Average interest-bearing liabilities | 10,260,957 | 11,234,035 |
| Average total assets | 14,576,257 | 15,944,038 |
| Average interest-earning assets as a percentage of average total assets | 85.25% |
86.20% |
| Average interest-bearing liabilities as a percentage of average total assets | 70.40 |
70.46 |
| Average interest-earning assets as a percentage of average interest-bearing liabilities | 121.10 | 122.34 |
| Yield | 7.18 | 6.95 |
| Rupee | 7.96 | 7.71 |
| Foreign currency | 2.14 | 1.48 |
| Cost of funds | 4.16 | 3.66 |
| Rupee | 4.46 | 3.88 |
| Foreign currency | 2.04 | 1.47 |
| Spread(2) | 3.02 | 3.28 |
| Rupee | 3.51 | 3.83 |
| Foreign currency | 0.10 | 0.01 |
| Net interest margin(3) | 3.75 | 3.95 |
| Rupee | 4.24 | 4.42 |
| Foreign currency | 0.59% | 0.59% |
| (1) | We have re-calculated tax-exempt income on a tax-equivalent basis. The impact of re-calculation of tax-exempt income on a tax equivalent basis was Rs. 0.4 billion for fiscal 2021 and Rs. 0.5 billion for fiscal 2022. |
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| (2) | Spread is the difference between yield on average interest-earning assets and cost of average interest-bearing liabilities. Yield on average interest-earning assets is the ratio of interest earned to average interest-earning assets. Cost of average interest-bearing liabilities is the ratio of interest expended to average interest-bearing liabilities. |
| (3) | Net interest margin is the ratio of net interest income to average interest-earning assets. The difference in net interest margin and spread arises due to the difference in amount of average interest-earning assets and average interest-bearing liabilities. If average interest-earning assets exceed average interest-bearing liabilities, net interest margin is greater than the spread and if average interest-bearing liabilities exceed average interest-earning assets, net interest margin is less than the spread. |
| (4) | Previous period figures have been re-grouped/re-classified where necessary to conform to current period classification. |
Net interest income increased by 16.6% from Rs. 465.0 billion in fiscal 2021 to Rs. 542.4 billion in fiscal 2022, reflecting an increase of 10.6% in the average volume of interest-earning assets and an increase in net interest margin by 20 basis points.
Net interest margin
Net interest margin on the rupee portfolio increased by 18 basis points from 4.24% in fiscal 2021 to 4.42% in fiscal 2022 and net interest margin on the foreign currency portfolio remained at similar level at 0.59% in fiscal 2021 and fiscal 2022. Overall net interest margin increased by 20 basis points from 3.75% in fiscal 2021 to 3.95% in fiscal 2022 primarily due to an increase in proportion of rupee interest earning assets in total assets. The yield on average interest-earning assets decreased by 23 basis points from 7.18% in fiscal 2021 to 6.95% in fiscal 2022. The cost of funds decreased by 50 basis points from 4.16% in fiscal 2021 to 3.66% in fiscal 2022.
The yield on the rupee portfolio decreased by 25 basis points from 7.96% in fiscal 2021 to 7.71% in fiscal 2022 primarily due to the following:
| · | The yield on rupee advances decreased by 62 basis points from 9.46% in fiscal 2021 to 8.84% in fiscal 2022. The yield on rupee investments decreased by 23 basis points from 6.37% in fiscal 2021 to 6.14% in fiscal 2022. The yield on rupee other interest-earning assets decreased by 43 basis points from 2.86% in fiscal 2021 to 2.43% in fiscal 2022. |
| · | The yield on rupee advances decreased primarily due to re-pricing of existing floating rate loans linked to the marginal cost of funds based lending rate and the repo rate to lower rates, and incremental lending at lower rates. |
The Bank reduced the 1-year marginal cost of funds based lending rate by 85 basis points in phases during fiscal 2021 and by an additional 5 basis points during fiscal 2022.
The Reserve Bank of India had reduced the repo rate by 40 basis points from 4.40% in March 2020 to 4.00% in May 2020. The full impact of the decrease in the marginal cost of funds based lending rate and repo rate during fiscal 2021 is reflected in the yield on advances in fiscal 2022. At March 31, 2022, of the total domestic loan book, 30% had fixed interest rates, 41% had interest rates linked to repo rate, 22% had interest rates linked to the marginal cost of funds based lending rate and other older benchmarks and 7% had interest rates linked to treasury bills. See also “Business—Loan portfolio—Loan pricing”.
| · | The yield on interest earning rupee government securities decreased primarily due to investment in floating rate bonds at lower market yields. The yield on investments, other than government securities, decreased primarily due to a decrease in average investment in pass through certificates which are relatively high yielding, and a decrease in yield on bonds and debentures and commercial papers. |
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| · | The yield on other interest-earning rupee assets decreased by 43 basis points from 2.86% in fiscal 2021 to 2.43% in fiscal 2022 primarily due to an increase in average balance with the Reserve Bank of India (cash reserve ratio) which does not earn any interest and a decrease in yield on rural infrastructure development fund and related deposits. During March 2020, the Reserve Bank of India had reduced the cash reserve ratio from 4% to 3% as a one-time measure to help banks tide over the disruption caused by Covid-19. Subsequently, in February 2021, the Reserve Bank of India had increased the cash reserve ratio to 3.5% for the first two months of fiscal 2022 and further to 4.0% thereafter. |
| · | Other interest income primarily includes interest on income tax refund and swap premium income. Other interest income in fiscal 2022 increased primarily due to higher swap premium income on account of surplus rupee liquidity deployed in foreign currency due to prevailing high forward premia. The rupee liquidity was converted into foreign currency through buy/sell swaps in the forwards market. The foreign currency generated through these swaps was deployed through foreign currency placements/investments. |
| · | Interest on income tax refunds decreased from Rs. 2.6 billion in fiscal 2021 to Rs. 2.4 billion in fiscal 2022. The receipt, amount and timing of such income depend on the nature and timing of determinations by tax authorities and hence are neither consistent nor predictable. |
The cost of funds for the rupee portfolio decreased by 58 basis points from 4.46% in fiscal 2021 to 3.88% in fiscal 2022 primarily due to the following factors:
| · | The cost of rupee deposits decreased by 60 basis points from 4.21% in fiscal 2021 to 3.61% in fiscal 2022 due to a decrease in cost of term deposits and an increase in the proportion of average current and savings account deposits in total deposits. |
The cost of rupee term deposits decreased by 89 basis points from 5.53% in fiscal 2021 to 4.64% in fiscal 2022. The Bank reduced retail term deposits rates for select maturities in phases during fiscal 2021 and fiscal 2022. The cost of savings account deposits decreased from 3.17% in fiscal 2021 to 3.15% in fiscal 2022. The average rupee current account and savings account deposits as a percentage of total average rupee deposits were 44.5% in fiscal 2022 as compared to 41.9% in fiscal 2021.
| · | The cost of rupee borrowings increased by 27 basis points from 6.05% in fiscal 2021 to 6.32% in fiscal 2022 primarily due to an increase in the cost of rupee borrowings of ICICI Bank, offset, in part, by a decrease in the cost of rupee borrowings of ICICI Securities Primary Dealership. The cost of rupee borrowings of ICICI Bank increased primarily due to a decrease in proportion of lower cost call money and liquidity adjustment facility borrowings, offset, in part, by a decrease in cost of refinance borrowings and bond borrowings. The decrease in cost of refinance borrowings and bond borrowings was primarily due to maturity/repayment of higher cost borrowings and new borrowings at lower cost. The cost of rupee borrowing of ICICI Securities Primary dealership decreased due to a decrease in cost of repurchase borrowings. The cost of repurchase borrowing was low due to interest rate reduction and various other measures taken by the Reserve Bank of India to infuse and maintain liquidity in the Indian market in fiscal 2021 and fiscal 2022. |
The total average rupee deposits of the Bank as a percentage of total average rupee funding increased from 88.9% in fiscal 2020 to 92.7% in fiscal 2022. Further, the Bank has been focusing on reducing its rupee borrowings which are relatively higher cost. This has resulted in overall reduction in the rupee funding cost of the Bank.
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Net interest margin on the foreign currency portfolio remained at similar level at 0.59% in fiscal 2021 and fiscal 2022. Average interest-earning foreign currency assets increased by 1.0% from Rs. 1,672.0 billion in fiscal 2021 to Rs. 1,688.2 billion in fiscal 2022. Average interest-bearing foreign currency liabilities decreased by 19.2% from Rs. 1,268.7 billion in fiscal 2021 to Rs. 1,025.2 billion in fiscal 2022.
The yield on our foreign currency portfolio decreased by 66 basis points from 2.14% in fiscal 2021 to 1.48% in fiscal 2022 primarily due to the following:
| · | The yield on average foreign currency interest-earning assets of ICICI Bank decreased by 71 basis points from 1.83% in fiscal 2021 to 1.12% in fiscal 2022 primarily due to a decrease in the yield on average advances and other interest-earning assets. The yield on average advances decreased by 88 basis points from 2.40% in fiscal 2021 to 1.52% in fiscal 2022 primarily due to low yielding short term trade finance loans. |
| · | The yield on average interest-earning assets of ICICI Bank UK PLC decreased primarily due to a decrease in yield on average advances and a decrease in yield on average investments. The yield on average advances decreased primarily due to a decrease in LIBOR and sell down of lower rated corporate loans which were higher yielding. The yield on average investments decreased due to sell down of lower rated corporate bonds, which were higher yielding. |
| · | The yield on average interest-earning assets of ICICI Bank Canada decreased primarily due to a decrease in yield on average advances and average investments. The yield on average advances decreased due to decrease in benchmark interest rates. The yield on average investments decreased due to new investment in government securities at lower yield. |
The cost of funds for the foreign currency portfolio decreased by 57 basis points from 2.04% in fiscal 2021 to 1.47% in fiscal 2022, due to the following factors:
| · | The cost of funds for ICICI Bank’s foreign currency funding decreased in fiscal 2022 as compared to fiscal 2021 primarily due to a decrease in cost of borrowings. The cost of borrowings decreased primarily due to maturity/repayment of bond borrowings which were relatively higher cost, and decrease in cost of term borrowings. |
| · | The cost of funds of ICICI Bank UK PLC decreased in fiscal 2022 as compared to fiscal 2021 primarily due to a decrease in cost of borrowings. The cost of borrowings decreased primarily due to a decrease in LIBOR and maturity of higher cost bond borrowing. |
| · | The cost of funds of ICICI Bank Canada decreased in fiscal 2022 as compared to fiscal 2021 primarily due to a decrease in cost of deposits. The cost of deposits decreased primarily due to a decline in interest rates offered on deposits on account of lower benchmark interest rates. |
Our yield on advances, interest earned, net interest income and net interest margin are impacted by systemic liquidity condition, movement in interest rates, the competitive environment, level of additions to non-performing loans, regulatory developments, monetary policy, uncertainties related to the ongoing Covid-19 pandemic and the economic and geo-political factors. These developments may have an adverse impact on the net interest margin. The timing and quantum of recoveries and interest on income tax refund is uncertain.
Interest rates on approximately 47.7% of ICICI Bank’s domestic loans are linked to external market benchmarks. Any differential movements in the external benchmark rates vis-à-vis our cost of funds may impact our interest earned, yield on advances, interest expended, net interest income and net interest margin.
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Interest-earning assets
The average volume of interest-earning assets increased by 10.6% from Rs. 12,425.8 billion in fiscal 2021 to Rs. 13,743.6 billion in fiscal 2022. The increase in average interest-earning assets was primarily due to an increase in average advances by Rs. 1,156.1 billion and average other interest-earning assets by Rs. 202.6 billion, offset, in part, by a decrease in average investments by Rs. 40.9 billion.
The average volume of rupee interest-earning assets increased by 12.1% from Rs. 10,753.7 billion in fiscal 2021 to Rs. 12,055.4 billion in fiscal 2022 primarily due to an increase in average advances and average other interest-earning assets, offset, in part, by a decrease in average investments. Average rupee advances increased by 21.1% from Rs. 6,064.3 billion in fiscal 2021 to Rs. 7,334.0 billion in fiscal 2022. Average other rupee interest-earning assets increased by 8.5% from Rs. 1,062.6 billion in fiscal 2021 to Rs. 1,152.6 billion in fiscal 2022 primarily due to an increase in balances with the Reserve Bank of India to maintain cash reserve ratio, offset, in part, by a decrease in lending to the Reserve Bank of India under liquidity adjustment facility. Average rupee investments decreased by 1.9% from Rs. 3,626.9 billion in fiscal 2021 to Rs. 3,558.9 billion in fiscal 2022 primarily due to a decrease in average investments in pass through certificates and bonds and debentures, offset, in part, by an increase in average investment in Indian government securities. From April 1, 2021, ICICI Lombard General Insurance Company Limited ceased to be a subsidiary and was accounted as an equity affiliate. Accordingly, the average volume of interest-earning assets in fiscal 2022 is not comparable with the average volume of interest-earning assets in fiscal 2021.
The average volume of foreign currency interest-earning assets increased by 1.0% from Rs. 1,672.0 billion in fiscal 2021 to Rs. 1,688.2 billion in fiscal 2022. Average foreign currency advances decreased by 11.3% from Rs. 1,098.7 billion in fiscal 2021 to Rs. 975.1 billion in fiscal 2022. Average foreign currency investments increased by 15.1% from Rs. 179.9 billion in fiscal 2021 to Rs. 207.0 billion in fiscal 2022 primarily due to an increase in investments in treasury bills by ICICI Bank Canada, offset, in part, by a decrease in investments in banker’s acceptances and bonds by ICICI Bank Canada. Average other foreign currency interest-earning assets increased by 28.6% from Rs. 393.4 billion in fiscal 2021 to Rs. 506.0 billion in fiscal 2022 primarily due to an increase in balances with other banks.
Interest-bearing liabilities
Average interest-bearing liabilities increased by 9.5% from Rs. 10.261.0 billion in fiscal 2021 to Rs. 11,234.0 billion in fiscal 2022 primarily due to an increase in average deposits by Rs. 1,322.2 billion, offset, in part, by a decrease in average borrowings by Rs. 349.1 billion.
Average interest-bearing rupee liabilities increased by 13.5% from Rs. 8,992.3 billion in fiscal 2021 to Rs. 10,208.8 billion in fiscal 2022. Average rupee time deposits increased by 12.4% from Rs. 4,530.8 billion in fiscal 2021 to Rs. 5,094.1 billion in fiscal 2022. Average rupee current account and savings account deposits increased by 25.1% from Rs. 3,264.6 billion in fiscal 2021 to Rs. 4,084.7 billion in fiscal 2022. Average rupee borrowings decreased by 13.9% from Rs. 1,196.9 billion in fiscal 2021 to Rs. 1,030.0 billion in fiscal 2022.
Average interest-bearing foreign currency liabilities decreased by 19.2% from Rs. 1,268.7 billion in fiscal 2021 to Rs. 1,025.2 billion in fiscal 2022 due to a decrease in borrowings and deposits. Average foreign currency borrowings decreased by 26.8% from Rs. 680.1 billion in fiscal 2021 to Rs. 497.8 billion in fiscal 2022 primarily due to a decrease in borrowings of ICICI Bank, ICICI Bank UK PLC and ICICI Bank Canada. Average borrowings of ICICI Bank decreased primarily due to a decrease in term money borrowings and bond borrowings. Average borrowings of ICICI Bank UK PLC decreased primarily due to maturity of long-term borrowings. Average borrowings of ICICI Bank Canada decreased primarily due to reduction in securitized borrowings. Average foreign currency deposits decreased by 10.4% from
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Rs. 588.6 billion in fiscal 2021 to Rs. 527.4 billion in fiscal 2022. Average deposits of ICICI Bank decreased primarily due to a decrease in foreign currency non-resident deposits. Average deposits of ICICI Bank UK PLC decreased primarily due to a decrease in term deposits, offset, in part, by an increase in retail savings and current deposits. Average foreign currency deposits of ICICI Bank Canada increased primarily due to an increase in term deposits.
During fiscal 2022, the Bank converted the excess rupee liquidity into foreign currency and deployed in foreign currency placements/investments. This has resulted in average foreign currency assets being significantly higher than average foreign currency liabilities.
See also “Risk Factors—Risks Relating to Our Business—Our banking and trading activities are particularly vulnerable to interest rate risk and volatility in interest rates could adversely affect our net interest margin, the value of our fixed income portfolio, our income from treasury operations, the quality of our loan portfolio and our financial performance”.
Other Income
The following table sets forth, for the periods indicated, the principal components of other income.
| Year ended March 31, | ||||||||||||||||
| 2021 | 2022 | 2022 | 2022/2021 % change | |||||||||||||
| (in millions, except percentages) | ||||||||||||||||
| Commission, exchange and brokerage | Rs. | 140,231 | Rs. | 172,884 | US$ | 2,279 | 23.3 | % | ||||||||
| Income from treasury-related activities (net) | 99,545 | 55,060 | 726 | (44.7 | ) | |||||||||||
| - Profit/(loss) on exchange/derivative transactions (net) | 19,721 | 29,933 | 395 | 51.8 | ||||||||||||
| -Profit/(loss) on other treasury-related activities(1) | 79,824 | 25,127 | 331 | (68.5 | ) | |||||||||||
| Profit/(loss) on sale of land, buildings and other assets (net) | (63 | ) | 57 | 1 | N/M | |||||||||||
| Premium and other operating income from insurance business | 479,231 | 389,596 | 5,135 | (18.7 | ) | |||||||||||
| Miscellaneous income | 2,795 | 11,242 | 148 | — | ||||||||||||
| - Share of profit in associates | 1,443 | 7,544 | 99 | — | ||||||||||||
| -Others | 1,352 | 3,698 | 49 | — | ||||||||||||
| Total other income | Rs. | 721,739 | Rs. | 628,839 | US$ | 8,289 | (12.9 | %) | ||||||||
N/M- Not meaningful
| (1) | Includes profit/(loss) on the sale of investments and on revaluation of investments, |
| (2) | From April 1, 2021, ICICI Lombard General Insurance Company Limited ceased to be a subsidiary and was accounted as an equity affiliate. Accordingly, other income of ICICI Lombard General Insurance Company Limited is not consolidated in fiscal 2022. |
Other income primarily includes income pertaining to our insurance business, commission, exchange and brokerage income, profit/(loss) on treasury-related activities and other miscellaneous income. This analysis of other income should be read against the backdrop of global and Indian economic developments, financial market activities, the competitive environment, client activity levels and our strategy, as detailed in earlier sections. Our other income may be impacted by lower credit demand, the competitive environment, regulatory developments and the economic slowdown and uncertainties due to the future trajectory of Covid-19 pandemic.
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Other income decreased by 12.9% from Rs. 721.7 billion in fiscal 2021 to Rs. 628.8 billion in fiscal 2022 primarily due to a decrease in net earned premium and other operating income relating to insurance business, income from treasury related activities, offset, in part, by an increase in commission, exchange and brokerage income.
Commission, exchange and brokerage
Commission, exchange and brokerage income primarily includes fees from our banking business as well as fee and brokerage income of our securities broking, asset management and private equity fund management subsidiaries. The fee income of our banking business primarily includes fees from corporate clients, such as lending linked fees, and transaction banking fees such as fees on cash management services, commission on bank guarantees, letters of credit and bills discounting. The fee income of our banking business also includes fees from retail customers such as lending linked fees and transaction banking fee such as credit card related fees, debit card related fees and service charges on retail deposit accounts.
Commission, exchange and brokerage income increased from Rs. 140.2 billion in fiscal 2021 to Rs. 172.9 billion in fiscal 2022 primarily due to an increase in transaction banking fees, lending linked fees, fund management fees and third party products distribution fees. Transaction banking fees increased from Rs. 65.5 billion in fiscal 2021 to Rs. 78.9 billion in fiscal 2022 primarily due to an increase in fee income from credit cards and debit cards. Lending linked fees increased from Rs. 26.0 billion in fiscal 2021 to Rs. 33.0 billion in fiscal 2022. Fund management fees increased from Rs. 20.4 billion in fiscal 2021 to Rs. 24.7 billion in fiscal 2022. Securities brokerage income increased from Rs. 14.8 billion in fiscal 2021 to Rs. 15.5 billion in fiscal 2022 Third party products distribution fees increased from Rs. 5.8 billion in fiscal 2021 to Rs. 9.4 billion in fiscal 2022.
Commission, exchange and brokerage income of the Bank for fiscal 2021 was impacted due to lower borrowing and investment activity by customers and lower consumer spends caused by the nation-wide lockdown for the first two months of fiscal 2021 followed by gradual easing of lockdown measures.
Income from Treasury-Related Activities (Net)
Income from treasury-related activities includes income from the sale of investments and the revaluation of investments on account of changes in unrealized profit/(loss) in the fixed income, equity and preference share portfolio, units of venture capital and private equity funds, units of mutual funds and security receipts issued by asset reconstruction companies. Further, it also includes income from foreign exchange transactions, consisting of various foreign exchange and derivatives transactions with clients, including options and swaps.
Income from treasury-related activities decreased from Rs. 99.6 billion in fiscal 2021 to Rs. 55.1 billion in fiscal 2022.
Income from our equity portfolio decreased from Rs. 50.0 billion in fiscal 2021 to Rs. 16.9 billion in fiscal 2022. In fiscal 2021, the Bank sold equity shareholding in ICICI Lombard General Insurance Company, ICICI Prudential Life Insurance Company and ICICI Securities and made a net gain of Rs. 33.0 billion. Further, during fiscal 2021, there was significant improvement in equity market in India, resulting in higher gains on sale of other equity shares.
Income from our government securities portfolio and other fixed income positions decreased from Rs. 28.6 billion in fiscal 2021 to Rs. 5.6 billion in fiscal 2022. In fiscal 2021, income from our government securities portfolio and other fixed income positions was higher primarily due to a decrease in yield on government securities resulting in higher opportunities for gains.
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Income from foreign exchange transactions, including transactions with clients and margins on derivatives transactions with clients, increased from Rs. 19.7 billion in fiscal 2021 to Rs. 29.9 billion in fiscal 2022.
Premium and other operating income from insurance business
Premium and other operating income from insurance business includes net premium income, fee and commission income, surrender charges and income on foreclosure of policies. Premium and other operating income from insurance business decreased by 18.7% from Rs. 479.2 billion in fiscal 2021 to Rs. 389.6 billion in fiscal 2022. The decrease was because ICICI Lombard General Insurance Company Limited ceased to be a subsidiary and was accounted as an equity affiliate from April 1, 2021. Accordingly, premium and other operating income from ICICI Lombard General Insurance Company Limited is not consolidated in fiscal 2022.
Income from our life insurance business increased by 3.9% from Rs. 374.8 billion in fiscal 2021 to Rs. 389.6 billion in fiscal 2022. Net premium income of our life insurance subsidiary increased by 3.6% from Rs. 349.3 billion in fiscal 2021 to Rs. 362.1 billion in fiscal 2022. The premium income (gross of premium on reinsurance ceded) of ICICI Prudential Life Insurance Company increased by 4.8% from Rs. 357.3 billion in fiscal 2021 to Rs. 374.6 billion in fiscal 2022 primarily due to an increase in retail new business premium and group premium. Retail new business premium increased by 18.5% from Rs. 78.5 billion in fiscal 2021 to Rs. 93.0 billion in fiscal 2022. Group premium increased by 13.5% from Rs. 59.3 billion in fiscal 2021 to Rs. 67.3 billion in fiscal 2022. Retail renewal premium decreased by 2.4% from Rs. 219.6 billion in fiscal 2021 to Rs. 214.4 billion in fiscal 2022. Fee and other life insurance related income of our life insurance subsidiary increased by 7.9% from Rs. 25.5 billion in fiscal 2021 to Rs. 27.5 billion in fiscal 2022.
Miscellaneous income
Miscellaneous income increased from Rs. 2.8 billion in fiscal 2021 to Rs. 11.2 billion in fiscal 2022. Miscellaneous income includes share of profit in associates related to ICICI General Insurance Company Limited amounting to Rs. 1.4 billion in fiscal 2021 and Rs. 7.5 billion in fiscal 2022 respectively.
Operating Expense
The following table sets forth, for the periods indicated, the principal components of operating expense.
| Year ended March 31, | ||||||||||||||||
| 2021 | 2022 | 2022 | 2022/2021 % change | |||||||||||||
| (in millions, except percentages) | ||||||||||||||||
| Payments to and provisions for employees | Rs. | 110,509 | Rs. | 123,416 | US$ | 1,627 | 11.7 | % | ||||||||
| Depreciation on own property | 13,267 | 13,112 | 173 | (1.2 | ) | |||||||||||
| Auditor’s fees and expenses | 296 | 220 | 3 | (25.7 | ) | |||||||||||
| Expenses pertaining to insurance business | 470,513 | 398,763 | 5,256 | (15.2 | ) | |||||||||||
| Other operating expenses | 168,132 | 196,007 | 2,583 | 16.6 | ||||||||||||
| Total operating expenses | Rs. | 762,717 | Rs. | 731,518 | US$ | 9,642 | (4.1 | )% | ||||||||
| (1) | From April 1, 2021, ICICI Lombard General Insurance Company Limited ceased to be a subsidiary and was accounted as an equity affiliate. Accordingly, operating expenses of ICICI Lombard General Insurance Company Limited is not consolidated in fiscal 2022. |
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Operating expense primarily includes expenses relating to our insurance business, payment to and provision for employees and other operating expenses. Operating expenses decreased by 4.1% from Rs. 762.7 billion in fiscal 2021 to Rs. 731.5 billion in fiscal 2022 primarily due to a decrease in expenses related to insurance business, offset, in part, by an increase in other operating expenses.
Payments to and provisions for employees
Employee expenses increased by 11.7% from Rs. 110.5 billion in fiscal 2021 to Rs. 123.4 billion in fiscal 2022. Our employee base, including sales executives, employees on fixed term contracts and interns, increased from 130,170 at year-end fiscal 2021 to 130,542 at year-end fiscal 2022. From April 1, 2021, ICICI Lombard General Insurance Company Limited ceased to be a subsidiary of the Bank and became an affiliate. Accordingly, the number of employees in fiscal 2022 is not comparable with the number of employees in fiscal 2021.
The employee expenses of ICICI Bank increased by 19.5% from Rs. 80.9 billion in fiscal 2021 to Rs. 96.7 billion in fiscal 2022. Employee expenses increased primarily due to an increase in salary cost and provision for performance bonus and performance-linked retention pay. Salary cost increased primarily due to annual increments and promotions and due to an increase in average staff strength. The average employee base of ICICI Bank, including sales executives, employees on fixed term contracts and interns, increased by 7.1% from 94,480 employees in fiscal 2021 to 101,233 employees in fiscal 2022. Further, employee expenses in fiscal 2022 includes an impact of Rs. 2.6 billion due to accounting of employee stock options on fair value basis for options granted after March 31, 2021, as per clarification issued by the Reserve Bank of India.
The employee expenses of ICICI Prudential Life Insurance Company increased by 19.9% from Rs. 10.0 billion in fiscal 2021 to Rs. 12.0 billion in fiscal 2022. The employee expenses of ICICI Securities Limited increased by 15.2% from Rs. 5.7 billion in fiscal 2021 to Rs. 6.6 billion in fiscal 2022. The employee expenses of ICICI Prudential Asset Management Company increased by 25.5% from Rs. 2.6 billion in fiscal 2021 to Rs. 3.3 billion in fiscal 2022. The employee expenses of ICICI Home Finance Company increased by 8.1% from Rs. 1.6 billion in fiscal 2021 to Rs. 1.7 billion in fiscal 2022.
Depreciation
Depreciation on owned properties decreased by 1.2% from Rs. 13.3 billion in fiscal 2021 to Rs. 13.1 billion in fiscal 2022.
Other operating expenses
Other operating expenses primarily include rent, taxes and lighting, advertisement and publicity, repairs and maintenance, direct marketing agency expenses and other expenditures. Other operating expenses increased by 16.6% from Rs. 168.1 billion in fiscal 2021 to Rs. 196.0 billion in fiscal 2022.
Other operating expenses of ICICI Bank increased by 28.2% from Rs. 123.8 billion in fiscal 2021 to Rs. 158.8 in fiscal 2022. During fiscal 2021, the other operating expenses were lower due to the impact on business activities caused by the nation-wide lockdown announced during April-May 2020 followed by gradual easing of lockdown measures.
Other operating expenses of our life insurance subsidiary increased from Rs. 16.6 billion in fiscal 2021 to Rs. 24.5 billion in fiscal 2022 primarily due to an increase in advertisement and sales related expenses.
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Other operating expenses of our securities subsidiary increased from Rs. 4.4 billion in fiscal 2021 to Rs. 6.2 billion in fiscal 2022 primarily due to an increase in operating expenses linked to business volumes, digital marketing initiatives, recruitment expenses, professional fees and technology related expenses.
Other operating expenses of our home finance subsidiary increased from Rs. 1.5 billion in fiscal 2021 to Rs. 1.8 billion in fiscal 2022. Other operating expenses of our asset management subsidiary increased from Rs. 2.6 billion in fiscal 2021 to Rs. 3.3 billion in fiscal 2022.
Expenses related to our insurance business
Expenses related to our insurance business include claims and benefit payouts, commission expenses and reserves for actuarial liability (including the investible portion of the premium on unit-linked policies of our life insurance business). Expenses relating to our insurance business decreased by 15.2% from Rs. 470.5 billion in fiscal 2021 to Rs. 398.8 billion in fiscal 2022. From April 1, 2021, ICICI Lombard General Insurance Company Limited ceased to be a subsidiary and was accounted as an equity affiliate. Accordingly, expenses relating to insurance business from ICICI Lombard General Insurance Company Limited is not consolidated in fiscal 2022.
The expenses related to our life insurance subsidiary increased by 2.4% from Rs. 390.3 billion in fiscal 2021 to Rs. 399.5 billion in fiscal 2022 primarily due to an increase in provisions for policy holder liabilities (non-linked) from Rs. 129.8 billion in fiscal 2021 to Rs. 135.0 billion in fiscal 2022 and an increase in claims and benefits payouts from Rs. 33.2 billion in fiscal 2021 to Rs. 59.0 billion in fiscal 2022. Claims and benefits payouts increased in fiscal 2022 due to Covid-19 pandemic related claims and provisions.
The reserves for the actuarial liability of the life insurance business for the investible portion of the premium on unit-linked policies decreased by 11.0% from Rs. 218.0 billion in fiscal 2021 to Rs. 194.0 billion in fiscal 2022 primarily due to decrease in linked premium income. The investible portion of the premium on linked policies of our life insurance business represents the amount of premium, including renewal premium received on linked policies of life insurance business invested, after deducting charges and the premium for risk coverage, in the underlying fund.
See also “Business—Overview of Our Products and Services—Insurance”.
Provisions and Contingencies (Excluding Provision For Tax)
Provisions for Non-Performing Loans and Restructured Loans
ICICI Bank classifies its assets, including those in overseas branches, as performing and non-performing in accordance with the Reserve Bank of India guidelines. The Bank’s home finance subsidiary classifies its loans and other credit facilities in accordance with the guidelines of the National Housing Bank. Loans in the Bank’s United Kingdom subsidiary are classified as impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the loan (a loss event) and that loss event (or events) has an impact on the estimated future cash flows of the loans that can be reliably estimated. Loans in the Bank’s Canadian subsidiary are considered credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that loan have occurred. Under the Reserve Bank of India guidelines, non-performing assets are classified into sub-standard, doubtful and loss assets based on certain pre-defined criteria. Loans held at the overseas branches that are identified as impaired as per host country regulations but which are standard as per the extant Reserve Bank of India guidelines are identified as non-performing assets to the extent the loan amount is outstanding in the host country.
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A loan is classified as restructuring, where a concessionary modification such as changes in repayment period, principal amount, repayment installment and reduction in rate of interest has been made and downgraded to non-performing. The restructuring of loans in the event of a natural calamity, restructuring involving deferment of date of commencement of commercial operations for projects under implementation and restructuring for certain medium and small medium enterprises continues to be classified as standard restructured loans. Further, the Reserve Bank of Indian through its guideline on ‘Resolution Framework for COVID-19-related Stress’ dated August 6, 2020 and May 5, 2021, provided a prudential framework to implement a resolution plan in respect of eligible borrowers, while classifying such exposures as standard, subject to specified conditions.
The Bank has, since April 2016, implemented enhanced internal controls, relating to the review of loan accounts which satisfy certain threshold parameters, primarily relating to size, credit rating and days-past-due, for identification of non-performing assets.
ICICI Bank makes provisions on standard, sub-standard and doubtful assets at rates prescribed by the Reserve Bank of India. Loss assets and the unsecured portion of doubtful assets are provided for/written off as required by the Reserve Bank of India guidelines. For loans and advances of overseas branches, the Bank makes provisions as per the Reserve Bank of India regulations or host country regulations, whichever is higher. The Bank makes provisions on retail non-performing loans at the borrower level in accordance with its retail assets provisioning policy, subject to the minimum provisioning levels prescribed by the Reserve Bank of India. The Bank holds specific provisions against non-performing loans and advances and against certain performing loans and advances in accordance with the Reserve Bank of India directions, including the Reserve Bank of India direction for additional provision on accounts referred to the National Company Law Tribunal under the Insolvency and Bankruptcy Code. The Bank holds higher specific provisions on retail loans and advances than the minimum regulatory requirement. The Bank’s United Kingdom subsidiary maintains provision for loan losses at a level that management considers adequate to absorb identified credit related losses as well as losses that have occurred but are not yet identifiable. The Bank’s Canadian subsidiary maintains provision for all financial assets using expected credit loss model. The expected credit loss for impaired financial assets is computed based on individual assessment of expected cash flows from such assets.
In respect of non-retail loans reported as frauds to the Reserve Bank of India and classified in the doubtful category, the entire amount, without considering the value of security, is provided for over a period not exceeding four quarters starting from the quarter in which fraud has been detected. In respect of non-retail loans where there has been a delay in reporting the fraud to the Reserve Bank of India or which are classified as loss accounts, the entire amount is provided immediately. In the case of fraud in retail accounts, the entire amount is provided immediately. We make provisions on restructured/rescheduled loans and advances in accordance with the applicable Reserve Bank of India guidelines on restructuring of loans and advances by banks.
In addition to the specific provision on non-performing assets, we maintain a general provision on standard loans and advances and restructured/rescheduled loans and advances at rates prescribed by the Reserve Bank of India. For standard loans and advances in overseas branches, we hold a general provision at the higher of host country regulatory requirements and the Reserve Bank of India requirements. The Bank also makes additional general provision on loans to specific borrowers in specific stressed sectors, exposures to step-down subsidiaries of Indian companies, incremental exposure to borrowers identified under the framework for large exposure of the Reserve Bank of India. The Bank may create floating provision for the year, in excess of the specific and general provision, as per Board approved policy. The floating provision can only be utilized, with the approval of the Board and the Reserve Bank of India. Further, the Reserve Bank of India guidelines on “Resolution Framework for COVID-19-related Stress” provide a prudential framework for resolution plan of certain loans. The Reserve Bank of India circular requires the banks to hold minimum 10% provision on these loans. The Bank makes general provision on such loans at rates equal or higher than requirements stipulated in Reserve Bank of India circulars.
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The Bank, on prudent basis, has made Covid-19 related provision on certain borrowers, including those who had taken moratorium at any time during fiscal 2021 under the extant Reserve Bank of India guidelines. This provision is included as contingency provision in the books. The Bank also makes additional contingency provision on certain standard assets. The contingency provision is included in ‘Other Liabilities and Provisions’.
Non-Performing Loans Strategy
In respect of unviable non-performing loans, where companies have lost financial viability, we adopt an aggressive approach aimed at out-of-court settlements, enforcing collateral, driving consolidation and seeking resolution under the Insolvency and Bankruptcy Code under specific circumstances, which among other measures includes recovery through the sale of borrower’s assets in a time-bound manner. Our focus is on time value of recovery and a pragmatic approach towards settlements. The collateral against our loan assets is the critical factor towards the success of our recovery efforts. In certain accounts where the value of collateral against our loan has been eroded we undertake charge-offs against loan loss allowances held. However, we continue to pursue recovery efforts in these accounts, either jointly along with other lenders or individually through legal recourse and settlements. We are also adopting an online dispute resolution mechanism (entailing mediation, conciliation or arbitration or combination thereof administered by an independent institution) for speedy resolution of claims and disputes of certain retail assets and services as an alternative to approaching courts or tribunals. In addition, we focus on proactive management of accounts under supervision. Our strategy is aimed at early stage solutions to incipient problems.
The Bank’s strategy for the resolution of stressed corporate assets involves referring these cases for resolution under the Insolvency and Bankruptcy Code with the National Company Law Tribunal. The Insolvency and Bankruptcy Code, 2016, provides for a time-bound revival and rehabilitation mechanism to resolve stressed assets. Further, the filing for resolution by various stakeholders, including financial creditors and any other participant as may be eligible, could impact our provisioning and credit loss. In addition, the requirement to complete the resolution process within the stipulated timeline to avoid liquidation of the borrower, may impact recoveries from these stressed accounts. In the event borrowers go into liquidation, the additional credit losses may be significant. In April 2021, the Government of India passed another ordinance introducing a pre-packaged insolvency resolution process for micro, small and medium enterprises.
Our strategy for resolution of non-performing assets includes sales of financial assets to asset reconstruction companies in exchange for receipt of securities in the form of pass-through instruments issued by asset reconstruction companies, wherein payments to holders of the securities are based on the actual realized cash flows from the transferred assets. Under Indian GAAP, these instruments are valued at the net asset values as declared by the asset reconstruction companies in accordance with the Reserve Bank of India guidelines. Under U.S. GAAP, the assets we sell in exchange for security receipts are not accounted for as sales either because transfers do not qualify for sale accounting under FASB ASC Topic 860, “Transfers and servicing”, or transfers were impacted by FASB ASC Subtopic 810-10, “Consolidation – overall”, whereby, because the Bank is the ‘primary beneficiary’ of certain of these funds/trusts, it is required under U.S. GAAP to consolidate these entities. These assets are considered restructured assets under U.S. GAAP. “Supervision and Regulation—Loan Loss Provisions and Non-Performing Assets”.
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We monitor migration of the credit ratings of our borrowers to enable us to take proactive remedial measures. We review the industry outlook and analyze the impact of changes in the regulatory and fiscal environment. Our periodic review system helps us to monitor the health of accounts and to take prompt remedial measures. We may seek to recover loans through enforcement of our rights in collateral. However, recoveries may be subject to delays of up to several years, due to the long legal process in India. This leads to delay in enforcement and realization of collateral. We may also take as security a pledge of financial assets, including marketable securities, and obtain corporate guarantees and personal guarantees of sponsors wherever appropriate. In certain cases, the terms of financing include covenants relating to sponsors’ shareholding in the borrower and restrictions on the sponsors’ ability to sell all or part of their shareholding. Covenants involving equity shares have top-up mechanism based on price triggers. We maintain the non-performing assets on our books for as long as the enforcement process is ongoing. Accordingly, a non-performing asset may continue for a long time in our portfolio until the settlement of loan account or realization of collateral, which may be longer than that for U.S. banks under similar circumstances. See also “Business—Loan portfolio—Collateral—Completion, Perfection and Enforcement”.
Secured loans to retail customers are secured by the assets financed (predominantly property and vehicles). We are entitled in terms of our security documents to repossess security comprising assets such as plant, equipment and vehicles without reference to the courts or tribunals unless a client makes a reference to such courts or tribunals to stay our actions. In respect of our retail loans, we adopt a standardized collection process designed to ensure prompt action for follow-up on overdue loans and recovery of defaulted amounts.
Non-performing Loans
The following table sets forth, for the periods indicated, the change in our gross (net of write-offs, interest suspense and derivatives income reversal) non-performing loan portfolio(1).
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At March 31, | ||||||||||||
Particulars | 2021 | 2022 | 2022 | |||||||||
| A. Consumer loans and credit card receivables(2) | ||||||||||||
| Non-performing loans at the beginning of the fiscal year | Rs. | 73,911 | Rs. | 142,923 | US$ | 1,884 | ||||||
| Addition: New non-performing loans during the year | 121,983 | 161,399 | 2,127 | |||||||||
| Less: Upgrade(3) | (6,989 | ) | (80,544 | ) | (1,062 | ) | ||||||
| Recoveries (excluding recoveries made from upgraded accounts) | (16,781 | ) | (48,103 | ) | (634 | ) | ||||||
| Write-offs | (29,201 | ) | (62,404 | ) | (822 | ) | ||||||
| Non-performing loans at the end of the fiscal year | Rs. | 142,923 | Rs. | 113,271 | US$ | 1,493 | ||||||
| B. Commercial(4) | ||||||||||||
| Non-performing loans at the beginning of the fiscal year | Rs. | 364,511 | Rs. | 284,106 | US$ | 3,745 | ||||||
| Addition: New non-performing loans during the year | 46,519 | 41,815 | 551 | |||||||||
| Less: Upgrade(3) | (10,557 | ) | (24,406 | ) | (322 | ) | ||||||
| Recoveries (excluding recoveries made from upgraded accounts) | (38,545 | ) | (22,930 | ) | (302 | ) | ||||||
| Write-offs | (77,822 | ) | (46,342 | ) | (611 | ) | ||||||
| Non-performing loans at the end of the fiscal year | Rs. | 284,106 | Rs. | 232,243 | US$ | 3,061 | ||||||
| C. Leasing and related activities | ||||||||||||
| Non-performing loans at the beginning of the fiscal year | Rs. | — | Rs. | — | US$ — | |||||||
| Addition: New non-performing loans during the year | — | — | — | |||||||||
| Less: Upgrade(3) | — | — | — | |||||||||
| Recoveries (excluding recoveries made from upgraded accounts) | — | — | — | |||||||||
| Write-offs | — | — | ||||||||||
| Non-performing loans at the end of the fiscal year | Rs. | — | Rs. | — | US$ | — | ||||||
| D. Total non-performing loans (A+B+C) | ||||||||||||
| Non-performing loans at the beginning of the fiscal year | Rs. | 438,422 | Rs. | 427,029 | US$ | 5,629 | ||||||
| Addition: New non-performing loans during the year(3) | 168,502 | 203,214 | 2,678 | |||||||||
| Less: Upgrade(4) | (17,546 | ) | (104,950 | ) | (1,384 | ) | ||||||
| Recoveries (excluding recoveries made from upgraded accounts) | (55,326 | ) | (71,033 | ) | (936 | ) | ||||||
| Write-offs | (107,023 | ) | (108,746 | ) | (1,433 | ) | ||||||
| Non-performing loans at the end of the fiscal year(3)(5) | Rs. | 427,029 | Rs. | 345,514 | US$ | 4,554 | ||||||
| (1) | Includes loans identified as impaired in accordance with guidelines issued by regulators of the respective subsidiaries. |
| (2) | Includes home loans, automobile loans, commercial business loans, two-wheeler loans, personal loans, credit card receivables, jewel loans, farm equipment loans and other rural loan products. |
| (3) | Does not include Rs. 3.9 billion at March 31, 2021, where asset classification benefits were extended due to moratorium on repayment based on the guidelines issued by the Reserve Bank of India, post outbreak of Covid-19 pandemic. |
| (4) | Represents accounts that were previously classified as non-performing but have been upgraded to performing. |
| (5) | Includes working capital finance. |
Gross additions to non-performing consumer loans increased from Rs. 122.0 billion in fiscal 2021 to Rs. 161.4 billion in fiscal 2022. In fiscal 2022, we upgraded non-performing consumer loans of Rs. 80.5 billion as compared to Rs. 7.0 billion in fiscal 2021. In fiscal 2022, we made recoveries against non-performing consumer loans of Rs. 48.1 billion (fiscal 2021: Rs. 16.8 billion) and wrote off non-performing loans amounting to Rs. 62.4 billion (fiscal 2021: Rs. 29.2 billion). Gross non-performing consumer loans decreased from Rs. 142.9 billion at year-end fiscal 2021 to Rs. 113.3 billion at year-end fiscal 2022.
The gross additions to non-performing commercial loans decreased from Rs. 46.5 billion in fiscal 2021 to Rs. 41.8 billion in fiscal 2022. In fiscal 2022, we upgraded non-performing commercial loans amounting to Rs. 24.4 billion as compared to Rs. 10.6 billion in fiscal 2021 and made recoveries of non-performing commercial loans amounting to Rs. 23.0 billion in fiscal 2022 as compared to Rs. 38.5 billion in fiscal 2021. In fiscal 2022, commercial loans amounting to Rs. 46.3 billion were written-off, as compared to Rs. 77.8 billion in fiscal 2021, based on a borrower- specific evaluation of the probability of recovery and collectability of the loans. Gross non-performing commercial loans decreased from Rs. 284.1 billion at year-end fiscal 2021 to Rs. 232.2 billion at year-end fiscal 2022.
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As a result of the above, our gross non-performing loans decreased by 19.1% from Rs. 427.0 billion at year-end fiscal 2021 to Rs. 345.5 billion at year-end fiscal 2022. Our net non-performing loans decreased by 23.1% from Rs. 99.3 billion at year-end fiscal 2021 to Rs. 76.4 billion at year-end fiscal 2022. The net non-performing loans ratio decreased from 1.3% at year-end fiscal 2021 to 0.8% at year-end fiscal 2022.
The total non-fund based outstanding to borrowers classified as non-performing was Rs. 36.4 billion at March 31, 2022 as compared to Rs. 44.0 billion at March 31, 2021.
Restructured Loans
The following table sets forth, at the dates indicated, information regarding roll-forward and average balances of standard restructured loans.
| At March 31, | ||||||||||||||||
| 2021 | 2022 | 2022 | 2022/2021 % change | |||||||||||||
| (in millions, except percentages) | ||||||||||||||||
| Opening balance (gross restructured loans) | Rs. | 4,293 | Rs. | 38,776 | US$ | 511 | 803.1 | % | ||||||||
| Add: Loans restructured during the year | 35,949 | 81,546 | 1,075 | 126.8 | ||||||||||||
| Add: Increase in loans outstanding in respect of previously restructured loans/borrowers | 87 | 352 | 5 | 307.3 | ||||||||||||
| Less: Loans upgraded to standard category during the year | — | — | — | — | ||||||||||||
| Less: Loans downgraded to non-performing category during the year | (422 | ) | (14,379 | ) | (190 | ) | 3,310.3 | |||||||||
| Less: Repayments/change in management/conversion to equity shares during the year | (1,132 | ) | (13,029 | ) | (172 | ) | 1,050.9 | |||||||||
| Gross restructured loans | Rs. | 38,776 | Rs. | 93,266 | US$ | 1,229 | 140.5 | % | ||||||||
| Provisions for restructured loans | (897 | ) | (2,914 | ) | (38 | ) | 225.1 | |||||||||
| Net restructured loans | Rs. | 37,879 | Rs. | 90,352 | US$ | 1,191 | 138.5 | % | ||||||||
| Average balance of net restructured loans(1) | Rs. | 11,611 | Rs. | 80,793 | US$ | 1,065 | 595.9 | % | ||||||||
| Gross loans | Rs. | 8,246,596 | Rs. | 9,475,107 | US$ 124,886 | 14.9 | % | |||||||||
| Net loans | Rs. | 7,918,014 | Rs. | 9,203,081 | US$ 121,301 | 16.2 | % | |||||||||
| Gross restructured loans as a percentage of gross loans | 0.5 | % | 1.0 | % | ||||||||||||
| Net restructured loans as a percentage of net loans | 0.5 | % | 1.0 | % | ||||||||||||
| (1) | The average balance is the average of quarterly balances outstanding at the end of March of the previous year and June, September, December and March of the current year. |
| (2) | In addition, the Bank holds general provision amounting to Rs. 23,562 million at year-end fiscal 2022 (year-end fiscal 2021: Rs. 4,560 million) on these restructured loans, subject to minimum provisioning requirement as per the guidelines issued by the Reserve Bank of India. |
In fiscal 2022, we restructured loans of borrowers classified as standard, as well as made additional disbursements to borrowers whose loans had been restructured in prior years, aggregating to Rs. 82.0 billion primarily under the prudential frameworks for resolution plan of loans under the Reserve Bank of India guidelines. Further, in fiscal 2022, restructured standard loans amounting to Rs. 14.4 billion were classified as non-performing due to failure of borrowers to perform as per restructured debt terms. The gross outstanding standard restructured loans increased from Rs. 38.8 billion at year-end fiscal 2021 to Rs. 93.3 billion at year-end fiscal 2022 and the net outstanding restructured loans increased from Rs. 37.9 billion at year-end fiscal 2021 to Rs. 90.4 billion at year-end fiscal 2022. In addition, the Bank holds general provision amounting to Rs. 23.6 billion at year-end fiscal 2022 on these restructured loans, subject to minimum provisioning requirement as per the guidelines issued by the Reserve Bank of India.
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ICICI Bank’s outstanding non-fund based facilities to borrowers whose loans were classified as restructured were Rs. 5.6 billion at year-end fiscal 2022.
The aggregate gross non-performing and standard restructured loans decreased by Rs. 27.0 billion, or 5.8%, from Rs. 465.8 billion at year-end fiscal 2021 to Rs. 438.8 billion at year-end fiscal 2022. The aggregate net non-performing and restructured loans increased by Rs. 29.6 billion, or 21.6%, from Rs. 137.2 billion at year-end fiscal 2021 to Rs. 166.8 billion at year-end fiscal 2022.
The Reserve Bank of India had issued guidelines permitting banks to refinance long-term project loans to infrastructure and other core industries at periodic intervals without such refinancing being considered as restructuring. At year-end fiscal 2022, the loan amounting to Rs. 8.9 billion (at year-end fiscal 2021: Rs. 9.8 billion) was classified as standard.
The Bank’s Canadian subsidiary adopted International Financial Reporting Standards 9 (IFRS 9) – Financial instruments from April 1, 2018 and measures impairment loss on all financial assets using expected credit loss model based on a three-stage approach. At March 31, 2022, the Bank’s Canadian subsidiary classified exposure of Rs. 14.0 billion as Stage-2 (March 31, 2021: Rs. 27.7 billion) (financial assets, that are not credit impaired, but which have experienced significant increase in credit risk since origination), with allowance for expected credit loss of Rs. 0.8 billion (March 31, 2021: Rs. 1.0 billion) in fiscal 2021. The decrease in Stage-2 exposure and allowance for expected credit loss was primarily due to sell-down of certain exposures and improvement in economic and business environment in fiscal 2022 compared with fiscal 2021 brought about by the Covid-19 pandemic.
Provisions and contingencies (excluding provision for tax)
The following table sets forth, for the periods indicated, the composition of provisions and contingencies, excluding provisions for tax.
| Year ended March 31, | ||||||||||||||||
| 2021 | 2022 | 2022 | 2022/2021 % change | |||||||||||||
| (in millions, except percentages) | ||||||||||||||||
| Provision for investments (net) | Rs. | (1,950 | ) | Rs. | 5,412 | US$ | 71 | N/M | ||||||||
| Provision for non-performing and other assets | 110,815 | 63,775 | 841 | (42.4 | )% | |||||||||||
| Provision for standard assets | 1,569 | 4,065 | 54 | — | ||||||||||||
| Others(1)(2) | 53,340 | 16,514 | 218 | — | ||||||||||||
| Total provisions and contingencies (excluding provision for tax) | Rs. | 163,774 | Rs. | 89,766 | US$ | 1,184 | (45.2 | )% | ||||||||
N/M – Not meaningful
| (1) | Includes write-back of Covid-19 related provision amounting to Rs. 10.5 billion for fiscal 2022 (Fiscal 2021: provision made amounting to Rs. 47.5 billion). |
| (2) | Includes contingency provision amounting to Rs. 10.3 billion on a prudent basis for fiscal 2022. |
Provisions and contingencies (excluding provision for tax) decreased by 45.2% from Rs. 163.8 billion in fiscal 2021 to Rs. 89.8 billion in fiscal 2022 primarily due to a decrease in provision on non-performing and other assets and reversal of Covid-19 related provision in fiscal 2022 as compared to creation of Covid-19 related provision in fiscal 2021, offset, in part, by an increase in other provisions and contingencies.
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Provision for non-performing and other assets decreased by 42.4% from Rs. 110.8 billion in fiscal 2021 to Rs. 63.8 billion in fiscal 2022. During fiscal 2022, there were higher upgrades and recoveries from non-performing loans resulting in lower provisioning requirement, offset, in part, by provision made on loans restructured under Resolution Framework, of the Reserve Bank of India and change in provisioning rate on certain non-performing loans to make it more conservative. The provision coverage ratio i.e., specific provisions against non-performing loans as a percentage of gross non-performing loans, increased from 76.7% at March 31, 2021 to 77.9% at March 31, 2022.
Provision for investments increased from a write-back of Rs. 2.0 billion in fiscal 2021 to a provision of Rs. 5.4 billion in fiscal 2022. During fiscal 2022, the Bank has made an additional provision on security receipts outstanding at March 31, 2022, based on the remaining life of the underlying trusts resulting in an additional provision of Rs. 6.3 billion.
Provision for standard assets increased from Rs. 1.6 billion in fiscal 2021 to Rs. 4.1 billion in fiscal 2022 primarily due to an increase in provision for standard assets of ICICI Bank. Provision for standard assets of ICICI Bank increased from Rs. 2.8 billion in fiscal 2021 to Rs. 4.5 billion in fiscal 2022.
Other provisions decreased from Rs. 53.3 billion in fiscal 2021 to Rs. 16.5 billion in fiscal 2022. Provision for non-fund outstanding of ICICI Bank increased from Rs. 3.2 billion in fiscal 2021 to Rs. 11.7 billion in fiscal 2022. During fiscal 2022, the Bank made provision amounting to Rs. 3.2 billion on share application on loan conversion.
The Bank made net Covid-19 related provision of Rs. 47.5 billion in fiscal 2021 and held an aggregate Covid-19 related provision of Rs. 74.8 billion at March 31, 2021. During fiscal 2022, the Bank wrote-back Covid-19 related provision of Rs. 10.5 billion. Further, during fiscal 2022, the Bank made additional contingency provision of Rs. 10.3 billion on a prudent basis. The Bank held contingency provision, including Covid-19 related contingency provision of Rs. 64.3 billion, of Rs. 74.5 billion at year-end fiscal 2022.
See also “Risk Factors—Risks Relating to Our Business—The future trajectory of the Covid-19 pandemic is uncertain and could adversely affect our business, the quality of our loan portfolio and our financial performance.”.
Provision for Tax
The provision for income tax expense increased from Rs. 56.6 billion in fiscal 2021 to Rs. 84.6 billion in fiscal 2022 primarily due to an increase in profit before tax and increase in effective tax rate. The effective tax rate increased from 21.8% in fiscal 2021 to 24.2% in fiscal 2022.
Provision for income tax expense of the Bank increased from Rs. 39.9 billion in fiscal 2021 to Rs. 72.7 billion in fiscal 2022 primarily due to an increase in profit before tax. The effective tax rate of the Bank increased from 19.8% in fiscal 2021 to 23.7% in fiscal 2022 primarily due to change in composition of income. In fiscal 2021 the Bank had a significant amount of capital gain resulting from sale of stake in subsidiaries, which attracts lower income tax.
Provision for income tax expense of ICICI Prudential Life Insurance Company Limited decreased from Rs. 1.2 billion in fiscal 2021 to Rs. 0.4 billion in fiscal 2022 due to decrease in taxable surplus computed as per Income tax Act, 1961.
Provision for income tax of ICICI Securities Limited increased from Rs. 3.7 billion in fiscal 2021 to Rs. 4.7 billion in fiscal 2022 due to an increase in profit before tax. Provision for income tax expense of ICICI Securities Primary Dealership Limited decreased from Rs. 2.2 billion in fiscal 2021 to Rs. 1.1 billion in fiscal 2022 due to decrease in profit before tax.
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Financial Condition
Assets
The following table sets forth, at the dates indicated, the principal components of assets.
| At March 31 | ||||||||||||||||
| 2021 | 2022 | 2022 | 2022/2021 % change | |||||||||||||
| (in millions, except percentages) | ||||||||||||||||
| Cash and cash equivalents (1) | Rs. | 1,475,705 | Rs. | 1,831,260 | US$ | 24,137 | 24.1 | % | ||||||||
| Investments | 5,365,786 | 5,670,977 | 74,746 | 5.7 | ||||||||||||
| Advances (net of provisions) | 7,918,014 | 9,203,082 | 121,301 | 16.2 | ||||||||||||
| Fixed assets | 108,093 | 106,054 | 1,398 | (1.9 | ) | |||||||||||
| Other assets | 869,448 | 713,988 | 9,411 | (17.9 | ) | |||||||||||
| Goodwill on consolidation | 1,077 | 1,013 | 12 | (5.9 | ) | |||||||||||
| Total assets | Rs. | 15,738,122 | Rs. | 17,526,374 | US$ | 231,005 | 11.4 | % | ||||||||
| (1) | Includes cash and balances with Reserve Bank of India, balances with banks and money at call and short notice |
| (2) | Previous period figures have been re-grouped/re-classified where necessary to conform to current period classification. |
| (3) | From April 1, 2021, ICICI Lombard General Insurance Company Limited ceased to be a subsidiary and was accounted as an equity affiliate. Accordingly, assets of ICICI Lombard General Insurance Company Limited is not consolidated in fiscal 2022. |
Our total assets increased by 11.4% from Rs. 15,738.1 billion at year-end fiscal 2021 to Rs. 17,526.4 billion at year-end fiscal 2022 primarily due to an increase in net advances, investments and cash and cash equivalents.
Cash and cash equivalents
Cash and cash equivalents increased from Rs. 1,475.7 billion at year-end fiscal 2021 to Rs. 1,831.3 billion at year-end fiscal 2022 primarily due to an increase in lending to the Reserve Bank of India under liquidity adjustment facility, balance with the Reserve Bank of India to maintain cash reserve ratio and short term balances with U.S. Federal Reserve, offset, in part, by a decrease in term money lent in foreign currency.
Investments
From April 1, 2021, ICICI Lombard General Insurance Company Limited ceased to be a subsidiary and was accounted as an equity affiliate. Accordingly, investments of ICICI Lombard General Insurance Company Limited were not consolidated in fiscal 2022.
Total investments increased by 5.7% from Rs. 5,365.8 billion at year-end fiscal 2021 to Rs. 5,671.0 billion at year-end fiscal 2022. Investments of ICICI Bank increased from Rs. 2,812.9 billion at year-end fiscal 2021 to Rs. 3,102.4 billion at year-end fiscal 2022 primarily due to an increase in investments in Indian government securities and certificate of deposits, offset, in part, by a decrease in investments in bonds and debentures, foreign government securities and pass through certificates.
Investments of ICICI Prudential Life Insurance Company increased from Rs. 2,081.1 billion at year-end fiscal 2021 to Rs. 2,337.5 billion at year-end fiscal 2022. Investments held to cover linked liabilities increased from Rs. 1,385.5 billion at year-end fiscal 2021 to Rs. 1,508.7 billion at year-end fiscal 2022 primarily due to increase in market value of equity securities. Investments, other than investments held to cover linked liabilities, increased from Rs. 695.6 billion at year-end fiscal 2021 to Rs. 828.9 billion at year-end fiscal 2022 primarily due to an increase in investment in bonds and debentures and Indian government securities.
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Investments of ICICI Securities Primary Dealership Limited increased from Rs. 157.7 billion in fiscal 2021 to Rs. 158.6 billion in fiscal 2022.
Investments of ICICI Bank UK PLC increased marginally from Rs. 39.4 billion at year-end fiscal 2021 to Rs. 39.5 billion at year-end fiscal 2022. Investments of ICICI Bank Canada decreased by 11.2% from Rs. 40.3 billion at year-end fiscal 2021 to Rs. 35.8 billion at year-end fiscal 2022 due to reduction in bankers’ acceptance and sale of bonds, offset, in part, by increase in treasury bills.
Our total investment in Indian government securities increased by 14.3% from Rs. 2,847.4 billion at year-end fiscal 2021 to Rs. 3,255.0 billion at year-end fiscal 2022.
At year-end fiscal 2022, ICICI Bank had an outstanding net investment of Rs. 8.1 billion in security receipts issued by asset reconstruction companies compared to Rs. 17.3 billion at year-end fiscal 2021. See also “Business—Overview of Our Products and Services—Investment Banking—Treasury”.
Classification of investments
Held-to-maturity
The amortized cost of our held-to-maturity portfolio increased from Rs. 2,586.8 billion at year-end fiscal 2021 to Rs. 2,777.6 billion at year-end fiscal 2022 primarily due to an increase in investment in government securities and equity securities. Net unrealized gain on the held-to-maturity portfolio increased from Rs. 84.9 billion at year-end fiscal 2021 to Rs. 311.9 billion at year-end fiscal 2022. In fiscal 2021, investment in ICICI Lombard General Insurance Company Limited being a subsidiary, was classified as held-to-maturity and eliminated at consolidated level. In fiscal 2022, ICICI Lombard General Insurance Company Limited ceased to be a subsidiary and was accounted as an equity affiliate. Accordingly, cost and fair value of investment in equity shares of ICICI Lombard General Insurance Company Limited, which was classified as held-to-maturity, was included in investments at year-end fiscal 2022. The unrealized gain on equity shares of ICICI Lombard General Insurance Company Limited was Rs. 287.0 billion at year-end fiscal 2022. Interest earned on the held-to-maturity debt portfolio decreased from Rs. 167.6 billion in fiscal 2021 to Rs. 165.5 billion in fiscal 2022 primarily due to a decrease in yield on the held-to-maturity debt portfolio.
Available-for-sale
The amortized cost of our available-for-sale portfolio increased from Rs. 1,027.3 billion at year-end fiscal 2021 to Rs. 1,065.1 billion at year-end fiscal 2022. The investment in government securities increased from Rs. 460.4 billion at year-end fiscal 2021 to Rs. 615.6 billion at year-end fiscal 2022, primarily due to an increase in investment in government securities held by ICICI Bank. The investments in corporate debt securities decreased from Rs. 218.3 billion at year-end fiscal 2021 to Rs. 167.9 billion at year-end fiscal 2022, primarily due to a decrease in investment in corporate debt securities held by ICICI Bank. Investments in other debt securities decreased from Rs. 150.4 billion at year-end fiscal 2021 to Rs. 113.7 billion at year-end fiscal 2022, primarily due to a decrease in investment in pass through certificates held by ICICI Bank. Investments in equity shares decreased from Rs. 151.6 billion at year-end fiscal 2021 to Rs. 124.1 billion at year-end fiscal 2022, since the year ended fiscal 2021 included investment in equity shares by ICICI Lombard General Insurance Company Limited. At year-end fiscal 2022, equity shares classified as available for sale amounting to Rs. 76.6 billion were held by ICICI Prudential Life Insurance Company Limited and Rs. 41.3 billion were held by ICICI Bank. Other investments (primarily include mutual fund units, security receipts, venture fund units and preference shares) decreased from Rs. 46.6 billion at year-end fiscal 2021 to Rs. 37.7 billion at year-end fiscal 2022.
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Net unrealized gain on debt investments decreased from Rs. 11.6 billion at year-end fiscal 2021 to Rs. 5.5 billion at year-end fiscal 2022 primarily due to a decrease in net unrealized gain on corporate debt securities and government securities. Net unrealized gain on equity securities increased from Rs. 46.7 billion at year-end fiscal 2021 to Rs. 50.8 billion at year-end fiscal 2022.
At year-end fiscal 2022, the net unrealized gain on other investments was Rs. 0.6 billion as compared to a net unrealized loss of Rs. 2.3 billion at year-end fiscal 2021 due to increase in unrealized gain of Rs. 0.9 billion on equity mutual fund investments and decrease in unrealized loss of Rs. 1.8 billion on security receipts.
Held-for-trading
Investments in held-for-trading debt securities decreased from Rs. 337.5 billion at year-end fiscal 2021 to Rs. 307.8 billion at year-end fiscal 2022 primarily due to a decrease in investment in government securities, offset, in part, by an increase in investment in certificate of deposits and corporate bonds. Net unrealized gain on the held-for-trading portfolio increased from Rs. 0.3 billion at year-end fiscal 2021 to Rs. 1.9 billion at year-end fiscal 2022 primarily due to unrealized gain on the trading portfolio of ICICI Securities Primary Dealership Limited in fiscal 2022 as compared to unrealized loss in fiscal 2021.
Advances
Net advances increased by 16.2% from Rs. 7,918.0 billion at year-end fiscal 2021 to Rs. 9,203.1 billion at year-end fiscal 2022 primarily due to an increase in retail advances of ICICI Bank.
Net advances of the Bank increased by 17.1% from Rs. 7,337.3 billion at year-end fiscal 2021 to Rs. 8,590.2 billion at year-end fiscal 2022. Net retail advances of the Bank increased by 19.7% from Rs. 3,797.4 billion at year-end fiscal 2021 to Rs. 4,546.4 billion at year-end fiscal 2022. Net advances of the Bank’s overseas branches increased by 9.8% from Rs. 375.9 billion at year-end fiscal 2021 to Rs. 412.7 billion at year-end fiscal 2022. See also “Business – Loan Portfolio”.
Net advances of ICICI Home Finance increased by 5.1% from Rs. 135.3 billion at year-end fiscal 2021 to Rs. 142.2 billion at year-end fiscal 2022 primarily due to increase in home loans.
Net advances of ICICI Bank UK PLC decreased by 18.3% from Rs. 116.5 billion at year-end fiscal 2021 to Rs. 95.2 billion at year-end fiscal 2022 primarily due to sell down and prepayment of loans.
Net advances of ICICI Bank Canada increased by 2.2% from Rs. 295.6 billion at year-end fiscal 2021 to Rs. 302.0 billion at year-end fiscal 2022 primarily due to exchange rate movement.
Fixed and other assets
Fixed assets include premises, furniture and fixtures, assets given on lease and other fixed assets. Fixed assets decreased by 1.9% from Rs. 108.1 billion at year-end fiscal 2021 to Rs. 106.1 billion at year-end fiscal 2022. Other assets decreased from Rs. 869.4 billion at year-end fiscal 2021 to Rs. 714.0 billion at year-end fiscal 2022 primarily due to a decrease in rural infrastructure development fund, related deposits and trade receivables. From April 1, 2021, ICICI Lombard General Insurance Company Limited ceased to be a subsidiary and was accounted as an equity affiliate. Accordingly, other assets of ICICI Lombard General Insurance Company Limited is not consolidated in fiscal 2022.
Liabilities and Stockholders’ Equity
The following table sets forth, at the dates indicated, the principal components of liabilities and stockholders’ equity.
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| At March 31, | ||||||||||||||||
| 2021 | 2022 | 2022 | 2022/2021 % change | |||||||||||||
| (in millions, except percentages) | ||||||||||||||||
| Deposits | Rs. | 9,599,400 | Rs. | 10,913,658 | Rs. | 143,847 | 13.7 | % | ||||||||
| Borrowings(1) | 1,438,999 | 1,616,027 | 21,300 | 12.3 | ||||||||||||
| Other liabilities | 3,027,965 | 3,116,355 | 41,075 | 2.9 | ||||||||||||
| Total liabilities | 14,066,364 | 15,646,040 | 206,222 | 11.2 | ||||||||||||
| Minority interest | 95,883 | 59,809 | 788 | (37.6 | ) | |||||||||||
| Capital | 13,834 | 13,900 | 183 | 0.5 | ||||||||||||
| Reserves and surplus(2) | 1,562,041 | 1,806,625 | 23,812 | 15.7 | ||||||||||||
| Total liabilities and stockholders’ equity | Rs. | 15,738,122 | Rs. | 17,526,374 | Rs. | 231,005 | 11.4 | % | ||||||||
| (1) | Includes subordinated debt. |
| (2) | Includes employees’ stock options outstanding. |
| (3) | Previous period figures have been re-grouped/re-classified where necessary to conform to current period classification. |
| (4) | From April 1, 2021, ICICI Lombard General Insurance Company Limited ceased to be a subsidiary and was accounted as an equity affiliate. Accordingly, liabilities of ICICI Lombard General Insurance Company Limited is not consolidated in fiscal 2022. |
Our total liabilities (including capital and reserves and surplus) increased by 11.4% from Rs. 15,738.1 billion at year-end fiscal 2021 to Rs. 17,526.4 billion at year-end fiscal 2022, primarily due to an increase in deposits and borrowings.
Deposits
Deposits increased by 13.7% from Rs. 9,599.4 billion at year-end fiscal 2021 to Rs. 10,913.7 billion at year-end fiscal 2022.
Deposits of the Bank increased by 14.2% from Rs. 9,325.2 billion at year-end fiscal 2021 to Rs. 10,645.7 billion at year-end fiscal 2022. Term deposits increased by 9.0% from Rs. 5,009.0 billion at year-end fiscal 2021 to Rs. 5,461.4 billion at year-end fiscal 2022. Savings account deposits increased by 21.8% from Rs. 2,954.5 billion at year-end fiscal 2021 to Rs. 3,599.6 billion at year-end fiscal 2022 and current account deposits increased by 16.4% from Rs. 1,361.7 billion at year-end fiscal 2021 to Rs. 1,584.8 billion at year-end fiscal 2022. The current account and savings account deposits increased by 20.1% from Rs. 4,316.2 billion at year-end fiscal 2021 to Rs. 5,184.4 billion at year-end fiscal 2022. Deposits of overseas branches increased by 28.5% from Rs. 76.3 billion at year-end fiscal 2021 to Rs. 98.1 billion at year-end fiscal 2022. At year-end fiscal 2022, deposits of the Bank formed 90.8% of its funding (i.e., deposits and borrowings) compared to 91.1% at March 31, 2021. See also “Selected Statistical Information—Funding”.
Deposits of ICICI Bank Canada increased from Rs. 157.9 billion at year-end fiscal 2021 to Rs. 172.8 billion at year-end fiscal 2022 primarily due to increase in term deposits.
Deposits of ICICI Bank UK PLC decreased from Rs. 143.1 billion at year-end fiscal 2021 to Rs. 116.9 billion at year-end fiscal 2022 primarily due to a decrease in term deposits, offset, in part, by an increase in retail saving and current account deposits.
Average savings account deposits increased by 21.9% from Rs. 2,551.0 billion in fiscal 2021 to Rs. 3,108.9 billion in fiscal 2022. Average current account deposits increased by 31.1% from Rs. 924.9 billion in fiscal 2021 to Rs. 1,212.3 billion in fiscal 2022. Average current account and savings account deposits increased by 24.3% from Rs. 3,476.0 billion in fiscal 2021 to Rs. 4,321.2 billion in fiscal 2022. The average current account and savings account ratio was at 44.5% at year-end fiscal 2022 as compared to 41.5% at year-end fiscal 2021. Average current account and savings account deposits were 37.1% of the funding (i.e., deposits and borrowings) for fiscal 2022 as compared to 35.5% for fiscal 2021.
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Borrowings
Borrowings increased by 12.3% from Rs. 1,439.0 billion at year-end fiscal 2021 to Rs. 1,616.0 billion at year-end fiscal 2022.
Borrowings of ICICI Bank increased by 17.0% from Rs. 916.3 billion at year-end fiscal 2021 to Rs. 1,072.3 billion at year-end fiscal 2022, primarily due to an increase in bond borrowings and foreign currency term money borrowings, offset, in part, by a decrease in subordinated debt and refinance borrowings. Net borrowings of overseas branches increased from Rs. 299.4 billion at year-end fiscal 2021 to Rs. 319.2 billion at year-end fiscal 2022.
Borrowings of ICICI Bank UK PLC decreased from Rs. 30.6 billion at year-end fiscal 2021 to Rs. 25.5 billion at year-end fiscal 2022 primarily due to maturity of long-term borrowings.
Borrowings of ICICI Home Finance Company decreased from Rs. 127.1 billion at year-end fiscal 2021 to Rs. 126.4 billion at year-end fiscal 2022.
Borrowings of ICICI Bank Canada decreased from Rs. 150.9 billion at year-end fiscal 2021 to Rs. 148.8 billion at year-end fiscal 2022, primarily due to reduction in securitized borrowings.
Borrowings of ICICI Securities Primary Dealership Company decreased from Rs. 166.6 billion at year-end fiscal 2021 to Rs. 159.6 billion at year-end fiscal 2022 primarily due to decrease in money market borrowings.
Borrowings of ICICI Securities Limited increased from Rs. 35.2 billion at year-end fiscal 2021 to Rs. 77.4 billion at year-end fiscal 2022 primarily due to increase in commercial paper borrowings.
Other liabilities
Other liabilities primarily consist of sundry creditors, bills payable and liabilities on insurance policies in force pertaining to our insurance subsidiary. Other liabilities increased by 2.9% from Rs. 3,028.0 billion at year-end fiscal 2021 to Rs. 3,116.4 billion at year-end fiscal 2022. Liabilities on policies in force of our life insurance business increased by 12.6% from Rs. 2,031.8 billion at year-end fiscal 2021 to Rs. 2,288.3 billion at year-end fiscal 2022. Other liabilities of the Bank increased by 17.4% from Rs. 587.7 billion at year-end fiscal 2021 to Rs. 689.8 billion at year-end fiscal 2022 primarily due to an increase in security deposits and mark-to-market amount on forex and derivative transactions. From April 1, 2021, ICICI Lombard General Insurance Company Limited ceased to be a subsidiary and was accounted as an equity affiliate. Accordingly, other liabilities of ICICI Lombard General Insurance Company Limited were not consolidated in fiscal 2022.
Capital and reserves and surplus
Capital and reserves and surplus increased from Rs. 1,575.9 billion at year-end fiscal 2021 to Rs. 1,820.5 billion at year-end fiscal 2022 primarily due to the annual accretion to reserves and surplus out of profit, offset, in part, due to payment of dividend.
Consolidated Cash Flow Statement
Please refer to “Consolidated financial Statements—Consolidated cash flow statements”.
Cash and cash equivalents increased by 24.1% from Rs. 1,475.7 billion at year-end fiscal 2021 to Rs. 1,831.3 billion at year-end fiscal 2022.
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The net cash inflow from operating activities decreased from Rs. 1,380.1 billion in fiscal 2021 to Rs. 581.1 billion in fiscal 2022 primarily due to a higher increase in advances in fiscal 2022 as compared to fiscal 2021 and an increase in investments in fiscal 2022 as compared to a decrease in fiscal 2021.
The net cash outflow from investing activities decreased from Rs. 629.9 billion in fiscal 2021 to Rs. 393.2 billion in fiscal 2022 primarily due to lower net purchase of held-to-maturity securities.
There was a net cash inflow from financing activities of Rs. 174.5 billion in fiscal 2022 as compared to a net cash outflow of Rs. 546.7 billion in fiscal 2021, primarily due to net inflow from short-term borrowings in fiscal 2022 as compared to net repayment of short-term borrowings and long-term borrowings in fiscal 2021.
For a discussion of our results in fiscal 2021 compared to fiscal 2020 and certain comparative numbers in fiscal 2020, please refer to “Part I—Item 5. Operating and Financial Review and Prospects” contained in our Annual Report on Form 20-F for fiscal 2021 filed with the U.S Securities and Exchange Commission on July 30, 2021.
Off Balance Sheet Arrangements
Foreign Exchange and Derivatives Contracts
We enter into foreign exchange forwards, options, swaps and other derivatives products to enable customers to transfer, modify or reduce their foreign exchange and interest rate risks and to manage our own interest rate and foreign exchange positions. These instruments are used to manage foreign exchange and interest rate risk relating to specific groups of on-balance sheet assets and liabilities. For additional details, see also note 13 to our “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes” included herein.
Guarantees
We have issued bank guarantees to support business requirements of our clients. Guarantees represent irrevocable assurances that the Bank will pay in the event a customer fails to fulfill its financial or performance obligations. The guarantees are generally for a period not exceeding 10 years. We enter into guarantee arrangements after conducting appropriate due diligence on our clients. We generally review these facilities on an annual basis. If a client’s risk profile deteriorates to an unacceptable level, we may choose not to renew the guarantee upon expiry or may require additional security sufficient to protect our exposure.
Upon default by a client under the terms of the guarantee, the beneficiary may exercise its rights under the guarantees, and we are obligated to honor payments to the beneficiaries. Banks and financial institutions are beneficiaries for some of our financial guarantees, so as to enable clients to receive financial assistance from these banks and financial institutions. If our clients default on such loans, the banks and financial institutions may exercise their rights under the guarantee and we are obligated to honor payments to them.
For additional details, see also note 22(o) to our “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes” included herein.
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Commitments
Securitization
The Bank primarily securitizes retail loans through securitization transactions involving special purpose entities, usually constituted as trusts. Post securitization of the loans, we continue to act as the servicing agent and maintain customer account relationships and service these set of loans transferred to the securitization trusts.
The Bank acts in different capacities and under different contracts for a consideration including as originator, liquidity facility provider, servicing agent credit enhancement provider, underwriter, senior contributor etc. The Bank has provided credit enhancement (first loss and second loss enhancement) on the securitized pools originated by the Bank and guarantees (second loss enhancement) provided to the pools originated by a third party.
The total outstanding first loss credit enhancements at year-end fiscal 2022 were Rs. 0.7 billion and second loss credit enhancements were Rs. 0.7 billion for securitized pools originated by the Bank. With respect to the second loss guarantees provided to the third party originated pools, the outstanding at year-end fiscal 2022 was Rs. 2.6 billion.
Loan Commitments
We have outstanding undrawn commitments to provide loans and financing to customers. Further, the commitments have fixed expiration dates and are generally contingent upon the borrower’s ability to maintain specific credit standards. For additional details, see also note 11 to our “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes” included herein.
Capital Commitments
We are obligated under a number of capital contracts. Capital contracts are job orders of a capital nature, which have been committed. For additional details, see also note 12 to our “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes” included herein.
Long-term Debt Obligations
Long-term debt represents debt with an original contractual maturity greater than one year. Maturity distribution is based on contractual maturity, or the date at which the debt is callable at the option of the holder, whichever is earlier.
For additional details, see also note 3 to our “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes” included herein.
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Time Deposits
Time deposits represent deposits with fixed maturity terms. Most of the time deposits can be withdrawn by the depositors any time before maturity, subject to certain prepayment charges.
For additional details, see also note 2 to our “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes” included herein.
Life Insurance Obligations
Life insurance obligations primarily include liabilities for life insurance policies, including both unit-linked and non-linked policies.
A unit-linked life insurance policy is a policy in which the cash value of the policy varies according to the net asset value of units (i.e., shares) in investment assets chosen by the policyholder. The unit liability is equal to the net asset value of the units in each policy as of the valuation date. The non-unit liability for linked insurance policies and the liability for non-linked life insurance policies is calculated using the gross premium method using assumptions for interest, mortality, expense and inflation. For participating policies, the assumptions are also made for future bonuses, together with allowances for taxation and allocation of profits to shareholders. These assumptions are determined as prudent estimates at the date of valuation with allowances for adverse deviations.
Total life insurance obligation at year-end fiscal 2022 was amounting to Rs. 4,500.3 billion.
Gratuity Obligations
We provide gratuity, a defined benefit retirement plan covering all employees who retire or resign after a minimum prescribed period of continuous service. The plan provides a lump sum payment to eligible employees at retirement or termination of employment based on the respective employee’s salary and years of employment with us.
For additional details, see also note 22(j) to our “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes” included herein.
Pension Obligations
The Bank provides pensions—deferred retirement plans—covering certain employees of the former Bank of Madura, Sangli Bank and Bank of Rajasthan. The plans provide for monthly pension payments to these employees when they retire and are based on the respective employees’ years of service with the Bank and applicable salary and include a cost of living adjustment.
For additional details, see also note 22(j) to our “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes” included herein.
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Operating and Finance Lease Obligations
We have commitments under long-term operating leases and finance leases principally for premises and office equipment.
For additional details, see also note 22(k) to our “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes” included herein.
Capital Resources
We actively manage our capital to meet regulatory norms and current and future business needs, considering the risks in our businesses, expectations of rating agencies, shareholders and investors, and the available options of raising capital. Our capital management framework is administered by the Finance Group and the Risk Management Group under the supervision of the Board and the Risk Committee. The capital adequacy position and assessment is reported to the Board and the Risk Committee periodically.
Regulatory Capital
ICICI Bank is subject to the Basel III capital adequacy guidelines stipulated by the Reserve Bank of India effective from April 1, 2013, which was to be implemented in a phased manner by March 31, 2019 as per the transitional arrangement provided by the Reserve Bank of India. On January 10, 2019, the Reserve Bank of India extended the transition period for implementing the last tranche of 0.625% under Capital Conservation Buffer to March 31, 2020 and thereafter further extended to October 1, 2021.
The Basel III rules on capital consist of measures on improving the quality, consistency and transparency of capital, enhancing risk coverage, introducing a supplementary leverage ratio, reducing pro-cyclicality and promoting counter-cyclical buffers and addressing systemic risk and inter-connectedness.
At year-end fiscal 2022, ICICI Bank was required to maintain a minimum Common Equity Tier-1 capital ratio of 8.20%, minimum Tier-1 capital ratio of 9.70% and minimum total capital ratio of 11.70%. The minimum total capital requirement includes a capital conservation buffer of 2.50% and a capital surcharge of 0.20% on account of the Bank being designated as a Domestic Systemically Important Bank. Under Pillar 1 of the Reserve Bank of India guidelines on Basel III, the Bank follows the standardized approach for measurement of credit risk, the standardized duration method for measurement of market risk and the basic indicator approach for measurement of operational risk.
Unconsolidated capital adequacy position
The following table sets forth, at the dates indicated, regulatory capital, risk-weighted assets and risk-based capital ratios computed in accordance with the Reserve Bank of India’s Basel III guidelines and based on ICICI Bank’s unconsolidated financial statements prepared in accordance with Indian GAAP.
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| As per the Reserve Bank of India’s Basel III guidelines | ||||||||||||
At year-end fiscal 2021(1) | 2022(1) | 2022 | ||||||||||
| (in millions, except percentages) | ||||||||||||
| Tier 1 capital | 1,418,716 | 1,621,207 | US$ | 21,391 | ||||||||
| Of which: Common equity Tier 1 capital | 1,319,399 | 1,555,000 | 20,517 | |||||||||
| Tier 2 capital | 82,754 | 71,923 | 949 | |||||||||
| Total capital | 1,501,470 | 1,693,130 | US$ | 22,340 | ||||||||
| Credit risk: risk-weighted assets | 6,467,427 | 7,357,431 | US$ | 97,077 | ||||||||
| Market risk: risk-weighted assets | 589,678 | 550,360 | 7,262 | |||||||||
| Operational risk: risk-weighted assets | 796,998 | 928,119 | 12,246 | |||||||||
| Total risk-weighted assets | 7,854,103 | 8,835,910 | US$ | 1,16,585 | ||||||||
| Common equity Tier 1 risk-based capital ratio | 16.8 | % | 17.6 | % | ||||||||
| Tier 1 risk-based capital ratio | 18.0 | % | 18.4 | % | ||||||||
| Tier 2 risk-based capital ratio | 1.0 | % | 0.8 | % | ||||||||
| Total risk-based capital ratio | 19.1 | % | 19.2 | % | ||||||||
| (1) | Post appropriation of proposed dividend |
In fiscal 2022, capital funds (net of deductions) increased by Rs. 191.7 billion from Rs. 1,501.5 billion at year-end fiscal 2021 to Rs. 1,693.1 billion at year-end fiscal 2022 primarily due to increase in retained earnings and repatriation of capital from ICICI Bank UK PLC and ICICI Bank Canada, offset, in part, by exercise of call options on Tier-1 bonds and expiry of grandfathering period of Basel II Tier-2 bonds.
Risk-weighted assets relating to credit risk increased by Rs. 890.0 billion from Rs. 6,467.4 billion at year-end fiscal 2021 to Rs. 7,357.4 billion at year-end fiscal 2022 primarily due to an increase of Rs. 940.4 billion in risk-weighted assets for on-balance sheet assets, offset, in part, by a decrease of Rs. 50.4 billion in risk-weighted assets for off-balance sheet assets. On-balance sheet risk-weighted assets increased primarily due to growth in advances during the year and off-balance sheet risk-weighted assets decreased primarily due to decrease in non-fund exposures.
Risk-weighted assets relating to market risk decreased by Rs. 39.3 billion from Rs. 589.7 billion at year-end fiscal 2021 to Rs. 550.4 billion at year-end fiscal 2022 primarily due to decrease in the fixed income portfolio.
Risk-weighted assets relating to operational risk increased by Rs. 131.1 billion from Rs. 797.0 billion at March 31, 2021 to Rs. 928.1 billion at March 31, 2022. The operational risk capital charge is computed based on 15% of the average of the previous three financial years’ gross income and is revised on an annual basis at June 30. Risk-weighted assets are arrived at by multiplying the capital charge by 12.5.
Consolidated capital adequacy position
Consolidation for regulatory capital calculations is based on the consolidated financial statements of ICICI Bank and its subsidiaries, in line with the standards on consolidated prudential reporting issued by the Reserve Bank of India. The entities considered for consolidation for regulatory capital calculations include subsidiaries, associates and joint ventures of the Bank, which carry on activities of a banking or of a financial nature as stated in the reporting guidelines prescribed by the Reserve Bank of India. Entities engaged in the insurance business and businesses not pertaining to financial services are excluded from consolidation for capital adequacy calculation. As per Basel III guidelines stipulated by the Reserve Bank of India, equity and other regulatory capital investments in the unconsolidated insurance and non-financial subsidiaries will be deducted from consolidated regulatory capital of the group.
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At year-end fiscal 2022, our total risk-based capital ratios at the consolidated level as per Basel III guidelines stipulated by the Reserve Bank of India were common equity Tier 1 risk-based capital ratio of 17.34%, Tier 1 risk-based capital ratio of 18.02% and total risk-based capital ratio of 18.87% against the current requirement of minimum common equity Tier 1 capital ratio of 8.20%, a minimum Tier 1 capital ratio of 9.70% and a minimum total capital ratio of 11.70% respectively.
Internal assessment of capital
Our capital management framework includes a comprehensive internal capital adequacy assessment process conducted annually which determines the adequate level of capitalization required to meet regulatory norms and current and future business needs. Adequate stress testing, as determined by several stress scenarios, is also done. The internal capital adequacy assessment process is undertaken at both the stand alone bank level and the consolidated group level. The internal capital adequacy assessment process encompasses capital planning for a four-year time horizon, assessment of material risks and the relationship between risk and capital.
The capital management framework is complemented by the risk management framework, which covers the policies, processes, methodologies and frameworks established for the management of material risks. Stress testing, which is a key aspect of the internal capital adequacy assessment process and the risk management framework, provides an insight into the impact of extreme but plausible scenarios on the risk profile and capital position. Based on our Board-approved stress testing framework, we conduct stress tests on our various portfolios and assess the impact on our capital ratios and the adequacy of our capital buffers for current and future periods. We periodically assess and refine our stress testing framework in an effort to ensure that the stress scenarios capture material risks as well as reflect possible extreme market moves that could arise as a result of market conditions and the operating environment. The business and capital plans and the stress testing results of the ICICI Bank entities are integrated into the internal capital adequacy assessment process.
Based on the internal capital adequacy assessment process, we determine the level of capital that needs to be maintained by considering the following in an integrated manner:
| · | strategic focus, business plan and growth objectives; |
| · | regulatory capital requirements as per the Reserve Bank of India guidelines; |
| · | assessment of material risks and impact of stress testing; |
| · | perception of shareholders and investors; |
| · | future strategy with regard to investments or divestments in subsidiaries; and |
| · | evaluation of options to raise capital from domestic and overseas markets, as permitted by the Reserve Bank of India from time to time. |
We continue to monitor relevant developments and believe that our current robust capital adequacy position and demonstrated track record of access to domestic and overseas markets for capital raising will enable us to maintain the necessary levels of capital as required by regulations while continuing to grow our business.
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Liquidity Risk
Liquidity risk is the current and prospective risk arising out of an inability to meet financial commitments as they fall due, through available cash flows or through the sale of assets at fair market value. It includes both the risk of unexpected increases in the cost of funding an asset portfolio at appropriate maturities and the risk of being unable to liquidate a position in a timely manner at a reasonable price. We actively monitor our liquidity position and attempt to maintain adequate liquidity at all times. Most of our incremental funding requirements are met through short-term funding sources, primarily in the form of deposits including inter-bank deposits. However, a large portion of our assets, primarily the corporate and home loan portfolio, have medium or long-term maturities, creating a potential for funding mismatches.
We seek to establish a continuous information flow and an active dialogue between the funding and borrowing divisions of the organization to enable optimal liquidity management. A separate group is responsible for liquidity management. We are required to submit rupee gap reports for domestic operations on a fortnightly basis to the Reserve Bank of India. We prepare a daily maturity gap analysis for the overseas operations and rupee book for the domestic operations. Our static gap analysis is also supplemented by a short-term dynamic cash-flow analysis, in order to provide the liability raising units with a fair estimate of our funding requirements in the near-term. In addition, we monitor certain liquidity ratios on a fortnightly basis. We also monitor liquidity coverage ratio on a daily basis. We have a liquidity contingency plan in place, through which we monitor key indicators that could signal potential liquidity challenges, to enable us to take necessary measures to ensure sufficient liquidity.
Sources of Funding and Liquidity
We maintain diverse sources of liquidity to facilitate flexibility in meeting funding requirements. Incremental operations in India are principally funded by accepting deposits from retail and corporate depositors. These deposits are augmented by issuance of Certificate of Deposits, borrowings in the short-term inter-bank market, through refinance agencies and through the issuance of bonds. We also have recourse to the liquidity adjustment facility and marginal standing facility, which are short-term funding arrangements provided by the Reserve Bank of India. We generally maintain a substantial portfolio of high quality liquid securities that may be sold on an immediate basis to meet our liquidity needs. We also have the option of managing liquidity by borrowing in the inter-bank market on a short-term basis. The overnight market, which is a significant part of the inter-bank market, is susceptible to volatile interest rates. These interest rates on certain occasions have touched highs of 100.0% and above. To curtail reliance on such volatile funding, our Asset Liability Management policy has stipulated daily limits for borrowing and lending in this market. ICICI Securities Primary Dealership, like us, relies for a certain proportion of its funding on the inter-bank market for overnight money and is therefore also exposed to similar risk of volatile interest rates. However, ICICI Securities Primary Dealership being a primary dealer also has access to liquidity adjustment facility and standing liquidity facility from the Reserve Bank of India.
Our gross liquid assets consist of cash, nostro balances, overnight and other short-term money market placements, government bonds and treasury bills (including investments eligible for reserve requirements and net of borrowings on account of repurchase agreements, the liquidity adjustment facility and the marginal standing facility), corporate bonds (rated AA and above), other money market investments such as commercial papers and certificates of deposits and mutual fund investments. We deduct short-term money-market borrowings (borrowings with contractual maturity up to 30 days) from the aggregate of these assets to determine net liquid assets.
We maintain a significant portion of our demand and time liabilities in forms required pursuant to regulatory reserve requirements imposed by the Reserve Bank of India. The Reserve Bank of India stipulates a cash reserve ratio applicable to Indian banks, which requires us to maintain an average percentage of our demand and time liabilities as a cash balance deposited with the Reserve Bank of India over 14-day period. At year-end fiscal 2022, the cash reserve ratio requirement percentage specified by the Reserve Bank of India was 4.0% of Bank’s net demand and time liabilities. In addition, cash reserves may not fall below 90% of the required cash reserve ratio on any day during any 14-day reporting period. The Reserve Bank of India increased the cash reserve ratio by 50 basis points to 4.5% effective May 21, 2022.
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The Reserve Bank of India also stipulates a statutory liquidity ratio applicable to Indian banks, which requires us to maintain a certain percentage of demand and time liabilities in prescribed investments. At year-end fiscal 2022, the statutory liquidity ratio requirement percentage was 18.0%. Banks are permitted to avail liquidity facility against eligible securities under a special facility under the ‘Facility to Avail Liquidity for Liquidity Coverage Ratio’. Further, banks can borrow funds at their discretion by dipping into their statutory liquidity ratio to the extent allowed under the marginal standing facility. As per the Reserve Bank of India guidelines, the carve-out from statutory liquidity ratio under facility to avail liquidity for liquidity coverage ratio was 15.0% of net demand and time liabilities at year-end fiscal 2022 which was further increased to 16% of net demand and time liabilities from April 18, 2022. For marginal standing facility, it was 3.0% of net demand and time liabilities until December 31, 2021 and was further changed to 2.0% of net demand and time liabilities from January 1, 2022.
The Reserve Bank of India has issued guidelines on the Basel III framework on liquidity standards including the liquidity coverage ratio, liquidity risk monitoring tools and liquidity coverage ratio disclosure standards. As per the Reserve Bank of India guidelines, the liquidity coverage ratio has been made applicable to Indian banks on a standalone as well as consolidated basis with a minimum requirement of 100.0% at year-end fiscal 2022. The liquidity coverage ratio disclosure for the three months ended March 31, 2022, is based on a simple average of daily observations. The liquidity coverage ratio of the Group, for the three months ended March 31, 2022 was 127.0%.
The Reserve Bank of India has issued guidelines on the Basel III framework on liquidity standards – net stable funding ratio. These guidelines ensure reduction in funding risk over a longer time horizon by requiring banks to fund their activities with sufficiently stable sources of funding in order to mitigate the risk of future funding stress. As per the guidelines, the net stable funding ratio should be equal to at least 100% on an ongoing basis. These guidelines became applicable to Indian banks on both a standalone and consolidated basis from October 1, 2021. The net stable funding ratio of the Group, at the year-end fiscal 2022 was 131.5%.
We maintain liquid assets in addition to statutory liquidity ratio and cash reserve ratio requirements. Throughout fiscal 2022, the Bank maintained adequate reserves as per the regulatory requirements mentioned above.
The following table sets forth the components of the ICICI Bank’s average and balance sheet date liquid assets.
| At March 31, 2021 | Fortnightly average for fiscal 2022 | At March 31, 2022 | ||||||||||
| (in billions) | ||||||||||||
| Statutory liquidity ratio eligible investments and other government securities, net of borrowings on account of repurchase agreement, liquidity adjustment facility and collateralized borrowings | Rs. | 2,287.6 | Rs. | 2,355.3 | Rs. | 2,671.2 | ||||||
| Balance with central banks and current accounts with other banks | 653.7 | 657.2 | 832.9 | |||||||||
| Other liquid assets | 829.4 | 806.3 | 935.7 | |||||||||
| Gross liquid assets | 3,770.7 | 3,818.8 | 4,439.8 | |||||||||
| (Less) Short-term borrowings | — | 0.1 | — | |||||||||
| Net liquid assets | Rs. | 3,770.7 | Rs. | 3,818.7 | Rs. | 4,439.8 | ||||||
ICICI Bank held net liquid assets totaling to Rs. 4,439.8 billion at year-end fiscal 2022, compared to Rs. 3,770.7 billion at year-end fiscal 2021. In fiscal 2022, the Bank held fortnightly average net liquid assets of Rs. 3,818.7 billion. In addition to the amounts included in net liquid assets above, at year-end fiscal 2022, the Bank also held other fixed income non-government securities totaling to Rs. 12.6 billion compared to Rs. 17.8 billion at year-end fiscal 2021.
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In compliance with local regulations, some overseas branches of the Bank are required to maintain a ‘net due’ position with other group entities i.e. those branches need to be a net borrower above a specified amount or they cannot be a net lender beyond a specified amount. Accordingly, surplus liquidity maintained at those branches can be utilized at other group entities only to the extent of buffer available in the ‘net due’ position. At year-end fiscal 2022, such overseas branches of the Bank held net liquid assets of Rs. 275.3 billion (equivalent), which are included in our overall net liquid assets of the Bank of Rs. 4,439.8 billion. Additionally, given the stress on financial conditions arising from Covid-19, regulators in some geographies, such as Hong Kong, South Africa and Bahrain eased certain liquidity related regulatory requirements.
We also have access to other reliable sources of liquidity. The Reserve Bank of India conducts repurchase and reverse repurchase transactions with banks through its liquidity adjustment facility and marginal standing facility to carry out monetary policy and manage liquidity for the Indian banking system. The Reserve Bank of India stipulates an interest rate applicable to fixed rate repurchase, fixed rate reverse repurchase agreements and marginal standing facility, known as the repo rate, reverse repo rate and marginal standing facility rate respectively. In addition, Reserve Bank of India also conducts variable rate repurchase or reverse repurchase auction, rates for which are arrived through competitive bidding. At year-end fiscal 2022, the Reserve Bank of India repo rate, reverse repo rate and marginal standing facility rate were 4.0%, 3.35% and 4.25% respectively. The liquidity adjustment facility and marginal standing facility are available throughout the year. On April 8, 2022, the Reserve Bank of India operationalized a new standing deposit facility, which replaced the fixed rate reverse repo as the floor of the liquidity adjustment facility corridor at 25 basis points below the policy repo rate. The Reserve Bank of India increased the policy repo rate under the liquidity adjustment facility by 40 basis points on May 4, 2022 and further by 50 basis points on June 8, 2022. Accordingly, the Reserve Bank of India repo rate, standing deposit facility rate and marginal standing facility rate are at 4.90%, 4.65% and 5.15% respectively. At year-end fiscal 2022, under the marginal standing facility, in addition to the eligible securities a bank holds in excess of the statutory requirement, the banks could borrow overnight up to 2.0% of their net demand and time liabilities outstanding at the end of the second preceding 14-day period. Further, there is a liquid market for repurchase transactions with other market counterparties. Banks may enter into repurchase transactions with the Reserve Bank of India or other market counterparties against the statutory liquidity ratio eligible securities that hold in excess of the statutory requirement.
At year-end fiscal 2022, ICICI Bank had government securities amounting to Rs. 1,324.5 billion eligible for borrowings through the liquidity adjustment facility and marginal standing facility from the Reserve Bank of India.
The loan portfolio at the Bank’s overseas branches as a proportion of the total portfolio has declined from 5.1% at year-end fiscal 2021 to 4.8% at year-end fiscal 2022. We have a well-defined borrowing program for the overseas operations. The incremental wholesale borrowings are primarily in the form of inter-bank and money market borrowings. We also raise refinance from other banks against eligible trade assets. Those loans that meet the Export Credit Agencies’ criteria are refinanced as per the agreements entered into with these agencies. We also mobilize deposit liabilities, in accordance with the regulatory framework at the host country.
ICICI Bank has the ability to use its rupee liquidity in India to meet refinancing needs at its overseas branches, although this may be at a relatively high cost based on swap and exchange rates prevailing at the time of such refinancing. The terms of the Bank’s bond issuances and loans from other financial institutions and export credit agencies contain cross-default clauses, restrictions on its ability to merge or
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amalgamate with another entity and restrictions on the Bank’s ability to prematurely redeem or repay such bonds or loans. The terms of the Bank’s subordinated debt issuances eligible for inclusion in Tier 1 or Tier 2 capital include the suspension of interest payments in the event of losses or capital deficiencies, and a prohibition on redemption, even at maturity or on specified call option dates, without the prior approval of the Reserve Bank of India. The Bank is currently not, and does not expect to be, in breach of any material covenants of the Bank’s borrowings that would be construed as events of default under the terms of such borrowings.
The successful management of credit, market and operational risk is an important consideration in managing the liquidity because it affects the evaluation of our credit ratings by rating agencies. Rating agencies may reduce or indicate their intention to reduce the ratings at any time.
Rating agencies can also decide to withdraw their ratings of the Bank, which may have the same effect as a reduction in our ratings. Any reduction in our ratings (or withdrawal of ratings) may increase our borrowing costs, limit our access to capital markets and adversely affect our ability to sell or market our products, engage in business transactions (particularly longer-term transactions) and derivatives transactions, or retain our customers. See also “Risk Factors—Risks Relating to India and Other Economic and Market Risks—Any downgrade of India’s debt rating or the rating of our senior unsecured foreign currency debt by an international rating agency could adversely affect our business, liquidity and the prices of our equity shares and ADSs.”
In respect of our domestic operations, we may enter into collateralized borrowings in the form of repurchase transactions with the Reserve Bank of India or through Clearing Corporation of India Limited, a centralized clearing counterparty or with the market counterparties, against the statutory liquidity ratio eligible securities to meet expected and unexpected borrowings requirements. In general, the market value of collateral given for any such loan is higher than the value of the loan, the difference being referred to as a haircut. The Reserve Bank of India has stipulated the haircut for all such securities for borrowings from itself. In case of borrowings from products settled through Clearing Corporation of India Limited, members of Clearing Corporation of India Limited’s repo segment are required to maintain margin contributions in relation to their borrowing/lending obligation at any point of time, which acts as a cushion against any fall in the value of the underlying collateral.
Further, the Bank is also a member in the triparty repo segment and it may enter into collateralized borrowings in the form of repurchase transactions on the Triparty Repo Order Matching Platform provided by Clearcorp Dealing Systems (India) Ltd., a wholly owned subsidiary of Clearing Corporation of India Limited. Clearing Corporation of India Limited also performs the roles and responsibilities of a Triparty Repo Agent, in terms of Repurchase transactions (Repo) (Reserve Bank) Directions, 2018 as amended from time to time. The triparty repo agent has stipulated the haircuts for the eligible securities for borrowing through its platform and the market value of collateral required for any such loan is higher than the value of the loan.
We hold sufficient securities in our account to meet additional collateral requirements if required and systems and processes are in place to ensure sufficient balance in our Principal-Securities General Ledger account, Repo Constituent - Securities General Ledger account, Clearing Corporation of India Limited Securities Guarantee Fund and Tri-party repo margin account, resulting in smooth settlement of transactions.
Further, in case of any emergency requirement, additional securities may be transferred to our Securities Guarantee Fund/collateralized borrowing and lending obligations margin account on a T+0 basis. In case of corporate bond repo, the value of the securities is computed after applying the minimum haircut as stipulated by the clearing house or bilaterally agreed upon by counterparties depending upon the credit rating of the underlying security. The Bank also deals with central counterparties for settlement of government securities outright and repo transactions, forex transactions, interest rate and currency derivatives for which it needs to contribute towards margin obligations. We may be required to post additional collateral in case of downgrade in the external credit rating of the Bank under letter of credit, stand-by letter of credit, bank guarantee and unfunded risk participation agreements.
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In respect of overseas branch operations, generally, the collateral requirements are applicable to banks that have outstanding repo borrowings subject to margining and consequent collateral deposits are governed by the global master repurchase agreement. Asset Liability Management Committee has approved a framework for accepting covenants, linked to a credit rating downgrade of the Bank and a breach in thresholds of certain financial covenants as a part of borrowing agreements. A stress scenario has been formulated, which is linked to potential outflows due to a breach of rating downgrade covenants.
Off-balance sheet items including funding commitments have impact on the liquidity of the Bank. We analyze the behavioral profile of various components of the off-balance sheet items. The behavioral analysis includes potential cash flows from off-balance sheet activities, such as draw down under loan commitments, contingent liabilities and market related transactions. The impact of the same is considered by us in various liquidity risk reports.
In view of the margin rules for non-centrally cleared derivative transactions issued by the Basel Committee on Banking Supervision and discussion paper issued by the Reserve Bank of India, derivative transactions would be subject to margin-reset and consequent collateral exchange would be governed by the Credit Support Annex. The Bank has entered into a Credit Support Annex, which would require maintenance of collateral. The Bank considers the increased liquidity requirement on account of valuation changes in the transactions settled through qualified central counterparties including the clearing corporation of India and other exchange houses as well as for transactions covered under the Credit Support Annex. The potential outflows on account of such transactions have been considered based on the look-back approach prescribed in the Reserve Bank of India guidelines.
Volatility in the international debt markets may constrain our international borrowings. As of March 31, 2022, the Bank did not have any borrowing linked to credit downgrade covenants which would require the Bank to pay an increased interest rate on the borrowing.
There are restrictions on the use of liquidity maintained by UK and Canada subsidiaries of the Bank to meet their overall liquidity needs. The Office of the Superintendent of Financial Institutions of Canada has prescribed a limit of 100% of Tier 1 and Tier 2 capital (as defined under Canadian regulations) on the credit exposure to any single entity or a group of connected entities. ICICI Bank Canada has internally capped this credit exposure at CAD 150 million (37.9% of the limit specified by the Office of the Superintendent of Financial Institutions, except with respect to exposure to the ICICI Bank). The limit of CAD 150 million can be increased to a maximum of 75% of capital depending on the credit quality of the Group or Connection. In fiscal 2022, ICICI Bank Canada has complied with both regulatory and their internal limits on exposures to any single entity, including to ICICI Bank.
As per the Capital Requirements Regulation guidelines applicable for ICICI Bank UK PLC, a bank shall not incur an exposure, after taking into account the effect of the credit risk mitigation, to a client or group of connected clients the value of which exceeds 25% of its eligible capital. Where that client is an institution or where a group of connected clients includes one or more institutions, that value shall not exceed 25% of the bank’s eligible capital or GBP 130 million, whichever the higher. ICICI Bank UK PLC has a capital base of US$ 293 million at year-end fiscal 2022 which was higher than the regulatory requirement. Additionally, ICICI Bank UK PLC stipulates various internal limits to manage exposure concentrations within the Bank. The key parameters of risk concentrations measured include sectoral, country, rating category based, product specific exposures, counterparty and large exposures.
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Capital Expenditure
The following tables set forth, for the periods indicated, certain information related to capital expenditure by category of fixed assets.
| Fiscal 2020 | ||||||||||||||||||||||||
| Cost at year-end fiscal 2020 | Additions/ transfers/ | Deletions/ transfers | Depreciation | Net assets at year-end fiscal 2020 | ||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||
| Premises | Rs. | 91,641 | Rs. | 3,406 | (1) | Rs. | (758 | ) | Rs. | (19,790 | ) | Rs. | 74,499 | US$ | 1,019 | |||||||||
| Other fixed assets (including furniture and fixtures) | 72,963 | 15,800 | (2,948 | ) | (58,968 | ) | 26,847 | 367 | ||||||||||||||||
| Assets given on lease | 16,715 | 339 | — | (14,314 | ) | 2,740 | 37 | |||||||||||||||||
| Total | Rs. | 181,319 | Rs. | 19,545 | Rs. | (3,705 | ) | Rs. | (93,072 | ) | Rs. | 104,087 | US$ | 1,423 | ||||||||||
| (1) | Includes gain on revaluation recorded through reserve of Rs. 1,431 million. |
| Fiscal 2021 | ||||||||||||||||||||||||
| Cost at year-end fiscal 2021 | Additions/ transfers/ | Deletions/ transfers | Depreciation | Net assets at year-end fiscal 2021 | ||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||
| Premises | Rs. | 94,290 | Rs. | 1,891 | (1) | Rs. | (399 | ) | Rs. | (21,855 | ) | Rs. | 73,927 | US$ | 1,011 | |||||||||
| Other fixed assets (including furniture and fixtures) | 85,815 | 15,087 | (3,764 | ) | (66,259 | ) | 30,878 | 422 | ||||||||||||||||
| Assets given on lease | 17,054 | 681 | — | (14,448 | ) | 3,287 | 45 | |||||||||||||||||
| Total | Rs. | 197,159 | Rs. | 17,659 | Rs. | (4,163 | ) | Rs. | (102,562 | ) | Rs. | 108,093 | US$ | 1,478 | ||||||||||
| (1) | Includes gain on revaluation recorded through reserve of Rs. 500 million. |
| Fiscal 2022 | ||||||||||||||||||||||||
| Cost at year-end fiscal 2022 | Additions/ transfers/ revaluations | Deletions/ transfers | Depreciation | Net assets at year-end fiscal 2022 | ||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||
| Premises | Rs. | 95,782 | Rs. | 3,335 | (1) | Rs. | (4,771 | ) | Rs. | (23,514 | ) | Rs. | 70,832 | US$ | 934 | |||||||||
| Other fixed assets (including furniture and fixtures) | 97,137 | 15,252 | (13,605 | ) | (66,817 | ) | 31,968 | 421 | ||||||||||||||||
| Assets given on lease | 17,735 | 156 | — | (14,636 | ) | 3,255 | 43 | |||||||||||||||||
| Total | Rs. | 210,654 | Rs. | 18,743 | Rs. | (18,376 | ) | Rs. | (104,967 | ) | Rs. | 106,055 | US$ | 1,398 | ||||||||||
| (1) | Includes gain on revaluation recorded through reserve of Rs. 1,743 million. |
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Collateral Management
Overview
We define collateral as the assets or rights provided to the Bank by the borrower or a third party in order to secure a credit facility. The Bank would have the rights of a secured creditor in respect of the assets/contracts offered as security for the obligations of the borrower/obligor. The underlying documentation for the collateral is designed to provide the Bank with appropriate rights over the collateral or other forms of credit enhancement including the right to liquidate, retain or take legal possession of it in a timely manner in the event of default by the counterparty. We also endeavor to keep the assets provided as security to the Bank under adequate insurance during the tenor of the Bank’s exposure. The Bank monitors the collateral value periodically.
Collateral Valuation
We have an internal framework for updating the collateral values of commercial loans on a periodic basis. Generally, for commercial loans, the value of moveable property and immovable property held as collateral is updated annually, subject to extant regulatory guidelines. For commercial and industrial properties, the Bank obtains a valuation report at least once in two years. However, in the following scenarios the Bank obtains the valuation report on an annual basis:
| a) | Borrower has been classified as non-performing asset/red flagged account (accounts which show early warning signals of frauds/potential frauds); |
| b) | The outstanding exceeds Rs. 500 million; and |
| c) | The Bank is the sole lender or the lead bank in the consortium or the largest lender in a multiple banking arrangement. |
Types of Collateral Taken by the Bank
We determine the appropriate collateral for each facility based on the type of product and risk profile of the counterparty. In the case of corporate and small and medium enterprises financing, fixed assets are generally taken as security for long tenor loans and current assets for working capital finance. For project finance, security of the assets of the borrower and assignment of the underlying project contracts is generally taken. In addition, in some cases, additional security such as pledge of shares, cash collateral, charge on receivables with an escrow arrangement and guarantees is also taken.
For retail products, the security to be taken is defined in the product policy for the respective products. Housing loans and automobile loans are secured by the security of the property/automobile being financed
The Bank also offers products which are primarily based on collateral, such as shares, specified securities, warehoused commodities and gold jewelry, subject to the extant regulations. These products are offered in line with the approved product policies which include types of collateral, valuation and margining.
The Bank extends unsecured facilities to clients for certain products such as derivatives, credit cards and personal loans and to corporate borrowers. The limits with respect to unsecured facilities have been approved by our Board of Directors.
The decision on the type and quantum of collateral for each transaction is made by the credit approving authority as per the credit approval authorization approved by the Board of Directors/Credit Committee. For facilities provided as per approved product policies, collateral is taken in line with the policy.
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Significant Changes
Except as otherwise stated in this annual report, we have experienced no significant changes since the date of fiscal 2022 consolidated financial statements contained in this annual report.
Segment Revenues and Assets
The Reserve Bank of India in its guidelines on “segmental reporting” has stipulated specified business segments and their definitions, for the purposes of public disclosures on business information for banks in India.
The consolidated segmental report for fiscal 2022, based on the segments identified and defined by the Reserve Bank of India, has been presented as follows:
| · | Retail Banking includes our exposures which satisfy the four qualifying criteria of “regulatory retail portfolio” as stipulated by the Reserve Bank of India’s Basel III guidelines. These criteria are as follows: |
| (i) | Orientation criterion: The exposure is to an individual person or persons or to a small business; person under this clause would mean any legal person capable of entering into contracts and would include but not be restricted to an individual, Hindu Undivided Family, partnership firm, trust, private limited companies, public limited companies, co-operative societies, etc. A small business is defined as one where the three-year average annual turnover is less than Rs. 500 million. |
| (ii) | Product criterion: All exposures should take the form of any of the following: |
| · | revolving credits and lines of credit (including overdrafts); |
| · | term loans and leases (e.g. installment loans and leases, student and educational loans); and |
| · | small business facilities and commitments. |
| (iii) | Low value of individual exposures: The maximum aggregate retail exposure to one counterparty should not exceed the absolute threshold limit of Rs. 75 million. |
| (iv) | Granularity criterion: The regulatory retail portfolio should be sufficiently diversified to a degree that reduces the risks in the portfolio. The aggregate exposure to one counterparty should not exceed 0.2% of the overall retail portfolio. |
| · | Wholesale Banking includes all advances to trusts, partnership firms, companies and statutory bodies by the Bank which are not included in the Retail Banking segment, as per the Reserve Bank of India guidelines for the Bank. |
| · | Treasury includes the entire investment and derivative portfolio of the Bank and ICICI Strategic Investments Fund. |
| · | Other Banking includes leasing operations and other items not attributable to any particular business segment of the Bank. It also includes the Bank’s banking subsidiaries, i.e., ICICI Bank UK PLC and ICICI Bank Canada. |
| · | Life Insurance represents results of ICICI Prudential Life Insurance Company Limited. |
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| · | General Insurance represents results of ICICI Lombard General Insurance Company Limited. From April 1, 2021, ICICI Lombard General Insurance Company Limited ceased to be a subsidiary and accordingly general insurance has been discontinued as a business segment from April 1, 2021. From April 1, 2021, the Bank’s share in the net profit of ICICI Lombard General Insurance Company Limited is included in “share of profit in associates”. |
| · | Others include ICICI Home Finance Company Limited, ICICI Venture Funds Management Company Limited, ICICI International Limited, ICICI Securities Primary Dealership Limited, ICICI Securities Limited, ICICI Securities Holdings Inc., ICICI Securities Inc., ICICI Prudential Asset Management Company Limited, ICICI Prudential Trust Limited, ICICI Investment Management Company Limited, ICICI Trusteeship Services Limited and ICICI Prudential Pension Funds Management Company Limited. |
| · | Unallocated includes items such as income tax paid in advance net of provision for tax, deferred tax and provisions to the extent reckoned at entity level. |
Framework for Transfer Pricing
Liabilities of retail banking and wholesale banking segments are transfer priced to a central treasury unit, which pools all funds and lends to the business units at appropriate rates based on the relevant maturity of assets being funded after adjusting for regulatory reserve requirements and specific charge on account of directed lending to certain sectors categorized as priority sector. Current account and savings account deposits are transfer priced at rates, linked to interest rate on savings account deposits. For term deposits and borrowings, the transfer pricing is primarily based on the categories specified in the Transfer Pricing Policy. Transfer pricing to our asset creation units is based on the incremental cost of deposits (blended for current account and savings account deposits) and borrowings adjusted for the maturity of the asset (term premium) and regulatory reserve requirements. The allocated capital is also considered as a source of funding for the purpose of segmental reporting.
Fiscal 2022 Compared with Fiscal 2021
The following table sets forth, for the periods indicated, profit before tax of various segments.
| Year ended March 31, | ||||||||||||||||
| 2021 | 2022 | 2022 | 2022/2021 % change | |||||||||||||
| (in millions, except percentages) | ||||||||||||||||
| Retail Banking | Rs. | 77,400 | Rs. | 114,004 | US$ | 1,502 | 47.3 | % | ||||||||
| Wholesale Banking | 58,200 | 90,529 | 1,193 | 55.5 | ||||||||||||
| Treasury | 106,156 | 96,745 | 1,275 | (8.9 | ) | |||||||||||
| Other Banking | 5,736 | 6,271 | 83 | 9.3 | ||||||||||||
| Life Insurance | 10,811 | 7,906 | 104 | (26.9 | ) | |||||||||||
| General Insurance(1) | 19,540 | — | — | — | ||||||||||||
| Others | 40,077 | 43,500 | 573 | 8.5 | ||||||||||||
| Inter-Segment adjustments | (11,579 | ) | (16,792 | ) | (221 | ) | 45.0 | |||||||||
| Share of profit from associates(1) | 1,443 | 7,544 | 99 | — | ||||||||||||
| Unallocated expenses | (47,500 | ) | 250 | 3 | — | |||||||||||
| Profit before tax | Rs. | 260,284 | Rs. | 349,957 | US$ | 4,611 | 34.5 | % | ||||||||
| 1. | Effective April 1, 2021, ICICI Lombard General Insurance Company Limited ceased be a subsidiary of the Bank and was accounted as an equity affiliate under Accounting Standard – 23 – “Accounting for Investments in Associates” in consolidated financial statements. |
Retail Banking
The following table sets forth, for the periods indicated, the principal components of profit before tax.
| Year ended March 31, | ||||||||||||||||
| 2021 | 2022 | 2022 | 2022/2021 % change | |||||||||||||
| (in millions, except percentages) | ||||||||||||||||
| Net interest income | Rs. | 223,463 | Rs. | 259,120 | US$ | 3,415 | 16.0 | % | ||||||||
| Other income | 84,437 | 104,298 | 1,375 | 23.5 | ||||||||||||
| Total income | 307,900 | 363,418 | 4,790 | 18.0 | ||||||||||||
| Operating expenses | 160,852 | 194,668 | 2,566 | 21.0 | ||||||||||||
| Profit before provisions | 147,048 | 168,750 | 2,224 | 14.8 | ||||||||||||
| Provisions | 69,648 | 54,746 | 722 | (21.4 | ) | |||||||||||
| Profit before tax | Rs. | 77,400 | Rs. | 114,004 | US$ | 1,502 | 47.3 | % | ||||||||
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The following table sets forth, for the periods indicated, the outstanding balances of key assets and liabilities.
| Outstanding balance at March 31, | ||||||||||||||||
| 2021 | 2022 | 2022 | 2022/2021 % change | |||||||||||||
| (in millions, except percentages) | ||||||||||||||||
| Advances | Rs. | 3,966,856 | Rs. | 4,704,559 | US$ | 62,008 | 18.6 | % | ||||||||
| Deposits | 6,604,063 | 7,616,264 | 100,386 | 15.3 | ||||||||||||
The profit before tax of the retail banking segment increased by 47.3% from Rs. 77.4 billion in fiscal 2021 to Rs. 114.0 billion in fiscal 2022, primarily due to an increase in non-interest income and net interest income and a reduction in provisions, offset, in part, by an increase in operating expenses.
Net interest income increased by 16.0% from Rs. 223.5 billion in fiscal 2021 to Rs. 259.1 billion in fiscal 2022, primarily due to an increase in the average loan portfolio.
Other income increased by 23.5% from Rs. 84.4 billion in fiscal 2021 to Rs. 104.3 billion in fiscal 2022, primarily due to an increase in fee income from credit cards and transaction banking fees. Fee income in fiscal 2021 was significantly impacted due to lower borrowing and investment activity by customers and lower consumer spends due to Covid-19 pandemic.
Operating expenses increased by 21.0% from Rs 160.9 billion in fiscal 2021 to Rs 194.7 billion in fiscal 2022, primarily due to an increase in employee expenses, technology related expenses, direct marketing agency expenses and advertisement and sales promotion expenses.
Provisions (net of write-back) decreased from Rs. 69.7 billion in fiscal 2021 to Rs. 54.7 billion in fiscal 2022 primarily due to higher upgrades and recoveries from non-performing loans resulting in lower provisioning requirement, offset, in part, by provision made on loans restructured under the Reserve Bank of India’s Resolution Framework. See also “Business – Risk management – Credit risk – Assessment of Retail Loans.”
Wholesale Banking
The following table sets forth, for the periods indicated, the principal components of profit before tax.
| Year ended March 31, | ||||||||||||||||
| 2021 | 2022 | 2022 | 2022/2021 % change | |||||||||||||
| (in millions, except percentages) | ||||||||||||||||
| Net interest income | Rs. | 110,690 | Rs. | 126,158 | US$ | 1,663 | 14.0 | % | ||||||||
| Other income | 35,998 | 47,578 | 627 | 32.2 | ||||||||||||
| Total income | 146,688 | 173,736 | 2,290 | 18.4 | ||||||||||||
| Operating expenses | 43,504 | 55,357 | 730 | 27.2 | ||||||||||||
| Profit before provisions | 103,184 | 118,379 | 1,560 | 14.7 | ||||||||||||
| Provisions | 44,984 | 27,850 | 367 | (38.1 | ) | |||||||||||
| Profit before tax | Rs. | 58,200 | Rs. | 90,529 | US$ | 1,193 | 55.5 | % | ||||||||
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The following table sets forth, for the periods indicated, the outstanding balances of key assets and liabilities.
| Outstanding balance at March 31, | ||||||||||||||||
| 2021 | 2022 | 2022 | 2022/2021 % change | |||||||||||||
| (in millions, except percentages) | ||||||||||||||||
| Advances | Rs. | 3,197,629 | Rs. | 3,928,994 | US$ | 51,786 | 22.9 | % | ||||||||
| Deposits | 2,659,481 | 3,022,194 | 39,834 | 13.6 | ||||||||||||
The profit before tax of the wholesale banking segment increased from Rs. 58.2 billion in fiscal 2021 to Rs. 90.5 billion in fiscal 2022, primarily due to a decrease in provisions and an increase in net interest income and non-interest income, offset, in part, by an increase in operating expenses.
Net interest income increased by 14.0% from Rs. 110.7 billion in fiscal 2021 to Rs. 126.2 billion in fiscal 2022 primarily due to an increase in average loan portfolio.
Other income increased by 32.2% from Rs. 36.0 billion in fiscal 2021 to Rs. 47.6 billion in fiscal 2022 primarily due to an increase in income from lending linked fees, commercial banking fees and foreign exchange and derivatives products.
Operating expenses increased by 27.2% from Rs 43.5 billion in fiscal 2021 to Rs 55.4 billion in fiscal 2022 primarily due to an increase in employee expenses and technology related expenses.
Provisions decreased from Rs. 45.0 billion in fiscal 2021 to Rs. 27.9 billion in fiscal 2022 primarily due to higher upgrades to performing category from non-performing category and recoveries from non-performing loans. See Also “Operating and Financial Review and Prospects—Other Income—Provisions and contingencies (excluding provision for tax)”.
Treasury
The following table sets forth, for the periods indicated, the principal components of profit before tax.
| Year ended March 31, | ||||||||||||||||
| 2021 | 2022 | 2022 | 2022/2021 % change | |||||||||||||
| (in millions, except percentages) | ||||||||||||||||
| Net interest income | Rs. | 50,702 | Rs. | 84,890 | US$ | 1,119 | 67.4 | % | ||||||||
| Other income | 66,000 | 38,177 | 503 | (42.2 | ) | |||||||||||
| Total income | 116,702 | 123,067 | 1,622 | 5.5 | ||||||||||||
| Operating expenses | 9,863 | 15,370 | 203 | 55.8 | ||||||||||||
| Profit before provisions | 106,839 | 107,697 | 1,419 | 0.8 | ||||||||||||
| Share of profit from associates | 1,443 | 7,544 | 99 | — | ||||||||||||
| Provisions | (760 | ) | 3,408 | 45 | — | |||||||||||
| Profit before tax | Rs. | 106,156 | Rs. | 96,745 | US$ | 1,275 | (8.9 | )% | ||||||||
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The following table sets forth, for the periods indicated, the closing balances of key assets and liabilities.
| Closing balance at March 31, | ||||||||||||||||
| 2021 | 2022 | 2022 | 2022/2021 % change | |||||||||||||
| (in millions, except percentages) | ||||||||||||||||
| Investments | Rs. | 2,817,158 | Rs. | 3,140,040 | US$ | 41,387 | 11.5 | % | ||||||||
| Borrowings | 916,310 | 1,072,314 | 14,134 | 17.0 | ||||||||||||
Our treasury operations include the maintenance and management of regulatory reserves, proprietary trading in equity and fixed income and a range of foreign exchange and derivatives products and services, such as forward contracts, swaps and options.
The profit before tax of the treasury segment decreased from Rs. 106.2 billion in fiscal 2021 to Rs. 96.7 billion in fiscal 2022 primarily due to a decrease in other income and an increase in operating expenses and provisions, offset, in part, by an increase in net interest income.
Net interest income increased by 67.4% from Rs. 50.7 billion in fiscal 2021 to Rs. 84.9 billion in fiscal 2022 primarily due to an increase in interest income on investments and a decrease in borrowing cost. Net interest income during fiscal 2022 was also positively impacted by capital raised by the Bank amounting to Rs. 150.0 billion through Qualified Institutional Placement in August 2020.
Other income decreased from Rs. 66.0 billion in fiscal 2021 to Rs. 38.2 billion in fiscal 2022. In fiscal 2021, the Bank made a gain of Rs. 33.0 billion on sale of equity shares of ICICI Lombard General Insurance Company Limited, ICICI Prudential Life Insurance Company Limited and ICICI Securities Limited. Gain on government securities and other fixed income positions decreased from Rs. 14.6 billion in fiscal 2021 to Rs. 1.7 billion in fiscal 2022. In fiscal 2021, the gain was higher primarily due to a decrease in yield on government securities resulting in higher opportunities for gains.
Operating expenses increased from Rs. 9.9 billion in fiscal 2021 to Rs. 15.4 billion in fiscal 2022 primarily due to an increase in premium paid towards purchase of priority sector lending certificates
Provisions on investments increased from write back of Rs. 0.8 billion in fiscal 2021 to provision of Rs. 3.4 billion in fiscal 2022.
Other Banking
The following table sets forth, for the periods indicated, the principal components of profit before tax.
| Year ended March 31, | ||||||||||||||||
| 2021 | 2022 | 2022 | 2022/2021 % change | |||||||||||||
| (in millions, except percentages) | ||||||||||||||||
| Net interest income | Rs. | 11,715 | Rs. | 10,316 | US$ | 136 | (11.9 | )% | ||||||||
| Other income | 2,017 | 3,418 | 45 | 69.5 | ||||||||||||
| Total income | 13,732 | 13,734 | 181 | 0.0 | ||||||||||||
| Operating expenses | 6,614 | 7,245 | 95 | 9.5 | ||||||||||||
| Profit before provisions | 7,118 | 6,489 | 86 | (8.8 | ) | |||||||||||
| Provisions | 1,382 | 218 | 3 | (84.2 | ) | |||||||||||
| Profit before tax | Rs. | 5,736 | Rs. | 6,271 | US$ | 83 | 9.3 | % | ||||||||
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The following table sets forth, for the periods indicated, the outstanding balances of the key assets and liabilities.
| Outstanding balance on March 31, | ||||||||||||||||
| 2021 | 2022 | 2022 | 2022/2021 % change | |||||||||||||
| (in millions, except percentages) | ||||||||||||||||
| Advances | Rs. | 584,885 | Rs. | 553,824 | US$ | 7,300 | (5.3 | )% | ||||||||
| Investments | 79,681 | 75,292 | 992 | (5.5 | ) | |||||||||||
| Deposits | 362,090 | 296,919 | 3,914 | (18.0 | ) | |||||||||||
| Borrowings | Rs. | 181,461 | Rs. | 174,350 | US$ | 2,298 | (3.9 | )% | ||||||||
Other banking business includes our leasing operations, our overseas banking subsidiaries and other items not attributable to any particular business segment of the Bank.
The profit before tax of our other banking segment increased by 9.3% from Rs. 5.7 billion in fiscal 2021 to Rs. 6.3 billion in fiscal 2022, primarily due to an increase in other income and a decrease in provisions, offset, in part, by a decrease in net interest income.
Net interest income decreased by 11.9% from Rs. 11.7 billion in fiscal 2021 to Rs. 10.3 billion in fiscal 2022. Net interest income of ICICI Bank Canada decreased marginally from Rs. 2.9 billion in fiscal 2021 to Rs. 2.8 billion in fiscal 2022. Net interest income of ICICI Bank UK PLC decreased from Rs. 3.8 billion in fiscal 2021 to Rs. 3.0 billion in fiscal 2022 primarily due to a reduction in the loan book, offset, in part, by decrease in interest expenses. Net interest income of the Bank’s other banking business decreased from Rs. 5.0 billion in fiscal 2021 to Rs. 4.5 billion in fiscal 2022.
Other income increased by 69.5% from Rs. 2.0 billion in fiscal 2021 to Rs. 3.4 billion in fiscal 2022, primarily due to an increase in other income of ICICI Bank Canada and ICICI Bank UK PLC.
Operating expenses increased by 9.5% from Rs. 6.6 billion in fiscal 2021 to Rs. 7.2 billion in fiscal 2022.
Provisions decreased from Rs. 1.4 billion in fiscal 2021 to Rs. 0.2 billion in fiscal 2022.
The impact on the economy due to future trajectory of Covid-19 pandemic, other global developments, including movement in oil prices, trade-related disputes, the ongoing exit of the United Kingdom from the European Union and geo-political conflicts, including the conflict between Russia and Ukraine, may impact economic conditions in Canada and the United Kingdom, which in turn could impact the business of our banking subsidiaries in these countries. Further, the Group is targeting reduction in the non-India linked corporate loan portfolio of ICICI Bank, ICICI Bank UK PLC and ICICI Bank Canada.
Life Insurance
The following table sets forth, for the periods indicated, the principal components of profit before tax.
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| Year ended March 31, | ||||||||||||||||
| 2021 | 2022 | 2022 | 2022/2021 % change | |||||||||||||
| (in millions, except percentages) | ||||||||||||||||
| Premium earned | Rs. | 357,328 | Rs. | 374,580 | US$ | 4,937 | 4.8 | % | ||||||||
| Premium on re-insurance ceded | (7,595 | ) | (11,367 | ) | (150 | ) | 49.7 | |||||||||
| Net premium earned | 349,733 | 363,213 | 4,787 | 3.9 | ||||||||||||
| Other income | 26,329 | 28,453 | 375 | 8.1 | ||||||||||||
| Investment income | 59,666 | 60,227 | 794 | 0.9 | ||||||||||||
| Total income | 435,728 | 451,893 | 5,956 | 3.7 | ||||||||||||
| Commission paid | 15,002 | 16,729 | 220 | 11.5 | ||||||||||||
| Claims/benefits paid | 33,213 | 59,038 | 778 | 77.8 | ||||||||||||
| Operating expenses | 28,886 | 39,294 | 518 | 36.0 | ||||||||||||
| Total expenses | 77,101 | 115,061 | 1,516 | 49.2 | ||||||||||||
| Transfer to linked funds | 218,011 | 193,959 | 2,556 | (11.0 | ) | |||||||||||
| Provisions for policy holder liabilities (non-linked) | 129,805 | 134,967 | 1,780 | 4.0 | ||||||||||||
| Profit before tax | Rs. | 10,811 | Rs. | 7,906 | US$ | 104 | (26.9 | )% | ||||||||
| (1) | Previous period figures have been re-grouped/re-classified where necessary to conform to current period classification. |
The following table sets forth, for the periods indicated, the outstanding balance of key assets and liabilities.
| Outstanding balance on March 31, | ||||||||||||||||
| 2021 | 2022 | 2022 | 2022/2021 % change | |||||||||||||
| (in millions, except percentages) | ||||||||||||||||
| Investments | Rs. | 695,624 | Rs. | 828,880 | US$ | 10,925 | 19.2 | % | ||||||||
| Assets held to cover linked liabilities | 1,385,491 | 1,508,663 | 19,885 | 8.9 | ||||||||||||
| Liabilities on life policies | Rs. | 2,031,800 | Rs. | 2,288,272 | US$ | 30,160 | 12.6 | % | ||||||||
The profit before tax of ICICI Prudential Life Insurance Company decreased from Rs. 10.8 billion in fiscal 2021 to Rs. 7.9 billion in fiscal 2022 primarily due to higher claims incurred including Covid-19 related death claims in fiscal 2022.
The total premium income of ICICI Prudential Life Insurance Company increased by 4.8% from Rs. 357.3 billion in fiscal 2021 to Rs. 374.6 billion in fiscal 2022 primarily due to an increase in retail new business premium and group premium. Retail new business premium increased by 18.5% from Rs. 78.5 billion in fiscal 2021 to Rs. 93.0 billion in fiscal 2022. Group premium increased by 13.5% from Rs. 59.3 billion in fiscal 2021 to Rs. 67.3 billion in fiscal 2022.
Other income of ICICI Prudential Life Insurance Company increased by 8.1% from Rs. 26.3 billion in fiscal 2021 to Rs. 28.5 billion fiscal 2022.
Investment income of ICICI Prudential Life Insurance Company increased marginally by 0.9% from Rs. 59.7 billion in fiscal 2021 to Rs. 60.2 billion in fiscal 2022.
Commission expenses of ICICI Prudential Life Insurance Company increased by 11.5% from Rs. 15.0 billion in fiscal 2021 to Rs. 16.7 billion in fiscal 2022.
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Claims and benefit payouts of ICICI Prudential Life Insurance Company increased by 77.8% from Rs. 33.2 billion in fiscal 2021 to Rs. 59.0 billion in fiscal 2022 primarily due to an increase in death claims and surrenders/withdrawals. Claims and benefits payouts also included Rs. 10.2 billion towards Covid-19 related claims in fiscal 2022.
Transfer to linked funds including the investible portion of the premium on linked policies of ICICI Prudential Life Insurance Company decreased by 11% from Rs. 218.0 billion in fiscal 2021 to Rs. 194.0 billion in fiscal 2022 primarily due to a decrease in linked premium. The investible portion of the premium on linked policies of life insurance represents the premium income including renewal premium received on linked policies of life insurance business invested, after deducting charges and premium for risk coverage, in the underlying asset or index chosen by the policy holder. Provision for policyholder liabilities increased from Rs. 129.8 billion in fiscal 2021 to Rs. 135.0 billion in fiscal 2022.
Employee expenses increased from Rs. 10.0 billion in fiscal 2021 to Rs. 12.0 billion in fiscal 2022. Other operating expenses increased from Rs. 18.9 billion in fiscal 2021 to Rs. 27.3 billion in fiscal 2022 primarily due to increase in advertisement and business conference expenses.
Others
The “others” segment mainly includes ICICI Prudential Asset Management Company Limited, ICICI Venture Funds Management Company Limited, ICICI Securities Limited, ICICI Securities Primary Dealership Limited and ICICI Home Finance Company Limited.
ICICI Prudential Asset Management Company manages the ICICI Prudential Mutual Fund, a leading mutual fund in India.
ICICI Securities Limited and ICICI Securities Primary Dealership Limited are engaged in equity underwriting and brokerage and primary dealership in government securities respectively. ICICI Securities Limited owns icicidirect.com, a leading online brokerage platform and is engaged in equities underwriting, securities broking and distribution of financial products.
The following table sets forth, for the periods indicated, the principal components of profit before tax.
| Year ended March 31, | ||||||||||||||||
| 2021 | 2022 | 2022 | 2022/2021 % change | |||||||||||||
| (in millions, except percentages) | ||||||||||||||||
| Net interest income | Rs. | 11,569 | Rs. | 14,709 | US$ | 194 | 27.1 | % | ||||||||
| Other income | 50,653 | 56,930 | 750 | 12.4 | ||||||||||||
| Total income | 62,222 | 71,639 | 944 | 15.1 | ||||||||||||
| Operating expenses | 21,186 | 25,823 | 340 | 21.9 | ||||||||||||
| Operating profit before provisions and tax | 41,036 | 45,816 | 604 | 11.7 | ||||||||||||
| Provision and contingencies | 959 | 2,316 | 31 | — | ||||||||||||
| Profit before tax | Rs. | 40,077 | Rs. | 43,500 | US$ | 573 | 8.5 | % | ||||||||
The profit before tax of the “others” segment increased by 8.5% from Rs. 40.1 billion in fiscal 2021 to Rs. 43.5 billion in fiscal 2022 primarily due to an increase in profit before tax of ICICI Securities Limited, ICICI Prudential Asset Management Company Limited and ICICI Home Finance Company Limited, offset, in part, by a decrease in profit before tax of ICICI Securities Primary Dealership Limited.
Net interest income increased by 27.1% from Rs. 11.6 billion in fiscal 2021 to Rs. 14.7 billion in fiscal 2022 primarily due to an increase in net interest income of our securities broking subsidiary and housing finance subsidiary, offset, in part, by a decrease in net interest income of our primary dealership subsidiary.
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Other income increased by 12.4% from Rs. 50.7 billion in fiscal 2021 to Rs. 56.9 billion in fiscal 2022 primarily due to an increase in brokerage income of our securities broking subsidiary and realized gain on sale of mutual fund investments of our asset management subsidiary, offset, in part, by a decrease in trading income of our primary dealership subsidiary.
Operating expenses increased by 21.9% from Rs. 21.2 billion in fiscal 2021 to Rs. 25.8 billion in fiscal 2022 primarily due to an increase in other operating expenses of our securities broking subsidiary and asset management subsidiary.
The profit before tax of ICICI Securities Limited increased from Rs. 14.6 billion in fiscal 2021 to Rs. 18.7 billion in fiscal 2022 primarily due to an increase in fee income and net interest income, offset, in part, by an increase in operating expense.
The profit before tax of ICICI Prudential Asset Management Company Limited increased from Rs. 15.7 billion in fiscal 2021 to Rs. 19.1 billion in fiscal 2022 primarily due to an increase in income from fund operations. Income from fund operations increased primarily due to an increase in management fees from mutual fund schemes.
The profit before tax of ICICI Securities Primary Dealership Limited decreased from Rs. 8.7 billion in fiscal 2021 to Rs. 4.4 billion in fiscal 2022 primarily due to a decrease in trading gains and net interest income.
The profit before tax of ICICI Home Finance Company Limited increased from Rs. 1.1 billion in fiscal 2021 to Rs. 1.2 billion in fiscal 2022 primarily due to an increase in net interest income and other income, offset, in part, by an increase in provisions and operating expenses. Other income increased primarily due to an increase in fee income.
The profit before tax of ICICI Venture Fund Management Company Limited decreased from Rs. 33 million in fiscal 2021 to Rs. 16 million in fiscal 2022 primarily due to lower gains from investment in venture capital units and an increase in operating expenses.
Unallocated Expenses
Unallocated expenses in fiscal 2022 includes contingency provision of Rs. 10.3 billion (fiscal 2021: Rs. 47.5 billion) and write-back of Covid-19 related provision amounting to Rs. 10.5 billion.
For a discussion of our results in fiscal 2021 compared to fiscal 2020 and certain comparative numbers in fiscal 2020, please refer to “Part I—Item 5. Operating and Financial Review and Prospects” contained in our Annual Report on Form 20-F for fiscal 2021 filed with the U.S Securities and Exchange Commission on July 30, 2021.
Reconciliation of Net Profit (after minority interest) between Indian GAAP and U.S. GAAP
Our consolidated financial statements are prepared in accordance with Indian GAAP, which differs in certain significant aspects from U.S. GAAP. The following discussion explains the significant adjustments to our consolidated profit after tax under Indian GAAP in fiscal 2022, fiscal 2021 and fiscal 2020 that would result from the application of U.S. GAAP instead of Indian GAAP.
Consolidated net income attributable to the shareholders of ICICI Bank of Rs. 511.8 billion in fiscal 2022 under U.S. GAAP was higher than the profit after tax attributable to the shareholders of ICICI Bank of Rs. 251.1 billion under Indian GAAP. In fiscal 2022, the net income under U.S. GAAP was higher primarily due to gain on deconsolidation of our former general insurance subsidiary, lower loan loss
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provisioning under U.S. GAAP as compared to Indian GAAP, the positive impact of amortization of loan processing fees net of costs and higher income on accounting for debt and equity securities under U.S. GAAP as compared to Indian GAAP, offset, in part, by net loss of our life insurance affiliate under U.S.GAAP as compared to net gain under Indian GAAP, higher deferred tax expenses under U.S. GAAP as compared to Indian GAAP and the impact of differences in accounting for compensation costs under U.S. GAAP. See also note 21 to our “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes” included herein.
The merger of ICICI Lombard General Insurance Company Limited and general insurance business of Bharti AXA General Insurance Company Limited was approved by the Insurance Regulatory and Development Authority of India with effect from September 8, 2021. ICICI Lombard General Insurance Company Limited issued two fully paid up equity shares to the shareholders of Bharti AXA for every 115 fully paid up equity shares. Subsequent to issuance of equity shares to Bharti AXA shareholders, the Bank’s shareholding in ICICI Lombard General Insurance Company Limited reduced to below 50.0%. Accordingly, under U.S. GAAP, the Bank has accounted its investment in ICICI Lombard General Insurance Company Limited as an affiliate with effect from September 8, 2021. Under U.S. GAAP, the retained interest in ICICI Lombard General Insurance Company Limited was fair valued on the date of loss of control based on the closing quoted price of the common stock of ICICI Lombard General Insurance Company Limited in the stock exchange. This resulted in a gain of Rs. 255.0 billion on deconsolidation under U.S. GAAP. Under Indian GAAP, the retained interest in ICICI Lombard General Insurance Company Limited was accounted at carrying value.
The difference in accounting for the allowances of credit losses resulted in a higher net income by Rs. 22.9 billion in fiscal 2022 (fiscal 2021: Rs. 48.7 billion) under U.S. GAAP as compared to Indian GAAP. This was primarily due to differences in the methodology of computing credit loss allowances between Indian GAAP and U.S. GAAP, resulting in timing differences in the recognition of such allowances.
Further, during fiscal 2022, under Indian GAAP, the Bank made provision on certain outstanding non-fund based facilities of borrowers where viable resolution plan was not implemented within the timelines prescribed in the guideline issued by the Reserve Bank of India. Under, U.S. GAAP, the Bank was already holding provision on these outstanding non-fund based facilities. During fiscal 2022, the Bank changed the provisioning rates on certain loans on a conservative basis under Indian GAAP. These resulted in higher provision under Indian GAAP as compared to U.S. GAAP in fiscal 2022.
During fiscal 2021, the Covid-19 pandemic resulted in a nation-wide lockdown in April-May 2020 which substantially impacted economic activity. The subsequent easing of lockdown measures led to gradual improvement in economic activity and progress towards normalcy from the second half of fiscal 2021. For the banking sector, these developments resulted in lower demand for loans and fee-based services and regulatory measures like moratorium on payment of dues and standstill in asset classification to mitigate the economic consequences on borrowers. They also resulted in increase in provisioning reflecting higher actual and expected additions to non-performing loans following the cessation of moratorium and asset classification standstill. In fiscal 2022, India witnessed two more waves of the Covid-19 pandemic and the re-imposition of localized/regional lock-down measures in certain parts of the country. While the number of new Covid-19 cases have reduced significantly and the Government of India has withdrawn most of the Covid-19 related restrictions, the future trajectory of the pandemic may have an impact on the results of the Bank and the Group. Under Indian GAAP, the Bank, on prudent basis, held contingency provisions amounting to Rs. 74.5 billion at March 31, 2022.
The geopolitical factors and the uncertain consequences, macroeconomic environment including the outlook on growth across the world and India and the future trajectory of Covid-19 pandemic may have an impact on the results of the Bank and the Group. The Group makes adjustments to appropriately address these economic circumstances over and above the model output under US GAAP by increasing the probability of default estimates based on management judgement. Accordingly, the Bank made management overlay on loan exposures under U.S. GAAP at March 31, 2022.
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The allowance for credit loss on loans and other financial assets under amortized cost was lower by Rs. 23.3 billion at March 31, 2022 (March 31, 2021: Rs. 0.5 billion) under U.S. GAAP as compared to Indian GAAP. Further, under Indian GAAP, specific provision is made on loans where strategic debt restructuring was invoked/implemented as prescribed by the Reserve Bank of India. The Bank has opted for fair value accounting for such loans and guarantees through income statement under U.S. GAAP. Accordingly, the impact of accounting on these loans is accounted in "Allowance for loan losses" for Indian GAAP and in the line item “Valuation of debt and equity securities” for U.S. GAAP. The Bank held fair value loss of Rs. 12.1 billion at March 31, 2022 under U.S. GAAP in the line item under “Valuation of debt and equity securities” on such loans.
See also note 21(a) to our “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes” included herein.
The difference in accounting for the valuation of debt and equity securities resulted in higher net income by Rs. 10.9 billion in fiscal 2022 as compared to lower income of Rs. 11.6 billion in fiscal 2021 under U.S. GAAP, as compared to Indian GAAP.
Under Indian GAAP unrealized losses on held-for-trading and available-for-sale securities are taken to profit and loss account, while net unrealized gains on investments by category are ignored. Under U.S. GAAP, unrealized gains or losses on trading assets are recognized in the profit and loss account and unrealized gains or losses on debt securities classified as ‘available-for-sale’, which include all securities classified as ‘held-to-maturity’ under Indian GAAP, are recognized in other comprehensive income under stockholders’ equity except for the unrealized losses on debt securities identified as credit loss which are recognized in profit and loss account.
Further, there was a negative impact of other adjustments of Rs. 1.6 billion in fiscal 2022 as compared to positive impact of Rs. 10.1 billion on net income in fiscal 2021 under U.S. GAAP. These primarily include difference due to premium/discount amortization on debt securities and difference in gain on debt securities sold during the year, between Indian GAAP and U.S. GAAP. Under U.S. GAAP, available-for-sale debt securities include all securities classified as ‘held to maturity’ under Indian GAAP. The First-In-First-Out method of accounting is applied on aggregate ‘available for sale’ securities under U.S. GAAP, resulting in difference in realized gain/(loss) on sale of securities between Indian GAAP and U.S. GAAP.
We earn fees and incur costs on the origination of loans which are recognized upfront under Indian GAAP but are amortized under U.S. GAAP. Amortization of loan origination fees and costs resulted in higher income by Rs. 3.9 billion in fiscal 2022 (fiscal 2021: higher by Rs. 4.3 billion) under U.S. GAAP as compared to Indian GAAP. Under U.S. GAAP as compared to Indian GAAP, retirement benefit cost was higher by Rs. 2.0 billion in fiscal 2022 (fiscal 2021: higher by Rs. 1.7 billion). While under Indian GAAP, actuarial gain or loss is recognized in the profit and loss account, under U.S. GAAP, the actuarial gain/loss is recognized through other comprehensive income and thereafter amortized through the income statement. During fiscal 2022, there was higher amortization of actuarial loss from other comprehensive income under U.S. GAAP, resulting in retirement benefit costs being higher under U.S. GAAP in fiscal 2022 as compared to Indian GAAP. See also “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes -Note 21(e)” included herein.
The difference in accounting for consolidation resulted in higher net income by Rs. 248.3 billion in fiscal 2022 as compared to higher net income by Rs. 6.2 billion in fiscal 2021 under U.S. GAAP, as compared to Indian GAAP. In fiscal 2022, the deconsolidation of our former general insurance subsidiary resulted in a gain of Rs. 255.0 billion. In fiscal 2022, our life insurance affiliate made a net loss of Rs. 1.8 billion (fiscal 2021: net income: Rs. 21.3 billion) under U.S. GAAP as compared to net profit of Rs. 7.5
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billion (fiscal 2021: Rs. 9.6 billion) under Indian GAAP. The net loss was primarily on account of unrealized loss on investment in equity securities, which is accounted through net income under U.S. GAAP. In fiscal 2022, the mark-to-market loss recognized in net income on equity securities was Rs. 6.1 billion (fiscal 2021: mark-to-market gain of Rs. 41.9 billion), out of which loss of Rs. 4.8 billion (fiscal 2021: mark-to-market gain of Rs. 9.4 billion) was recognized on the equity securities of the shareholders’ fund. The policyholders’ liabilities and unallocated policyholders’ surplus, net of amortization of deferred acquisition cost under U.S. GAAP were lower by Rs. 1.5 billion in fiscal 2022 (fiscal 2021: higher by Rs. 23.0 billion) as compared to Indian GAAP. This was primarily due to mark-to-market movement in liabilities pertaining to Guaranteed Savings Insurance Plan, reduction in unallocated policy holder’s surplus pertaining to participating policyholders and differences in the methodology of liability computation between U.S. GAAP and Indian GAAP. See also note 22(h) to our “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes” included herein.
Deferred tax expenses were higher by Rs. 21.7 billion in fiscal 2022 (fiscal 2021: higher by Rs. 12.1 billion) under U.S. GAAP, as compared to Indian GAAP.
Deferred taxes are recognized on temporary differences related to investments in subsidiaries, branches and affiliates under U.S. GAAP while under Indian GAAP, no deferred taxes are recognized on temporary differences related to investments in subsidiaries, branches and affiliates. In fiscal 2022, the Bank created deferred tax asset amounting to Rs. 9.3 billion under U.S. GAAP as compared to Rs. 3.7 billion in fiscal 2021 primarily on its investment in listed affiliates.
The Bank and its housing finance subsidiary create a Special Reserve through appropriation of profits, in order to avail the tax benefits as per the Income Tax Act, 1961. Under Indian GAAP, deferred tax liability has been recognized on such Special Reserve in accordance with the guidelines issued by Reserve Bank of India. Under U.S. GAAP, deferred taxes are recognized and measured based on the expected manner of recovery and deferred taxes are not recognized if the expected manner of recovery does not give rise to tax consequences. Accordingly, a deferred tax liability was not created on the Special Reserve based on the Group’s continuing intention to not ever withdraw/utilize such Special Reserve and based on an opinion from the legal counsel about non-taxability of such Special Reserve in the scenario of liquidation. In fiscal 2022, deferred tax expenses were lower by Rs. 3.7 billion (fiscal 2021: 2.7 billion) under U.S. GAAP as compared to Indian GAAP.
Further, there was a difference due to the negative tax impact of Rs. 36.9 billion in fiscal 2022 on U.S. GAAP adjustments over Indian GAAP as compared to the negative tax impact of Rs. 18.4 billion in fiscal 2021. See also “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes—Note 21(i)” included herein.
Consolidated net income attributable to the shareholders of ICICI Bank of Rs. 213.7 billion in fiscal 2021 under U.S. GAAP was higher than the profit after tax attributable to the shareholders of ICICI Bank of Rs. 183.8 billion under Indian GAAP. In fiscal 2021, the net income under U.S. GAAP was higher primarily due to lower loan loss provisioning under U.S. GAAP as compared to Indian GAAP, higher net income of our life insurance affiliate as compared to Indian GAAP and the positive impact of amortization of loan processing fees, net of costs, offset, in part, by lower income due to the impact of the differences in accounting for debt and equity securities under U.S. GAAP as compared to Indian GAAP, higher deferred tax expenses under U.S. GAAP as compared to Indian GAAP and the impact of differences in accounting for compensation costs under U.S. GAAP.
Consolidated net income attributable to the shareholders of ICICI Bank of Rs. 113.3 billion in fiscal 2020 under U.S. GAAP was higher than the profit after tax attributable to the shareholders of ICICI Bank of Rs. 95.7 billion under Indian GAAP. In fiscal 2020, the net income under U.S. GAAP was higher primarily due to lower loan loss provisioning under U.S. GAAP as compared to Indian GAAP, higher
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gains due to difference in accounting of debt and equity securities under U.S. GAAP as compared to Indian GAAP, lower provision on assets acquired in debt asset swap arrangements under U.S. GAAP as compared to Indian GAAP, the positive impact of amortization of loan processing fees, net of costs, under U.S. GAAP, offset, in part, by net loss in our life insurance affiliate as compared to net profit under Indian GAAP, higher deferred tax expenses under U.S. GAAP as compared to Indian GAAP and the impact of differences in accounting for compensation costs under U.S. GAAP. See also note 21 to our “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes” included herein.
For a further description of significant differences between Indian GAAP and U.S. GAAP, a reconciliation of net income and stockholders’ equity to U.S. GAAP and certain additional information required under U.S. GAAP, see notes 21 and 22 to our consolidated financial statements included herein.
Research and Development
We are investing in strengthening our technological capabilities, with key priorities being technology platforms, embedded banking, cloud adoption and data analytics and data warehousing. The Group is not materially dependent on the issuance of patents, trademarks, licenses etc. for carrying out its business purpose.
Critical Accounting Policies and Estimates
In order to understand our financial condition and the results of operations, it is important to understand our critical accounting policies and estimates and the extent to which we use judgments and estimates in applying those policies. Our accounting and reporting policies are in accordance with Indian GAAP and conform to standard accounting practices relevant to our products and services and the businesses in which we operate. Indian GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported income and expenses in the reported period. Accordingly, we use a significant amount of judgment and estimates based on assumptions for which the actual results are uncertain when we make the estimation. See also “Consolidated Financial Statements—Schedule 17—Significant Accounting Policies” included herein.
ICICI Bank Limited
Revenue recognition
Interest income is recognized in the profit and loss account as it accrues, including for cases where moratorium has been extended for payments of principal and/or interest as per Reserve Bank of India guideline dated March 27, 2020, except in the case of non-performing assets where it is recognized upon realization. Income on discounted instruments is recognized over the tenure of the instrument on a constant yield basis. Dividend income is accounted on accrual basis when the right to receive the dividend is established. Commission received on guarantees and letters of credit and annual/renewal fee on credit cards, debit cards and prepaid cards are amortized over the contractual period of the fees. Fees paid/received for priority sector lending certificates is amortized on straight-line basis over the period of the certificate. All other fees are accounted for as and when they become due where the Bank is reasonably certain of ultimate collection.
The revenue recognition involve uncertainties and are significantly affected by the assumptions used and judgments made for collectibility of the income. Changes in assumptions could significantly affect these estimates and the resulting recognition.
Accounting for Investments
ICICI Bank follows the trade date method of accounting for the purchase and sale of investments, except for Government of India and state government securities, for which the settlement date method of accounting is followed as per the Reserve Bank of India guidelines.
The Bank accounts for its investments in accordance with the guidelines on investment classification and valuation issued by the Reserve Bank of India. Investments are classified into the following categories: (a) held-to-maturity, (b) available-for-sale and (c) held-for-trading. Under each classification, we further categorize investments into (a) government securities, (b) other approved securities, (c) shares, (d) bonds and debentures, (e) subsidiaries and joint ventures and (f) others (commercial papers, certificate of deposits, mutual funds, pass through certificates, venture units, security receipts, etc.).
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Investments that are held principally for resale within 90 days from the date of purchase are classified as held-for-trading securities. Investments which the Bank intends to hold until maturity are classified as held-to-maturity securities. Investments which are not classified in either of the above categories are classified under available-for-sale securities. Investments in the equity of subsidiaries/joint ventures are categorized as held-to-maturity or available for sale in accordance with the Reserve Bank of India guidelines.
Costs, including brokerage and commission pertaining to investments paid at the time of acquisition and broken period interest (the amount of interest from the previous interest payment date until the date of purchase of instruments) on debt instruments, are charged to the profit and loss account.
The Bank computes the market value of its securities, under the available-for-sale and held-for-trading categories, scrip-wise (that is, by individual securities) and the depreciation/appreciation on securities, other than those acquired by way of conversion of outstanding loans is aggregated for each category. Net appreciation in each category under each investment classification, if any, is ignored, as it is unrealized while net depreciation is provided for. Depreciation on securities acquired by way of conversion of outstanding loan is fully provided for. Non performing investments are identified based on the Reserve Bank of India guidelines.
Held-to-maturity securities are carried at their acquisition cost or at the amortized cost, if acquired at a premium over the face value. Any premium over the face value of the fixed rate and floating rate securities acquired is amortized over the remaining period to maturity on a constant yield basis and straight line basis respectively.
Available-for-sale and held-for-trading securities of the Bank are valued in accordance with the guidelines issued by the Reserve Bank of India. The Bank amortizes the premium, if any, over the face value of its fixed and floating rate investments in government securities classified as available-for-sale over the remaining period to maturity on a constant yield basis and straight line basis respectively. The market value of quoted investments is based on the closing quotes on recognized stock exchanges or prices declared by the Primary Dealers Association of India jointly with Fixed Income Money Market and Derivatives Association/Financial Benchmark India Private Limited, periodically.
The Bank computes the market value of its unquoted government securities which are in the nature of statutory liquidity ratio securities included in the available-for-sale and held-for-trading categories in accordance with rates published by the Financial Benchmark India Private Limited.
The Bank computes the market value of unquoted non-government fixed income securities, including Pass Through Certificates, wherever linked to the yield-to-maturity rates, with a mark-up, reflecting associated credit risk, over the yield to maturity rates for government securities published by the Fixed Income Money Market and Derivatives Association. The sovereign foreign securities and non-INR India linked bonds are valued on the basis of prices published by the sovereign regulator or counterparty quotes.
Treasury bills, commercial papers and certificate of deposits being discounted instruments, are valued at carrying cost.
The units of mutual funds are valued at the latest repurchase price/net asset value declared by the mutual fund.
The Bank computes the market value of its unquoted equity shares at the break-up value, if the latest balance sheet is available. If such a balance sheet is not available, the unquoted equity shares are valued at Re. 1 in accordance with the Reserve Bank of India guidelines.
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The Bank values the securities receipts at the net asset value provided by asset reconstruction companies. The Bank makes additional provisions on the security receipts based on the remaining period for the resolution period to end. The security receipts which are outstanding and not redeemed as at the end of the resolution period are treated as loss assets and are fully provided for.
The Bank assesses investments in subsidiaries for any other than temporary diminution in value and appropriate provisions are made.
Gain/loss on sale of investments is recognized in the profit and loss Account. Cost of investments is computed based on the First-In-First-Out method. The profit from sale of investment under held-to-maturity category, net of taxes and transfer to statutory reserve is transferred to “Capital Reserve” in accordance with the Reserve Bank of India guidelines.
The Bank undertakes short sale transactions in dated central government securities in accordance with Reserve Bank of India guidelines. The short positions are categorized under held-for-trading category and are marked to market. The mark-to-market loss is charged to profit and loss account and gain, if any, is ignored as per Reserve Bank of India guidelines.
The Bank accounts for repurchase, reverse repurchase and transactions with Reserve Bank of India under Liquidity Adjustment Facility as borrowing and lending transactions in accordance with the Reserve Bank of India guidelines.
The valuation methodologies for investment involve uncertainties and are significantly affected by the assumptions used and judgments made regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows and other factors. Changes in assumptions could significantly affect these estimates and the resulting fair values.
Provisions/Write-offs on Loans and Other Credit Facilities
Loans and advances are classified into performing and non-performing loans as per Reserve Bank of India guidelines. Under Reserve Bank of India guidelines, an asset is generally classified as non-performing if any amount of interest or principal remains overdue for more than 90 days, in respect of term loans. In respect of overdraft or cash credit, an asset is classified as non-performing if the account remains out of order for a period of 90 days and in respect of bills, if the account remains overdue for more than 90 days. Loans held at the overseas branches that are identified as impaired as per host country regulations, but which are standard as per the extant Reserve Bank of India guidelines, are classified as non-performing loans to the extent of the amount outstanding in the respective host country. In accordance with the Reserve Bank of India guidelines post outbreak of Covid-19, the moratorium period, wherever granted, is excluded from the determination of number of days past-due/out-of-order status for the purpose of asset classification. Non-performing loans and advances are classified as standard, substandard, doubtful and loss assets based on number of days overdue. Interest on non-performing advances is transferred to an interest suspense account and not recognized in profit and loss account until received.
The Bank considers an account as restructured, where for economic or legal reasons relating to the borrower’s financial difficulty, the Bank grants concessions to the borrower, that the Bank would not otherwise consider. The moratorium granted to the borrowers based on Reserve Bank of India guidelines is not accounted as restructuring of loan. The Reserve Bank of India guidelines on ‘Resolution Framework for COVID-19-related Stress’ provide a prudential framework for resolution plan of certain loans. The borrowers where resolution plan was implemented under these guidelines are classified as standard restructured.
Provisions are generally made by the Bank on standard, substandard, doubtful and loss assets at rates prescribed by the Reserve Bank of India. The Bank holds specific provisions against non-performing loans and a general provision against standard loans. The Bank also makes specific provision on certain performing loans as per the direction of the Reserve Bank of India, including the Reserve Bank of India direction for provision on accounts referred to the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016. Loss assets and unsecured portions of doubtful assets are fully provided. For impaired loans held in overseas branches, which are performing as per Reserve Bank of India guidelines,
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provisions are made as per the host country regulations. For loans held in overseas branches, which are non-performing loans as per the Reserve Bank of India guidelines and as per host country regulations, provisions are made at the higher of the provisions required under Reserve Bank of India regulations and host country regulations. In respect of borrowers classified as non-cooperative borrowers or willful defaulters, the Bank makes accelerated provisions as per Reserve Bank of India guidelines. The Bank held specific provisions for non-performing retail loans that are higher than the minimum regulatory requirements.
In respect of non-retail loans reported as fraud to the Reserve Bank of India, the entire amount, is provided for over a period not exceeding four quarters starting from the quarter in which fraud has been detected. In respect of non-retail loans where there has been a delay in reporting the fraud to the Reserve Bank of India or which are classified as loss accounts, the entire amount is provided immediately. In the case of fraud in retail accounts, the entire amount is provided immediately. In respect of borrowers classified as non-cooperative borrowers or willful defaulters, the Bank makes accelerated provisions as per Reserve Bank of India guidelines.
The Bank makes provision on restructured loans subject to minimum requirements as per Reserve Bank of India guidelines. Provision due to diminution in the fair value of restructured/rescheduled loans and advances is made in accordance with the applicable Reserve Bank of India guidelines. Non-performing and restructured loans are upgraded to standard as per the extant Reserve Bank of India guidelines or host country regulations, as applicable. Banks are required to disclose the aggregate fund-based credit facilities of borrowers whose loans were restructured.
In terms of Reserve Bank of India guidelines, the non-performing advances are written-off in accordance with the Bank’s policy. Amounts recovered against bad debts written-off are recognized in the profit and loss account.
The Bank also creates general provisions on performing loans based on the guidelines issued by the Reserve Bank of India including provisions on loans to borrowers having unhedged foreign currency exposure, provisions on loans to specific borrowers in specific stressed sectors, provision on exposure to step-down subsidiaries of Indian companies and provision on incremental exposure to borrowers identified as per Reserve Bank of India’s large exposure framework. For performing loans in overseas branches, the general provision is made at higher of aggregate provision required as per host country regulations and the Reserve Bank of India requirement.
Additionally, the Bank creates provisions on individual country exposures including indirect country risk (other than for home country exposure). The countries are categorized into seven risk categories: insignificant, low, moderately low, moderate, moderately high, high and very high and provisioning is made on exposures exceeding 180 days on a graded scale ranging from 0.25% to 25%. For exposures with a contractual maturity of less than 180 days, provision is required to be held at 25% of the rates applicable to exposures exceeding 180 days. The indirect exposure is reckoned at 50% of the exposure. If the Bank’s net funded exposure in respect of a country is less than 1% of its total assets, no provision is required for such country exposure.
The Bank makes additional provisions as per Reserve Bank of India guidelines for the cases where viable resolution plan has not been implemented within the timelines prescribed by the Reserve Bank of India, from the date of default. These additional provisions are written-back on satisfying the conditions for reversal as per Reserve Bank of India guidelines.
The Bank, on prudent basis, has made Covid-19 related provision on certain borrowers, including those who had taken moratorium at any time during fiscal 2021 under the extant Reserve Bank of India guidelines. This provision is included as contingency provision in the books. The Bank also makes additional contingency provision on certain standard assets. The contingency provision is included in ‘Other Liabilities and Provisions’.
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The Bank has a Board approved policy for making floating provision for the year which is in addition to the specific and general provisions made by the Bank. The floating provision can only be utilized, with the approval of Board and the Reserve Bank of India, in case of contingencies which do not arise in the normal course of business and are exceptional and non-recurring in nature and for making specific provision for impaired loans as per the requirement of extant Reserve Bank of India guidelines or any regulatory guidance/instructions. The floating provision is netted-off from loans.
Depreciation/provision on non-performing investments is made based on the Reserve Bank of India guidelines.
The provisions on loans involve uncertainties and are significantly affected by the assumptions used and judgments made for provisions on non-performing loans and on performing loans and other credit exposures. Changes in assumptions could significantly affect these estimates and the resulting provisions.
ICICI Prudential Life Insurance Company
Premium for non-linked policies is recognized as income (net of goods and service tax) when due from policyholders. For unit-linked business, premium is recognized as income when the associated units are created. Premium on lapsed policies is recognized as income when such policies are reinstated.
Reinsurance premium ceded is accounted in accordance with the terms and conditions of the relevant treaties with the reinsurer. Profit commission on reinsurance ceded is netted off against premium ceded on reinsurance.
Death and rider claims are accounted for on receipt of intimation. Survival, maturity and annuity benefits are accounted when due. Withdrawals and surrenders under non-linked policies are accounted on the receipt of intimation and for unit-linked policies are accounted when the associated units are cancelled. Reinsurance claims are accounted in the period in which the claim is intimated.
Income from unit-linked policies, which includes fund management charges, policy administration charges, mortality charges and other charges, if any, are recovered from the unit-linked funds in accordance with terms and conditions of policies issued and are recognized when due.
Acquisition costs are costs that vary with and are primarily related to the acquisition of insurance contracts. It consists of costs like commission, stamp duty, policy issuance, employee cost and other related costs pertaining to the acquisition of insurance contracts. These costs are expensed in the period in which they are incurred.
The actuarial liabilities, for all inforce policies and policies where premiums are discontinued but a liability exists as at the valuation date, are calculated in accordance with the accepted actuarial practice, requirements of Insurance Act, 1938, as amended from time to time, regulations notified by the Insurance Regulatory and Development Authority of India, relevant Guidance notes and Actuarial Practice Standards of the Institute of Actuaries of India. . The unit liability in respect of linked business is the value of the units standing to the credit of policyholders, using the net asset value prevailing at the valuation date.
The actuarial liability for non-linked policies, both participating and non-participating, is calculated by the Company using the gross premium method, that involves assumptions for interest, mortality, morbidity, expenses and inflation, and in the case of participating policies, future bonuses together with allowance for taxation and allocation of future profits to shareholders. These assumptions are determined based on company’s experience and economic environment, including allowances for possible adverse deviations. The assumptions are evaluated on annual basis for their appropriateness. Any material change in experience could affect the assumptions, and hence the resulting liabilities.
The Funds for Future Appropriations, in the participating segment represents the surplus, which is not allocated to policyholders or shareholders as at the Balance Sheet date.
Investments are made and accounted for in accordance with the Insurance Act, 1938, Insurance Regulatory and Development Authority of India (Investment) Regulations, 2016, Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditor’s Report of Insurance Companies) Regulations, 2002, Investments – Master circular, Investment Policy of the Company and various other circulars/notifications issued by the Insurance Regulatory and Development Authority of India in this context from time to time.
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Unclaimed amount of policyholders’ liability is determined on the basis of net asset value of the units outstanding as at the valuation date. Income on unclaimed amount of policyholders is accreted to the unclaimed fund and is accounted for on an accrual basis, net of fund management charges.
The valuation methodologies for investment involve uncertainties and are significantly affected by the assumptions used and judgments made regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows and other factors. Changes in assumptions could significantly affect these estimates and the resulting fair values.
Fair Value Measurements
We determine the fair values of our financial instruments based on the fair value hierarchy established in ASC Topic 820. The standard describes three levels of inputs that may be used to measure fair value.
The valuation of Level 1 instruments is based upon the unadjusted quoted prices of identical instruments traded in active markets.
The valuation of Level 2 instruments is based upon the quoted prices for similar instruments in active markets, the quoted prices for identical or similar instruments in markets that are not active, prices quoted by market participants and prices derived from valuation models which use significant inputs that are observable in active markets. Inputs used include interest rates, yield curves, volatilities and credit spreads, which are available from public sources such as Reuters, Bloomberg, Foreign Exchange Dealers Association of India, Financial Benchmark India Private Limited and the Fixed Income Money Markets and Derivatives Association of India.
The valuation of Level 3 instruments is based on valuation techniques or models which use significant market unobservable inputs or assumptions. Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable or when the determination of the fair value requires significant management judgment or estimation.
The valuation methodologies adopted by us for valuing our investments and derivatives portfolio are summarized below. A substantial portion of the portfolio is valued based on the unadjusted quoted or traded prices or based on models using market observable inputs such as interest rates, yield curves, volatilities and credit spreads available from public sources like Fixed Income Money Markets and Derivatives Association of India, Foreign Exchange Dealers Association of India, Financial Benchmark India Private Limited Reuters, Bloomberg and stock exchanges.
The rupee denominated fixed income portfolio, which includes all rupee investments in government securities and corporate bonds, is valued based on guidelines for market participants established by the Fixed Income Money Market and Derivatives Association. The Fixed Income Money Market and Derivatives Association is an association of scheduled commercial banks, public financial institutions, primary dealers and insurance companies and is a voluntary market body for bonds, derivatives and money markets in India. The international investments portfolio is generally valued on the basis of quoted prices. In certain markets, due to illiquidity, we use alternate valuation methodologies based on our own assumptions and estimates of the fair values.
A substantial part of the derivatives portfolio is valued using market observable inputs like swap rates, foreign exchange rates, volatilities and forward rates. The valuation of derivatives is carried out primarily using the market quoted swap rates and foreign exchange rates. Certain structured derivatives are valued based on counterparty quotes. The exposure regarding derivative transactions is computed and is marked against the credit limits approved for the respective counterparties.
We also hold investments and derivatives that have been valued based on unobservable inputs or that involve significant assumptions made by the management in arriving at their fair values. Such instruments are classified under Level 3 as per the classification defined in FASB ASC Topic 820 “Fair Value Measurements and Disclosures”.
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A description of the valuation methodologies of Level 3 investments under U.S. GAAP
Our total investment in Level 3 instruments amounted to Rs. 65.5 billion at year-end fiscal 2022. Out of the total Level 3 investments, investments amounting to Rs. 61.9 billion were India-linked and investments amounting to Rs. 3.6 billion were non-India linked. India-linked investments consisted of pass through certificates of Rs. 58.7 billion, corporate bonds of Rs. 2.5 billion, preference shares of Rs. 0.7 billion and equity shares of Rs. 0.1 billion. Non-India linked investments consisted of mortgage backed securities of Rs. 3.5 billion and equity shares of Rs. 0.1 billion at year-end fiscal 2022.
The valuation of Indian pass through certificates is dependent on the estimated cash flows that the underlying trust would pay out. The underlying trust makes assumptions with regards to various variables to arrive at the estimated cash flows. The cash flows for pass through certificates are discounted at the yield-to-maturity rates and credit spreads published by Financial Benchmark India Private Limited and Fixed Income Money Market and Derivatives Association on month ends.
Bonds that have been identified as illiquid and valued on the basis of a valuation model are classified as Level 3 instruments, only if the input used to value those securities is collected from unobservable market data or if the bonds were valued after making adjustment to the market observable data. The investment in bonds of Rs. 2.5 billion were valued at the amortized cost net of impairment or using significant management estimates and assumptions or based on market value of the underlying collateral.Due to illiquidity in the asset backed and mortgage backed security markets, a substantial part of these securities are classified as Level 3 and valuation models are used to value these securities.
Our Canadian subsidiary holds retained interest, largely representing the excess spread of mortgage interest over the rate of return on the mortgaged backed securities, which has been recorded as available-for-sale securities in the balance sheet at fair value of Rs. 3.5 billion determined using an internal model.
Non-India linked equity shares of Rs. 0.1 billion were valued by applying discount to the market price of same company.
The methodologies we use for validating the valuation model of products which are valued with reference to market observable inputs include comparing the outputs of our models with counterparty quotes, in comparison with pricing from third party pricing tools, replicating the valuation methodology used in the model or other methods used on a case-by-case basis. The valuation is also carried out under various scenarios and are checked for consistency. However, for products where there are no reliable market prices or market observable inputs available, valuation is carried out using models developed using alternate approaches and incorporating proxies wherever applicable. The independent validation of valuation models is performed by an entity/unit independent of the risk management group.
Recently Issued Accounting Pronouncements under U.S. GAAP
Long-Duration Insurance Contracts
In August 2018, the FASB issued Accounting Standard Update No. 2018-12, Financial Services—Insurance: Targeted Improvements to the Accounting for Long-Duration Contracts, which changes the existing recognition, measurement, presentation and disclosures for long-duration contracts issued by an insurance company. The guidance improves the timeliness of recognizing changes in the liability for future policy benefits and prescribes the rate used to discount future cash flows for long-duration insurance contracts. It simplifies the accounting for certain market-based
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options or guarantees associated with deposit contracts and the amortization of deferred acquisition costs. The Guidance introduces additional quantitative and qualitative disclosures. The Bank has insurance subsidiary/affiliate that issue long-duration insurance contracts that will be impacted by the requirements of ASU 2018-12.
The effective date of ASU No. 2018-12 was deferred for all insurance entities by Accounting Standard Update No. 2019-09, Finance Services—Insurance: Effective Date and by Accounting Standard Update No. 2020-11, Financial Services—Insurance: Effective Date and Early Application. The Accounting Standard Update will be applicable to the Group from fiscal 2024 and the Group is currently evaluating the impact of the standard on its insurance affiliate.
Convergence of Indian Accounting Standards with International Financial Reporting Standards
In January 2016, the Ministry of Corporate Affairs issued the roadmap for implementation of new Indian Accounting Standards (Ind AS), converged with International Financial Reporting Standards, for scheduled commercial banks, insurance companies and non-banking financial companies . However, currently the implementation of Ind AS for banks and insurance companies has been deferred until further notice pending the consideration of some recommended legislative amendments by the Government of India. We are in an advanced stage of preparedness for implementation of Ind AS, as and when these are made applicable to the Indian banks. Further, there may be regulatory guidelines and clarifications in some critical areas of Ind AS application, which we will need to suitably incorporate in our implementation project as and when those are issued.
Financial statements prepared under standards different from existing GAAP may diverge significantly from the financial statements and other financial information included or incorporated by reference in this annual report. The major areas of differences include classification and mark-to-market accounting of financial assets, impairment of financial assets and allowance for expected credit losses, accounting of loan processing fees and costs, amortization of premium/discount on purchase of financial assets, consolidation accounting, employee stock options and deferred taxes.
Ind AS 109 - Financial Instruments (Standard equivalent to International Financial Reporting Standard 9) would have a significant impact on the way financial assets and liabilities are classified and measured, which may result in higher volatility in profit or loss and equity.
Under Indian GAAP, loans are measured at cost, net of provision. Investments are accounted for in accordance with the extant Reserve Bank of India guidelines on investment classification and valuation which require all investments to be classified as ‘held-to-maturity’, ‘available-for-sale’ and ‘held-for-trading’. According to the current guidelines, net loss in the available-for-sale and held for trading classifications is computed category-wise and recognized in the profit and loss account while net gains are ignored. As per Ind AS 109, all financial assets will have to be classified at ‘amortized cost’, ‘fair value through other comprehensive income’ or ‘fair value through profit and loss’. The above classification would be based on the business model test and the contractual cash flow test. All unrealized gains or losses for financial assets classified at ‘fair value through other comprehensive income’ would be accounted for in the other comprehensive income and on ‘assets at fair value through profit and loss’ in the profit and loss account. For the Bank, based on the assessment so far, the loans are likely to primarily qualify for amortized cost accounting, except for certain loans which are originated by the Bank with an intention to sell. A significant portion of the government bonds held by the Bank as ‘held-to-maturity’ under Indian GAAP may need to be classified in ‘fair value through other comprehensive income’ category under Ind AS because of their business model of both – hold to collect contractual cash flows, as well as selling these bonds to meet liquidity and other risk management requirements. Accordingly, the unrealized gains or losses on these investments would be accounted for in the other comprehensive income under Ind AS.
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We classify our assets, including those in our overseas branches, as performing and non-performing in accordance with the Reserve Bank of India’s guidelines. The Bank holds specific provisions against non-performing assets and general provision against performing assets. Non-performing assets are further classified into sub-standard, doubtful and loss assets based on the criteria stipulated by the Reserve Bank of India and provisions are made for sub-standard and doubtful assets at rates prescribed by the Reserve Bank of India. Loss assets and the unsecured portion of doubtful assets are provided/written-off as per the extant Reserve Bank of India guidelines. Ind AS 109 requires entities to recognize and measure a credit loss allowance or provision based on an expected credit loss model. The expected credit loss impairment model would apply to loans and debt securities measured at amortized cost or at fair value through other comprehensive income. The model is also intended to apply to outstanding non-fund facilities, undrawn fund/non-fund commitments and lease receivables. The impairment and expected credit loss requirements under Ind AS represents the most significant area of difference with the Indian GAAP and introduces substantial requirements of management judgment, estimates and assumptions in many areas, like significant increase in credit risk, expected life of financial instruments, computation of one-year and lifetime expected credit losses and incorporation of forward looking estimates in the expected credit losses model. While Ind AS 109 does not prescribe a specific method for estimating expected credit loss, the Bank proposes to primarily apply the approach for estimating expected credit loss based on Probability of Default, Loss Given Default and Exposure at Default, building on the internal ratings-based approach as introduced under the Basel framework. The Bank is currently finalizing these assumptions and methodologies and developing models, as well as discussing with industry participants, the Indian regulator and external consultant about the possible approaches to computation of expected credit losses.
Under Indian GAAP, origination fees and costs for financial instruments, including commissions paid to direct marketing agents, are accounted for upfront. Also, under Indian GAAP, the premium on purchase of certain investment securities is amortized, while the discount is recognized on maturity/sale of the instrument. Under Ind AS 109, origination fees (net of certain costs) and all other premiums/discounts will be amortized over the period of the financial instrument as an adjustment to the yield.
Under Indian GAAP, consolidation is required only if there is ownership of more than one-half of the voting power of an enterprise or control of the composition of the Board of Directors in the case of a company or of the composition of the governing body in case of any other enterprise. Ind AS 110 - Consolidated Financial Statements establishes control as the basis for consolidation and defines the principle of control. Under Ind AS 110, an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The implementation of this standard will require the Bank to exercise significant judgment to determine the entities which it controls as per the definition under Ind AS. The Bank does not expect a material impact on its financial statements in this area.
Under Indian GAAP, gain or loss on sale of equity stake in a subsidiary company is recognized in the income statement. Under Ind AS, in consolidated financial statements, change in the parent’s ownership in the subsidiary company is accounted as equity transaction, if the parent retains controlling financial interest in the subsidiary and accordingly gain or loss is not recognized in the income statement.
Under Indian GAAP, the Bank recognizes its operating lease expenses on straight-line-basis over the term of lease. Under Ind AS all leases are required to be recognized on the balance sheet with lease liabilities and corresponding right-of-use asset based on the present value of lease payments. Right-of-use asset is required to be depreciated on a straight-line-basis over the term of lease and interest expense is booked on the lease liabilities based on the discounting rate used for computing present value of lease payments.
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Under Indian GAAP, deferred tax assets and liabilities are recognized by considering the impact of timing differences (income approach) between the taxable income and accounting income for current year and carry forward losses as compared to Ind AS where, deferred tax assets and liabilities are recognized in respect of the temporary differences between the carrying amount of assets and liabilities for financial reporting purpose and amount used for taxation purposes.
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Directors and Executive Officers
Our Board of Directors is responsible for the management of our business. Our organizational documents provide for a minimum of three directors and a maximum of 15 directors, excluding the government director and the debenture director (defined below), if any. We may, subject to the provisions of our organizational documents and the Companies Act, change the maximum number of directors by a special resolution, subject to approval by our shareholders. Approval of a special resolution requires that the votes cast by shareholders in favor of the resolution are not less than three times the number of the votes, if any, cast against the resolution. In addition, under the Banking Regulation Act, 1949, the Reserve Bank of India may require us to convene a meeting of our shareholders for the purposes of appointing new directors to our Board of Directors.
The Banking Regulation Act requires that at least 51% of our directors should have special knowledge or practical experience in banking and areas relevant to banking including accounting, finance, agriculture and small scale industry, information technology, payment and settlement systems, human resources, risk management and business management. All of our directors possess special knowledge in one or more of the areas specified in the Banking Regulation Act and applicable regulations. The appointment of the chairman and executive directors requires the approval of the Reserve Bank of India, in addition to the approval of our shareholders that is generally required for the appointment of all directors (other than the government director and the debenture director, if any). In classifying our directors as independent, we have relied on the declaration of independence provided by the independent directors as prescribed under the Companies Act and the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 which were also placed at the board meeting held on April 23, 2022. The Companies Act excludes the government director from the definition of independent director. Our directors are also subject to ‘fit and proper’ criteria as prescribed by the Reserve Bank of India and to be considered while appointing persons as directors of banking companies. Our directors (other than the government director) are required to make declarations confirming their ongoing compliance of the ‘fit and proper’ criteria. Our Board Governance, Remuneration & Nomination Committee and Board of Directors have reviewed the declarations received from the directors in this regard and determined that all our directors satisfy the ‘fit and proper’ criteria. Further, pursuant to the Reserve Bank of India guidelines, a person is eligible for appointment as non-executive director, if he or she is between 35 and 75 years of age. After attaining the age of 75 years, no person can continue in this position. Our organizational documents also provide that we may execute trust deeds in respect of our debentures under which the trustee or trustees may appoint a director, known as the debenture director. The debenture director is not subject to retirement by rotation and may only be removed as provided in the relevant trust deed. Currently, we do not have a debenture director on our Board of Directors.
Of our 11 directors at June 30, 2022, three directors are in our whole-time employment or executive directors and the remaining eight directors are independent directors. The eight independent directors include retired corporate executives, advisors and chartered accountants. Of the eight independent directors, three have specialized knowledge in respect of agriculture and rural economy and three in small scale industry. In addition to the above, the Board of Directors of the Bank has appointed Mr. Rakesh Jha as a whole-time director (designated as Executive Director), subject to the approval of the Reserve Bank of India and shareholders.
The Companies Act provides that an independent director shall not hold office for more than two consecutive terms of upto five years each provided that the director is re-appointed by passing a special resolution on completion of the first term. In line with the Reserve Bank of India guidelines, the total tenure of non-executive director, continuously or otherwise, on the board of a bank, shall not exceed eight
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years. After completing eight years on the board of a bank the person, may be considered for re-appointment only after a minimum gap of three years. The Companies Act provides that in respect of banking companies, the provisions of the Companies Act shall apply except in so far as they are inconsistent with the provisions of the Banking Regulation Act.
Pursuant to the provisions of the Companies Act, at least two-thirds of the total number of our non-independent directors are subject to retirement by rotation. The government director and the debenture director are not subject to retirement by rotation as per our organizational documents. One-third of the directors liable to retire by rotation must retire from office at each annual general meeting of shareholders. A retiring director is eligible for re-election.
Mr. Girish Chandra Chaturvedi was appointed as an independent director from July 1, 2018 to June 30, 2021. Mr. Girish Chandra Chaturvedi was appointed as non-executive (part-time) Chairman effective July 17, 2018 to June 30, 2021. Mr. Girish Chandra Chaturvedi was re-appointed as an independent director and as non-executive (part-time) Chairman for a period of three years effective from July 1, 2021.
Mr. Sandeep Bakhshi was appointed as a wholetime director and Chief Operating Officer (Designate) by the Board of Directors at its meeting held on June 18, 2018. The Reserve Bank of India and shareholders approved his appointment as a wholetime director effective from July 31, 2018. The Board of Directors at its meeting held on October 4, 2018 approved the appointment of Mr. Sandeep Bakhshi as Managing Director and Chief Executive Officer for a period of five years, subject to the approval of Reserve Bank of India and shareholders. The Reserve Bank of India on October 15, 2018 initially approved his appointment as Managing Director and Chief Executive Officer for a period of three years effective from October 15, 2018 and subsequently on August 24, 2021 approved his re-appointment from October 15, 2021 till October 3, 2023. The shareholders at the annual general meeting held on August 9, 2019 have approved the appointment of Mr. Sandeep Bakhshi as Managing Director and Chief Executive Officer of the Bank for a period effective from October 15, 2018 to October 3, 2023.
Mr. Anup Bagchi was appointed as a wholetime director (designated as an Executive Director) effective from February 1, 2017. The shareholders approved his appointment as Executive Director for a period of five years from February 1, 2017 to January 31, 2022. The Reserve Bank of India approved his appointment as Executive Director initially for a period of three years from February 1, 2017 to January 31, 2020, and subsequently for a further period of two years from February 1, 2020 to January 31, 2022. The Board of Directors at its meeting held on April 24, 2021 approved his re-appointment as wholetime director (designated as Executive Director) for a period of five years or date of retirement, whichever is earlier, effective from February 1, 2022, subject to the approval of Reserve Bank of India and shareholders. The shareholders at the annual general meeting held on August 20, 2021 approved the re-appointment of Mr. Bagchi as a wholetime director (designated as Executive Director) for a period of five years or date of retirement, whichever is earlier effective from February 1, 2022, subject to the approval of Reserve Bank of India. The Reserve Bank of India approved the re-appointment of Mr. Bagchi as Executive Director of the Bank for a period of three years with effect from February 1, 2022.
Mr. Sandeep Batra was appointed as a wholetime director (designated as an Executive Director) by the Board of Directors at its meeting held on May 6, 2019 for a period of five years effective from May 7, 2019 or the date of approval of his appointment by the Reserve Bank of India, whichever is later. The shareholders at the Annual General Meeting held on August 9, 2019 approved the appointment of Mr. Sandeep Batra as a wholetime director (designated as an Executive Director) for a period of five years effective from May 7, 2019 or the date of approval from the Reserve Bank of India, whichever is later. In line with a Reserve Bank of India letter dated October 30, 2019, the Board of Directors at its meeting held on September 16, 2020 approved the filing of a fresh application to the Reserve Bank of India for the purpose of approval of appointment of Mr. Sandeep Batra as a wholetime director (designated as Executive Director) of the Bank, for a period of five years or date of retirement, whichever is earlier,
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effective from September 17, 2020 or the date of approval of appointment by Reserve Bank of India, whichever is later. The Reserve Bank of India has approved the appointment of Mr. Sandeep Batra as an Executive Director of the Bank for a period of three years from the date of his taking charge as an Executive Director. The Board of Directors through a circular resolution dated December 23, 2020 recorded December 23, 2020 as the effective date of appointment and taking charge by Mr. Sandeep Batra as a wholetime director (designated as an Executive Director) of the Bank.
The Government of India through its notification dated August 18, 2021 has communicated the withdrawal of nomination of Mr. Lalit Kumar Chandel, as the government nominee director from our Board of Directors with effect from August 18, 2021.
The Board of Directors at its meeting held on January 22, 2022 appointed Ms. Vibha Paul Rishi as an additional (independent) director effective January 23, 2022 for a term of five consecutive years. Ms. Rama Bijapurkar, independent director, resigned with effect from January 23, 2022.
The Board of Directors at its meeting held on April 23, 2022 approved the appointment of Mr. Rakesh Jha as wholetime director (designated as Executive Director) for a period of five years effective May 1, 2022 or the date of approval by the Reserve Bank of India, whichever is later. The appointment is subject to the approval of the shareholders and the Reserve Bank of India.
Ms. Vishakha Mulye who was appointed as an Executive Director effective January 19, 2016 resigned with effect from May 31, 2022.
The Board of Directors of the Bank at its Meeting held on June 28, 2022 approved the re-appointment of the following Directors, subject to the approval of shareholders:
| · | Ms. Neelam Dhawan as an Independent Director of the Bank for a second term commencing from January 12, 2023 to January 11, 2026; |
| · | Mr. Uday Chitale as an Independent Director of the Bank for a second term commencing from January 17, 2023 to October 19, 2024; |
| · | Mr. Radhakrishnan Nair as an Independent Director of the Bank for a second term commencing from May 2, 2023 to May 1, 2026. |
Our Board of Directors had the following members at June 30, 2022:
|
Name, |
Age |
Date of first Appointment |
Particulars of other Directorship(s) at June 30, 2022 |
|
Mr. Girish Chandra Chaturvedi Independent Non-Executive Director Profession: Advisor
|
69 |
July 1, 2018 (appointed as part-time Chairman effective July 17, 2018)
|
Chairperson IL&FS Energy Development Company Limited(1) National Stock Exchange of India Limited
Director Infrastructure Leasing and Financial Services Limited(1)
|
212
|
Name, |
Age |
Date of first Appointment |
Particulars of other Directorship(s) at June 30, 2022 |
|
Mr. Uday Chitale Independent Non-Executive Director
|
72 | January 17, 2018 |
Director ICICI Lombard General Insurance Company Limited India Infradebt Limited Indian Council for Dispute Resolution
|
|
Ms. Neelam Dhawan Independent Non-Executive Director
|
62 | January 12, 2018 |
Chairperson Capillary Technologies India Limited
Director Yatra Online Limited Yatra Online Inc Skylo Technologies Inc Capita PLC
|
|
Mr. Subramanian Madhavan Independent Non-Executive Director
|
65 | April 14, 2019 |
Director UFO Moviez India Limited Transport Corporation of India Limited HCL Technologies Limited Procter & Gamble Health Limited CBIX Technology Solutions Private Limited Shopkhoj Content Private Limited Scrabble Entertainment Limited Regime Tax Solutions Private Limited Lifestyle International Private Limited Sterlite Technologies Limited
|
|
Mr. Hari L. Mundra Independent Non-Executive Director
|
72 | October 26, 2018 |
Director Tata Autocomp Systems Limited
|
|
Mr. Radhakrishnan Nair Independent Non-Executive Director
|
67 | May 2, 2018 |
Director Axis Mutual Fund Trustee Limited ICICI Securities Primary Dealership Limited ICICI Prudential Life Insurance Company Limited Geojit Financial Services Limited Geojit Credits Private Limited Brickwork Ratings India Private Limited Inditrade Capital Limited
|
213
|
Name, |
Age |
Date of first Appointment |
Particulars of other Directorship(s) at June 30, 2022 |
|
Mr. Balasubramanyam Sriram Independent Non-Executive Director Profession: Advisor
|
63 | January 14, 2019 |
Chairperson National Highways Infra Investment Managers Private Limited
Director TVS Credit Services Limited Nippon Life India Asset Management Limited IndiaIdeas Com Limited TVS Supply Chain Solutions Limited TVS SCS Singapore Pte Limited National Bank for Financing Infrastructure and Development (NaBFID)
|
|
Ms. Vibha Paul Rishi Independent Non-Executive Director Profession: Company Director
|
62
|
January 23, 2022
|
Director Escorts Limited Tata Chemicals Limited Asian Paints Limited ICICI Prudential Life Insurance Company Limited Pratham Education Foundation Tata Chemicals North America Inc., USA TCE Group Limited, UK Valley Holdings Inc., USA Gusiute Holdings (UK) Limited, UK
|
|
Mr. Sandeep Bakhshi Managing Director and CEO
|
62 | October 15, 2018 | None |
|
Mr. Anup Bagchi
|
51 |
February 1, 2017
|
Chairperson ICICI Prudential Asset Management Company Limited
Director ICICI Prudential Life Insurance Company Limited ICICI Securities Limited ICICI Home Finance Company Limited
|
214
|
Name, |
Age |
Date of first Appointment |
Particulars of other Directorship(s) at June 30, 2022 |
|
Mr. Sandeep Batra
|
56 | December 23, 2020 |
Chairperson ICICI Bank UK Plc
Director ICICI Prudential Life Insurance Company Limited ICICI Lombard General Insurance Company Limited ICICI Venture Funds Management Company Limited ICICI Prudential Asset Management Company Limited
| |
|
Mr. Rakesh Jha Executive
Director (Designate)
|
50 | May 1, 2022 or the date of approval of his appointment by Reserve Bank of India |
Director ICICI Venture Funds Management Company Limited ICICI Lombard General Insurance Company Limited
| |
| 1. | Pursuant to the orders of the National Company Law Tribunal dated October 1, 2018 and October 3, 2018, the respective Boards of Infrastructure Leasing and Financial Services Limited and IL&FS Energy Development Company Limited appointed Mr. Girish Chandra Chaturvedi as the Director and as Chairman of Infrastructure Leasing and Financial Services Limited and IL&FS Energy Development Company Limited respectively. |
Our executive officers at March 31, 2022, who received executive remuneration in fiscal 2022, were as follows:
Name | Age | Designation and Responsibilities | Years of Work Experience | Total remuneration in Fiscal 2022 (in Rupees) (1) | Bonus Paid in Fiscal 2022 (in Rupees) (2) | Stock Options Granted during Fiscal 2021 | Stock Options Granted during Fiscal 2022 | Total
Stock Options | Total Stock Options Outstanding at March 31, 2022(3) | Shareholding at March 31, 2022 |
| |||||||||||||||||||||||||
| Mr. Sandeep Bakhshi | 62 | Managing Director and CEO | 39 | 59,211,824 | 11,250,000 | 610,500 | 394,850 | 9,377,300 | 6,256,600 | 757,500 | ||||||||||||||||||||||||||
| Ms. Vishakha Mulye(4) | 53 | Executive Director | 29 | 53,563,369 | 10,050,000 | 610,500 | 305,350 | 7,727,213 | 5,284,350 | 1,223,037 (5) | ||||||||||||||||||||||||||
Mr.Anup Bagchi | 51 | Executive Director | 30 | 56,251,040 | 10,050,000 | 610,500 | 305,350 | 7,069,275 | 4,417,850 | — | ||||||||||||||||||||||||||
| Mr. Sandeep Batra | 56 | Executive Director | 34 | 51,846,362 | 10,050,000 | 610,500 | 305,350 | 4,645,400 | 3,478,400 | 116,000 | ||||||||||||||||||||||||||
| Mr. Rakesh Jha(6) | 50 | Group CFO | 26 | 39,030,595 | 9,647,324 | 449,500 | 305,350 | 5,824,725 | 3,967,150 | 50,000 | ||||||||||||||||||||||||||
| (1) | For fiscal 2022, the remuneration for the Managing Director and Chief Executive Officer and Executive Directors were pending approvals from the Reserve Bank of India. Hence, remuneration for fiscal 2022 was paid as per the approval for fiscal 2021. The above includes salary, other benefits and ICICI Bank’s contribution to superannuation fund, provident and gratuity fund paid for fiscal 2022. |
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| (2) | Represents bonus amounts paid during fiscal 2022. For the Managing Director and Chief Executive Officer and Executive Directors, the bonus is paid after approval of the Reserve Bank of India. |
| (3) | Each stock option, once exercised, would be equivalent to one equity share of the Bank. See also “—Compensation and Benefits to Directors and Officers—Employee Stock Option Scheme” for a description of the other terms of these stock options. |
| (4) | Ms. Vishakha Mulye resigned from the Bank and her last working day was May 31, 2022. |
| (5) | Includes shares held jointly with relatives. |
| (6) | Mr. Anindya Banerjee was appointed as the Group Chief Financial Officer of the Bank with effect from May 1, 2022. |
| (7) | Executive officers and Directors (including non-executive directors) as a group held 0.03% of the Bank’s equity shares at March 31, 2022. |
The profile of our non-executive directors at June 30, 2022 was as follows:
Mr. Girish Chandra Chaturvedi has masters degrees in physics and science (social policy in developing countries) from the University of Allahabad and the London School of Economics respectively. He joined the Indian Administrative Service in 1977, serving at various levels across a number of sectors, including banking, insurance, pension, health, family welfare and petroleum and natural gas. He also served as a government nominee director on the boards of several banks, insurance companies and financial institutions. He retired in 2013 as the secretary of the Ministry of Petroleum and Natural Gas. Currently, he is also the Chairman of the National Stock Exchange.
Mr. Uday Chitale is a chartered accountant with professional standing of over 45 years and was a senior partner of M. P. Chitale & Co, chartered accountants. He is also active in the field of arbitration and conciliation of commercial disputes. He has served on the boards of several companies and was a board member of the Bank from 1997-2005 as well. He served on the global board of directors and as Vice President-Asia Pacific of the worldwide association of accounting firms DFK International. He is also a member of the Board of Governors of National Institute of Securities Markets promoted by Securities and Exchange Board of India.
Ms. Neelam Dhawan is an economics graduate from St Stephen’s College, Delhi University and has a masters in business administration degree from the Faculty of Management Studies, Delhi University. Ms. Dhawan has over 38 years of experience in the information technology industry. Starting from 1982, she has held various positions across Hindustan Computers Limited, IVM, Microsoft and Hewlett Packard Enterprise. She has been Managing Director and leader of the country businesses for 11 years for Microsoft and later Hewlett Packard in India. Her last executive assignment was in Hewlett Packard Enterprise that of as Vice President for Global Industries, Strategic Alliances, and Inside Sales for Asia Pacific and Japan.
Mr. Subramanian Madhavan is a chartered accountant and holds a post graduate diploma in business management from the Indian Institute of Management, Ahmedabad. He started his career with Hindustan Unilever Limited. He had thereafter established a tax practice and served large Indian and multinational clients. He was then a senior partner and Executive Director in PricewaterhouseCoopers Private Limited. He has around 38 years of experience in accountancy, economics, finance, law, information technology, human resources, risk management, business management and banking.
Mr. Hari L. Mundra has a bachelor of arts degree and a post graduate degree in business management from the Indian Institute of Management, Ahmedabad. He began his career in 1971 in Hindustan Unilever Limited and was a member of its board as the Vice President and Executive Director in charge of exports at the time he left in 1995. He subsequently held leadership positions in major Indian industrial conglomerates, in areas including pharmaceuticals and healthcare, and petrochemicals. He has 50 years of industrial experience in India and Indonesia.
Mr. Radhakrishnan Nair holds degrees in science, securities laws, management and law. He has around 40 years of experience in banking and regulation. He started his career with Corporation Bank and also served as the Managing Director of Corporation Bank Securities Limited. He was Executive Director at Securities and Exchange Board of India from 2005 to 2010 and Member (Finance and Investment) in the Insurance Regulatory and Development Authority of India from 2010 to 2015. He has been a member of various committees of International Organization of Securities Commissions and the International Association of Insurance Supervisors.
Mr. Balasubramanyam Sriram is a Certificated Associate of the Indian Institute of Banking and Finance and holds diplomas in international law and diplomacy from the Indian Academy of International Law & Diplomacy and management from the All India Management Association. He has bachelors and masters degrees in science (physics) from St. Stephen’s College, Delhi University. Mr. Sriram worked with State Bank of India for about 37 years. Mr. Sriram was Managing Director of State Bank of Bikaner & Jaipur from 2013 to 2014, Managing Director of State Bank of India from 2014 to 2018 and Managing Director & Chief Executive Officer of IDBI Bank Limited from June-September 2018. He is a part time member of the Insolvency and Bankruptcy Board of India.
Ms. Vibha Paul Rishi is an economics graduate from Lady Shri Ram College, Delhi University has a masters in business administration with a specialisation in marketing from the Faculty of Management Studies, University of Delhi. She has worked at senior positions in branding, strategy, innovation and human capital around the world. She started her career with the Tata Group and was part of the core team for launching Titan watches. She was thereafter associated with PepsiCo for 17 years in leadership roles in the areas of marketing and innovation in India, U.S. and UK. She was one of the founding team members of PepsiCo when it started operations in India. Ms. Rishi serves on the boards and board committees of several reputed companies.
The profile of our executive officers at June 30, 2022 was as follows:
Mr. Sandeep Bakhshi is an engineer and has a management degree from Xavier School of Management in Jamshedpur. Mr. Sandeep Bakhshi joined ICICI Limited in the year 1986. Over the years he has worked in various assignments at ICICI Limited, ICICI Lombard General Insurance Company Limited, ICICI Bank Limited and ICICI Prudential Life Insurance Company Limited. He joined ICICI Bank Limited on June 19, 2018 as Chief Operating Officer and was appointed as Managing Director and Chief Executive Officer of ICICI Bank Limited on October 15, 2018.
Mr. Anup Bagchi has a management degree from the Indian Institute of Management, Bangalore and an engineering degree from the Indian Institute of Technology, Kanpur. Mr. Bagchi joined the ICICI Group in 1992 and has worked in various areas including retail banking, corporate banking, treasury, capital markets and investment banking. From 2011 to 2016, Mr. Anup Bagchi was the Managing Director and Chief Executive Officer of ICICI Securities Limited. He was appointed as an Executive Director effective February 1, 2017 and was earlier responsible for banking for retail, rural, small and medium enterprise customers as well as corporate branding for the Bank. Currently, he is responsible for domestic and international wholesale banking, markets and proprietary trading and transaction banking businesses at the Bank.
Mr. Sandeep Batra is a chartered accountant and a company secretary by qualification. He joined as Chief Financial Officer of ICICI Prudential Life Insurance Company Limited in the year 2000 and subsequently has held positions as Group Compliance Officer of ICICI Bank Limited, Executive Director of ICICI Prudential Life Insurance Company Limited and President at ICICI Bank Limited. He was appointed as Executive Director of ICICI Bank Limited effective December 23, 2020 and is currently responsible for technology, credit, corporate communications, data science and analytics, finance, operations and customer service, legal, human resources and secretarial functions and has administrative oversight over risk management, internal audit and compliance functions.
Mr. Rakesh Jha is an engineering graduate from the Indian Institute of Technology at Delhi and a post-graduate in management from the Indian Institute of Management, Lucknow. He joined ICICI in 1996 and has worked in various areas including financial reporting, planning, strategy, asset-liability management and investor relations. He was designated the Deputy Chief Financial Officer of ICICI Bank in May 2007, Chief Financial Officer in October 2013 and Group Chief Financial Officer in June 2018. Mr. Rakesh Jha has been appointed as a wholetime director (designated as Executive Director) of the Bank for a period of five years effective May 1, 2022 or the date of approval of his appointment by the Reserve Bank of India, whichever is later. His appointment is subject to the approval of the shareholders and the Reserve Bank of India. His current responsibilities include retail banking, rural and agriculture and small and medium enterprise businesses for the Bank.
216
Mr. Anindya Banerjee is a chartered accountant. He joined the ICICI Group in 1998 and initially worked in the area of corporate banking before moving to the planning and strategy function in the corporate office. He was appointed as the Group Chief Financial Officer of the Bank with effect from May 1, 2022. His current responsibilities include financial reporting, planning and strategy and asset-liability management.
Corporate Governance
Our corporate governance policies recognize the accountability of the Board and the importance of making the Board transparent to all our constituents, including employees, customers, investors and the regulatory authorities, and for demonstrating that our shareholders are the ultimate beneficiaries of our economic activities.
Our corporate governance framework is based on an effective majority independent Board, the separation of the Board’s supervisory role from the executive management and the constitution of Board committees, generally comprising a majority of independent directors and most of the Committees being chaired by independent directors, to oversee critical areas and functions of executive management.
Our corporate governance philosophy encompasses regulatory and legal requirements, such as the compliance with the provisions of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, aimed at a high level of business ethics, effective supervision and enhancement of value for all stakeholders.
Our Board’s role, functions, responsibility and accountability are clearly defined. In addition to its primary role of monitoring corporate performance, the functions of our Board include:
| · | approving corporate philosophy and mission; |
| · | participating in the formulation of strategic and business plans; |
| · | reviewing and approving financial plans and budgets; |
| · | monitoring corporate performance against strategic and business plans, including overseeing operations; |
| · | ensuring ethical behavior and compliance with laws and regulations; |
| · | reviewing and approving borrowing limits; |
| · | formulating exposure limits; and |
| · | keeping shareholders informed regarding plans, strategies and performance. |
To enable our Board of Directors to discharge these responsibilities effectively, executive management provides detailed reports on its performance to the Board on a quarterly basis.
Our Board functions either as a full board or through various committees constituted to oversee specific operational areas. These Board committees meet regularly. The quorum of the Board committees was increased from at least two members to at least three members with effect from June 30, 2019, to transact business at any Board Committee meeting and in case where the Committee comprises of two members only or where two members are participating, then any Independent Director may attend the meeting to fulfil the requirement of three members. The constitution and main functions of the various committees are given below.
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Audit Committee
As of the date of filing this annual report, the Audit Committee comprises three independent directors - Mr. Uday Chitale, Mr. Subramanian Madhavan and Mr. Radhakrishnan Nair. Mr. Uday Chitale is the Chairman of the Committee. Mr. Uday Chitale, Mr. Subramanian Madhavan and Mr. Radhakrishnan Nair qualify as Audit Committee financial experts.
The Audit Committee provides direction to the audit function and monitors the quality of internal and statutory audit. The responsibilities of the Audit Committee include examining the financial statements and auditors’ report and overseeing the financial reporting process to ensure fairness, sufficiency and credibility of financial statements, review of the quarterly and annual financial statements before submission to the Board, review of management’s discussion and analysis, recommendation of appointment, terms of appointment, remuneration and removal of central and branch statutory auditors and chief internal auditor, approval of payment to statutory auditors for other permitted services rendered by them, reviewing and monitoring with the management the auditor’s independence and the performance and effectiveness of the audit process, approval of transactions with related parties or any subsequent modifications, review of statement of significant related party transactions and utilization of loans and/or advances from/investment by the Bank in its subsidiaries. The Audit Committee also reviews the functioning of the Whistle-Blower Policy, adequacy of internal control systems and the internal audit function, compliance with inspection and audit reports and reports of statutory auditors, findings of internal investigations, management letters/letters on internal control weaknesses issued by statutory auditors/internal auditors, investment in shares and advances against shares. The Audit Committee responsibilities also include reviewing with the management the statement of uses/application of funds raised through an issue (public issue, rights issue, preferential issue, etc.), the statement of funds utilized for the purposes other than those stated in the offer document/prospectus/notice and the report submitted by the monitoring agency, monitoring the utilization of proceeds of a public or rights issue and making appropriate recommendations to the Board to take steps in this matter, discussion on the scope of audit with external auditors, examination of reasons for substantial defaults, if any, in payment to stakeholders, valuation of undertakings or assets, evaluation of risk management systems and scrutiny of inter-corporate loans and investments. The Audit Committee is also empowered to appoint/oversee the work of any registered public accounting firm, establish procedures for receipt and treatment of complaints received regarding accounting, internal accounting controls and auditing matters and engage independent counsel as also provide for appropriate funding for compensation to be paid to any firm/advisors. In addition, the Audit Committee also exercises oversight on the regulatory compliance function of the Bank. The Audit Committee also considers and comments on rationale, cost-benefits and impact of schemes involving merger/demerger/amalgamation etc., on the Bank and its shareholders. The Audit Committee is also empowered to approve the appointment of the Chief Financial Officer (the whole-time Finance Director or any other person heading the finance function or discharging that function) after assessing the qualifications, experience and background, etc. of the candidate.
Board Governance, Remuneration & Nomination Committee
As of the date of filing this annual report, the Board Governance, Remuneration & Nomination Committee comprises three independent directors - Ms. Neelam Dhawan, Mr. Girish Chandra Chaturvedi and Mr. Balasubramanyam Sriram. Ms. Neelam Dhawan is the Chairperson of the Committee.
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The functions of the Committee include recommending appointments of directors to the Board, identifying persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down and recommending to the Board their appointment and removal, formulate a criteria for the evaluation of the performance of the wholetime/independent directors and the Board and to extend or continue the term of appointment of independent directors on the basis of the report of performance evaluation of independent directors, recommending to the Board a policy relating to the remuneration for the directors, key managerial personnel and other employees, recommending to the Board the remuneration (including performance bonus and perquisites) to wholetime directors and senior management personnel. The functions also include approving the policy for and quantum of bonus payable to the members of the staff including senior management and key managerial personnel, formulating the criteria for determining qualifications, positive attributes and independence of a Director, framing policy on Board diversity, framing guidelines for the Employees Stock Option Scheme and decide on the grant of stock options to employees and wholetime directors of the Bank and its subsidiary companies.
Corporate Social Responsibility Committee
As of the date of filing this annual report, the Corporate Social Responsibility Committee comprises five directors - Mr. Girish Chandra Chaturvedi, Mr. Radhakrishnan Nair, Ms. Vibha Paul Rishi, Mr. Uday Chitale and Mr. Anup Bagchi. Mr. Girish Chandra Chaturvedi, an independent director and non-executive part-time Chairman of the Bank is the Chairman of the Committee.
The functions of the Committee include review of corporate social responsibility initiatives undertaken by the ICICI Group and the ICICI Foundation for Inclusive Growth, formulation and recommendation to the Board of a corporate social responsibility policy indicating the activities to be undertaken by the Company and recommendation of the amount of the expenditure to be incurred on such activities, identifying the focus, from among the themes specified in Schedule VII of the Companies Act, 2013, for initiatives to be undertaken by the Bank, reviewing and recommending the annual corporate social responsibility plan to the Board with details of projects and schedule of implementation, making recommendations to the Board with respect to the corporate social responsibility initiatives, policies and practices of the ICICI Group, monitoring the corporate social responsibility activities, implementation and compliance with the corporate social responsibility policy, reviewing the submissions to be made to the Board with respect to implementation of the annual corporate social responsibility action plan including the disbursement of funds for the purposes and manner as approved, implementation of on-going projects as per approved timelines and year-wise allocation of funds, any modifications to be suggested to on-going projects, earmarking unspent corporate social responsibility amount, if any, in subsequent periods as prescribed in the Act and suggest deployment of any amount spent in excess of the requirement for set-off in subsequent years, reviewing impact assessment of projects, and reviewing and implementing, if required, any other matter related to corporate social responsibility initiatives as recommended/suggested by the Reserve Bank of India or any other body.
Credit Committee
As of the date of filing this annual report, the Credit Committee comprises four directors - Mr. Sandeep Bakhshi, Mr. Balasubramanyam Sriram, Mr. Hari L. Mundra and Mr. Anup Bagchi. Mr. Sandeep Bakhshi, Managing Director and CEO, is the Chairman of the Committee.
The functions of the Committee include review of developments in key industrial sectors, major credit portfolios and approval of credit proposals as per the authorization approved by the Board.
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Customer Service Committee
As of the date of filing this annual report, the Customer Service Committee comprises four directors - Ms. Vibha Paul Rishi, Mr. Hari L. Mundra, Mr. Sandeep Bakhshi and Mr. Anup Bagchi. Ms. Vibha Paul Rishi, an independent director, is the Chairperson of the Committee.
The functions of the Committee include review of customer service initiatives, overseeing the functioning of the Standing Committee on Customer Service (Customer Service Council) and evolving innovative measures for enhancing the quality of customer service and improvement in the overall satisfaction level of customers.
Fraud Monitoring Committee
As of the date of filing this annual report, the Fraud Monitoring Committee comprises five directors - Mr. Radhakrishnan Nair, Mr. Subramanian Madhavan, Ms. Neelam Dhawan, Mr. Sandeep Bakhshi and Mr. Anup Bagchi. Mr. Radhakrishnan Nair, an independent director, is the Chairman of the Committee.
The Committee monitors and reviews all the frauds involving an amount of Rs. 10 million and above with the objective of identifying the systemic lacunae, if any, that facilitated perpetration of the fraud and put in place measures to rectify the same. The functions of this Committee include identifying the reasons for delay in detection, if any, and reporting to the top management of the Bank and the Reserve Bank of India on the same. The progress of investigation and recovery position is also monitored by the Committee. The Committee also ensures that staff accountability is examined at all levels in all the cases of frauds and action, if required, is completed quickly without loss of time. The role of the Committee is also to review the efficacy of the remedial action taken to prevent recurrence of frauds, such as strengthening of internal controls.
Information Technology Strategy Committee
As of the date of filing this annual report, the Information Technology Strategy Committee comprises four directors – Mr. Balasubramanyam Sriram, Ms. Neelam Dhawan, Mr. Sandeep Batra and Mr. Anup Bagchi. Mr. Balasubramanyam Sriram, an independent director, is the Chairman of the Committee.
The functions of the Committee are to approve the strategy for information technology and policy documents, ensure that the information technology strategy is aligned with business strategy, review information technology risks, ensure the proper balance of information technology investments for sustaining the Bank’s growth, oversee the aggregate funding of information technology at Bank-level, ascertain if the management has resources to ensure the proper management of information technology risks, review the contribution of information technology to business, oversee the activities of the digital council, review technology from a future readiness perspective, overseeing key projects progress and critical information technology systems performance, review of special information technology initiatives, review cyber risk, consider the Reserve Bank of India inspection report/directives received from time to time by the Bank in the areas of information technology and cyber security and to review the compliance of various actionables arising out of such reports/directives as may be deemed necessary from time to time.
Risk Committee
As of the date of filing this annual report, the Risk Committee comprises three directors - Mr. Subramanian Madhavan, Mr. Girish Chandra Chaturvedi and Mr. Sandeep Batra. Mr. Subramanian Madhavan, an independent director, is the Chairman of the Committee.
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The functions of the Risk Committee are to review ICICI Bank’s risk management policies pertaining to credit, market, liquidity, operational, outsourcing and reputation risks; review the business continuity plan and disaster recovery plan; and approve the Broker Empanelment Policy and any amendments thereto. The functions of the Risk Committee also include setting limits on exposures to any industry or country and review of the Enterprise Risk Management Framework, risk appetite for the Bank, stress testing framework, internal capital adequacy assessment process and framework for capital allocation, Basel capital framework, risk dashboard covering various risks, outsourcing activities and the activities of the Asset Liability Management Committee. The Risk Committee has oversight of risks of subsidiaries covered under the Group Risk Management Framework. The Risk Committee also oversees our cyber security risk assessments. The appointment, removal and terms of remuneration of the Chief Risk Officer is subject to review by the Risk Committee.
Stakeholders Relationship Committee
As of the date of filing this annual report, the Stakeholders’ Relationship Committee comprises three directors - Mr. Hari L. Mundra, Mr. Uday Chitale and Mr. Anup Bagchi. Mr. Hari L. Mundra, an independent director, is the Chairman of the Committee.
The functions of the Committee include approval and rejection of transmission of shares, bonds, debentures, issue of duplicate certificates, allotment of securities from time to time, redressal and resolution of grievances of security holders, delegation of authority for opening and operation of bank accounts for payment of interest/dividend.
Review Committee for Identification of Wilful Defaulters/Non Co-operative Borrowers
The Managing Director and CEO is the Chairman of this Committee and any two independent directors comprise the remaining members.
The function of this Committee is to review the order of the Committee for identification of wilful defaulters/non co-operative borrowers (a Committee comprising wholetime directors and senior executives of the Bank to examine the facts and record the fact of the borrower being a wilful defaulter/non co-operative borrower) and confirm the same for the order to be considered final.
Code of Ethics
We have adopted a Group Code of Business Conduct and Ethics for our directors and all our employees. This code aims at ensuring consistent standards of conduct and ethical business practices across the constituents of the Company and is reviewed on an annual basis. We have not granted a waiver from any provision of the code to any of our directors or executive officers. All directors and members of the senior management have confirmed compliance with Group Code of Business Conduct and Ethics for fiscal 2022.
Principal Accountant: Fees and Services
The total fees to our principal accountant relating to the audit of consolidated financial statements for fiscal 2021 and fiscal 2022 and the fees for other professional services billed in fiscal 2021 and fiscal 2022 are as follows:
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Year ended March 31, | ||||||||||||
2021 | 2022 | 2022 | ||||||||||
| (in millions) | (in thousands) | |||||||||||
| Audit | ||||||||||||
| Audit of ICICI Bank Limited and our subsidiaries | Rs. | 282 | Rs. | 177 | US$ | 2,333 | ||||||
| Audit-related services | — | — | — | |||||||||
| Opinion on non-statutory accounts | 5 | — | — | |||||||||
| Others | 15 | 9 | 119 | |||||||||
| Sub-total | 302 | 186 | 2,452 | |||||||||
| Non-audit services | ||||||||||||
| Tax compliance | 1 | 1 | 13 | |||||||||
| Other services | 1 | 3 | 46 | |||||||||
| Sub-total | 2 | 4 | 59 | |||||||||
| Total | Rs. | 304 | Rs. | 190 | US$ | 2,511 | ||||||
Fees for “others” under the audit services category are principally fees related to certification services. Our Audit Committee approved the fees paid to our principal accountant relating to audit of consolidated financial statements for fiscal 2022 and fees for other professional services billed in fiscal 2022. Our Audit Committee pre-approves all assignments undertaken for us by our principal accountant.
Summary Comparison of Corporate Governance Practices
The following is a summary comparison of significant differences between our corporate governance practices and those required by the New York Stock Exchange for United States issuers.
Independent Directors
A majority (eight of 11) of our Board are independent directors, as defined under applicable Indian legal requirements. Section 149 of the Companies Act, 2013 as amended from time to time and Regulation 16 the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 as amended from time to time, have defined an independent director and specified the eligibility criteria for a director to be classified as independent. The criteria inter-alia includes that a director in order to be independent should not have any pecuniary relationship, other than remuneration as such director or having transaction not exceeding ten percent of his/her total income with the Company, its holding, subsidiary or associate company, or their promoters, or directors, during the three immediately preceding financial years or during the current financial year. The criteria also stipulate restrictions on the nature of transaction that a relative of a director can have with the Company, its holding, subsidiary or associate company or their promoters or directors for determination of independence as a director. Every independent director at the first meeting of the Board in which he/she participates as a director and thereafter at the first meeting of the Board in every financial year or whenever there is any change in the circumstances which may affect his/her independent status is required to give a declaration that he/she meets the relevant independence criteria. In classifying our directors as independent, we have relied on the declarations provided by the independent directors as prescribed under the Companies Act, 2013 and the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 which were also placed at the board meeting held on April 23, 2022. The Board has accordingly determined the independence of these directors. Pursuant to the Companies Act, the director nominated by Government of India would not be classified as independent. Although the judgment on independence must be made by our Board as required under the Companies Act, 2013, there is no requirement that our Board affirmatively make such determination, in accordance with the independence test as required by the New York Stock Exchange rules.
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Non-Management Directors Meetings
Independent directors are required to meet at least once in a financial year without the non-independent directors and members of the management. The independent directors at such meetings are required to review the performance of the Chairman, non-independent directors and the board as a whole. The independent directors met on April 23, 2022 to carry out these reviews. Prior to this, the independent directors had met on April 24, 2021, separately to carry out similar reviews.
Board Governance, Remuneration & Nomination Committee and Audit Committee
All members of our Board Governance, Remuneration & Nomination Committee are independent, as defined under applicable Indian legal requirements. All members of our Audit Committee are independent under Rule 10A-3 under the Exchange Act. The constitution and main functions of these committees as approved by our board are described above and comply with the spirit of the New York Stock Exchange requirements for United States issuers.
Corporate Governance Guidelines
Under New York Stock Exchange rules, United States issuers are required to adopt and disclose corporate governance guidelines addressing matters such as standards of director qualification, responsibilities of directors, director compensation, director orientation and continuing education, management succession and annual performance review of the Board of Directors. While as a foreign private issuer, we are not required to adopt such guidelines, under the home country regulations, pursuant to the notification of the Companies Act, the Bank has disclosed the policy on director appointments and remuneration including criteria for determining qualifications and independence of a director in its Indian annual report to shareholders for fiscal 2022. The Bank is also required to provide a statement indicating the manner in which formal annual evaluation has been made by the board of its own performance and that of its committees and individual directors and this statement has been included in the Indian annual report.
Controls and Procedures
We have carried out an evaluation under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”) at year-end fiscal 2022.
As a result, it has been concluded that, as of the end of the period covered by this report, the disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required.
However, as a result of our evaluation, we noted certain areas where our processes and controls, including information technology related processes and controls, could be improved. The Audit Committee monitors the resolution of any identified significant process and control improvement opportunities to a satisfactory conclusion. We are committed to continuing to implement and improve internal controls and our risk management processes, and this remains a key priority for us. We also have a process whereby business and financial officers throughout the Bank attest to the accuracy of reported financial information as well as the effectiveness of disclosure controls, procedures and processes.
There are inherent limitations to the effectiveness of any system, especially of disclosure controls and procedures, including the possibility of human error, circumvention or overriding of the controls and procedures, in a fast-changing environment or when entering new areas of business or expanding geographic reach or deploying emerging technologies. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
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We have experienced significant growth in a fast-changing environment, and management is aware that this may pose significant challenges to the control framework. See also “Risk Factors—Risks Relating to Our Business—There is operational risk associated with the financial industry which, when realized, may have an adverse impact on our business”.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(e) and 15d-15(e)of the Exchange Act). Our internal control over financial reporting system has been designed to provide reasonable assurance regarding the reliability of financial reporting and preparation and fair presentation of our published Indian GAAP consolidated financial statements and disclosures relating to U.S. GAAP net income reconciliation, stockholders’ equity reconciliation and other disclosures as required by U.S Securities and Exchange Commission and applicable GAAP.
Management maintains an internal control system intended to ensure that financial reporting provides reasonable assurance that transactions are executed in accordance with the authorizations of management and directors, assets are safeguarded and financial records are reliable.
Our internal control over financial reporting includes policies and procedures that:
| · | pertain to the maintenance of records that accurately and fairly reflect in reasonable detail the transactions and dispositions of our assets; |
| · | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are made only in accordance with authorizations of management and the executive directors; and |
| · | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
All internal control over financial reporting systems, no matter how well-designed, have inherent limitations, and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness for future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting at year-end fiscal 2022 based on criteria set by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on the assessment, management concluded that our internal control over financial reporting was effective at year-end fiscal 2022. Effectiveness of our internal control over financial reporting at year-end fiscal 2022 has been audited by KPMG Assurance and Consulting Services LLP (formerly known as KPMG), an independent registered public accounting firm, as stated in their attestation report, which is included herein.
Change in Internal Control Over Financial Reporting
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No change in our internal control over financial reporting occurred during the period covered by this annual report that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.
Compensation and Benefits to Directors and Officers
Remuneration
Under our organizational documents, each of our non-executive directors, except the government director, is entitled to receive remuneration for attending each meeting of our Board or of a Board committee. The amount of remuneration payable to non-executive directors is set by our Board from time to time in accordance with limits prescribed by the Companies Act and the rules thereunder. The Board of Directors has approved the payment of Rs. 100,000 as sitting fee for each meeting of the Board, Audit Committee, Risk Committee and Credit Committee and Rs. 50,000 as sitting fee for each meeting of any other Committee. The Board of Directors at its meeting held on April 23, 2022 approved revision in sitting fee payable to non-executive directors from Rs. 50,000 to Rs. 100,000 for attending each meeting of the Board Governance, Remuneration & Nomination Committee, Corporate Social Responsibility Committee, Customer Service Committee, Fraud Monitoring Committee, Information Technology Strategy Committee, Stakeholders Relationship Committee and Review Committee for Identification of Wilful Defaulters/Non Co-operative Borrowers effective April 24, 2022.
In line with the Reserve Bank of India guidelines dated April 26, 2021, the Board of Directors at its meeting held on July 15, 2021 approved payment of fixed remuneration of Rs. 2,000,000 per annum with effect from April 1, 2021 to each non-executive Director of the Bank (other than part-time Chairman and the Government Nominee Director), subject to the approval of shareholders. The shareholders at their Annual General Meeting held on August 20, 2021 approved payment of fixed remuneration of Rs. 2,000,000 per annum to each non-executive Director (other than part-time Chairman and the Director nominated by the Government of India), effective from April 1, 2021. In addition, we reimburse our directors for travel and related expenses in connection with attending Board and Committee meetings and related matters. If a director is required to perform services for us beyond attending meetings, we may remunerate the director as determined by our Board of Directors which remuneration may be either in addition to or as substitution for the remuneration discussed above. Non-executive directors are not entitled to the payment of any benefits at the end of their terms of office. The Reserve Bank of India has approved a remuneration of Rs. 3,500,000 per annum for the non-executive chairman.
Our Board or a Committee thereof, may fix the salary and supplementary allowance payable to the executive directors. We are required to obtain specific approval of the Reserve Bank of India for the actual monthly salary, supplementary allowance, annual performance bonus and employee stock options paid each year to our executive directors.
In addition to the basic salary and supplementary allowance, our executive directors are entitled to certain perquisites (evaluated pursuant to Indian Income-Tax rules wherever applicable and otherwise at actual cost to the Bank), including the benefit of the Bank’s furnished accommodation, gas, electricity, water and furnishings, club fees, group insurance, use of car and telephone at residence or reimbursement of expenses in lieu thereof, medical reimbursement, leave and leave travel concession, education benefits, staff home loans, provident fund, superannuation fund and gratuity, in accordance with the scheme(s) and rule(s) applicable from time to time.
There are no service contracts with our executive directors providing for benefits upon termination of their employment.
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The total compensation paid by the Bank to its directors and executive officers during fiscal 2022 was Rs. 311 million.
Bonus
Each year, our Board of Directors awards discretionary bonuses to employees and whole-time directors on the basis of the Bank’s performance and individual performance. The aggregate amount of bonuses and performance linked retention pay to all eligible employees of ICICI Bank for fiscal 2022 was Rs. 16.8 billion.
Employee Stock Option Scheme
The Bank has an Employee Stock Option Scheme to encourage and retain high-performing employees and directors. Pursuant to the stock option scheme as amended, up to 10.0% of the aggregate of issued equity shares of the Bank at the time of the grant of stock options could be allocated under the employee stock option scheme. The stock options entitle eligible employees to apply for equity shares. Pursuant to Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 (the SEBI Regulations), options are granted by the Board Governance, Remuneration & Nomination Committee and noted by the Board. At March 31, 2022, this 10.0% limit was equivalent to 695 million shares, of which the Bank has granted 590 million options under the Employee Stock Option Scheme. Employees and Directors of the Bank, its subsidiaries and its holding company are eligible employees for grants of stock options. The Bank has no holding company. The maximum number of options granted to any eligible employee in a year is restricted to 0.05% of the Bank’s issued equity shares at the time of the grant.
Options granted after April 1, 2014 vest in a graded manner over a three-year period, with 30%, 30% and 40% of the options vesting on each of first three anniversaries of the grant date respectively, except as follows:
| · | For 275,000 options granted in April 2014, 50% vested on April 30, 2017 and the balance 50% vested on April 30, 2018. |
| · | For 34,362,900 options granted in September 2015, 50% vested on April 30, 2018 and the balance 50% vested on April 30, 2019. |
| · | For 300,000 options granted in January 2018, 100% vested at the end of four years from the date of grant. |
| · | For 188,000 options granted in May 2018, 50% vested on May 7, 2021 and the balance 50% would vest on May 7, 2022. The unvested options would lapse upon termination of employment due to retirement. |
Options granted prior to April 1, 2014 vested in a graded manner over a four-year period, with 20%, 20%, 30% and 30% of the options vesting on each of the first four anniversaries of the grant date, except as follows:
| · | Options granted in April 2009 vested in a graded manner over a five-year period with 20%, 20%, 30% and 30% of the grant vesting in each year, commencing from the end of 24 months from the date of the grant. |
| · | For the options granted in February 2011, 50% of the options vested on April 30, 2014 and 50% vested on April 30, 2015. |
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| · | Options granted in September 2011 vested in a graded manner over a five-year period with 15%, 20%, 20% and 45% of the grant vesting in each year, commencing from the end of 24 months from the date of grant. |
The price for options granted is equal to the closing price on the stock exchange which recorded the highest trading volume preceding the date of grant of options. Options granted in February 2011 were granted at an exercise price which was approximately 3.0% below the closing price preceding the date of grant of options.
Pursuant to the approval of shareholders in June 2017, the exercise period is such period not exceeding ten years from the date of vesting of options as may be determined by the Board of Governance, Remuneration & Nomination Committee for each grant. In September 2018, the shareholders approved the change in exercise period to not exceeding five years from the date of vesting of options as may be determined by the Board Governance, Remuneration & Nomination Committee for options granted after May 2018.
The following table sets forth certain information regarding the stock option grants made to employees under the Employee Stock Option Scheme at March 31, 2022. The Bank granted all of these stock options at no cost to its employees. Options granted include grants to wholetime directors and employees of subsidiaries of the Bank. The Bank has not granted any stock options to its non-executive directors.
The following table sets forth certain information regarding the options granted by the Bank at March 31, 2022.
Particulars | ICICI Bank | |||
| Options granted (net of lapsed) | 590,421,556 | |||
| Options vested | 556,833,372 | |||
| Options exercised | 353,223,557 | |||
| Options forfeited/lapsed | 106,726,458 | |||
| Amount realized by exercise of options | Rs. | 42,631,433,156 | ||
| Total number of options in force | 237,197,999 | |||
| Weighted average exercise price of options in force | Rs. | 310.82 | ||
See also “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes—Note 18” under U. S. GAAP included herein.
ICICI Prudential Life Insurance Company has an Employees Stock Option Scheme, which allows that the aggregate number of shares issued since March 31, 2016 pursuant to the exercise of any options granted to eligible employees, shall not exceed a figure equivalent to 3.54% of the number of shares issued at March 31, 2016. The maximum number of options granted to any eligible employee in a financial year shall not exceed 0.1% of the issued shares of the Company at the time of grant of options. ICICI Prudential Life Insurance Company had 20,184,630 stock options outstanding (net of forfeited or lapsed options) at year-end fiscal 2022.
ICICI Lombard General Insurance Company has an Employee Stock Option Scheme, which allows up to 7.0% of the issued capital to be allocated to employee stock options. The maximum number of options granted to any eligible employee in a financial year shall not exceed 0.1% of the issued shares of the Company at the time of grant of options. ICICI Lombard General Insurance Company had 9,126,050 employee stock options outstanding (net of forfeited or lapsed options) at year-end fiscal 2022.
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ICICI Securities Limited has an Employees Stock Option Scheme, which allows up to 5.0% of the issued capital to be allocated to employee stock options. The maximum number of options granted to any eligible employee in a financial year shall not exceed 0.1% of the issued shares of the Company at the time of grant of options. ICICI Securities Limited had 2,939,279 stock options outstanding (net of forfeited or lapsed options) at year-end fiscal 2022.
Loans
The Bank has internal rules for grant of loans to employees and executive directors to acquire certain assets such as property, vehicles and other consumer durables at significantly lower interest rates than the market rate. The Bank’s loans to employees have been made at interest rates ranging from 2.5% to 3.5% per annum and are repayable over fixed periods of time. The loans are generally secured by the assets acquired by the employees. Pursuant to the Banking Regulation Act, the Bank’s non-executive directors are not eligible for any loans. At year-end fiscal 2022, outstanding loans to the Bank’s employees totaled Rs. 9.5 billion compared to Rs. 8.7 billion at year-end fiscal 2021. This amount included loans to certain executive directors amounting to Rs. 137.6 million at year-end fiscal 2022 compared to Rs. 195.0 million at year-end fiscal 2021, made on the same terms, including as to interest rates and collateral, as loans to other employees. Loans to executive directors are given after approval by the Reserve Bank of India. See also “Related Party Transactions”.
Gratuity
The Bank pays gratuity to employees who retire or resign after a minimum prescribed period of continuous service and, in the case of employees at overseas locations, in accordance with the rules in force in the respective countries. The Bank makes contributions to gratuity funds for employees which are administered by ICICI Prudential Life Insurance Company Limited.
Actuarial valuation of the gratuity liability for all the above funds is determined by an actuary appointed by the Bank. Actuarial valuation of gratuity liability is determined based on certain assumptions regarding rate of interest, salary growth, mortality and staff attrition as per the projected unit credit method.
The accounts of the fund are audited by independent auditors. The total corpus of the fund at year-end fiscal 2022 based on its audited financial statements was Rs. 13.6 billion compared to Rs. 13.0 billion at year-end fiscal 2021.
Superannuation Fund
The Bank contributes 15% of the total annual basic salary and dearness allowance (if applicable) to a superannuation fund in respect of the employees to whom it applies. The Bank’s employees may elect on retirement or resignation to receive one-third or one-half, depending on the tenure of service, of the total balance as commutation and a periodic pension based on the remaining balance. In the event of the death of an employee, his or her beneficiary receives the remaining accumulated balance, if eligible. The Bank also gives a cash option to its employees, allowing them to receive the amount that would otherwise be contributed by the Bank in their monthly salary during their employment. The superannuation fund is administered by Life Insurance Corporation of India and ICICI Prudential Life Insurance Company Limited. Employees have the option to choose between funds administered by the Life Insurance Corporation of India and ICICI Prudential Life Insurance Company Limited. The total corpus of the superannuation fund was Rs. 5.0 billion at year-end fiscal 2022 compared to Rs. 4.5 billion at year-end fiscal 2021.
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Provident Fund
The Bank is statutorily required to maintain a provident fund as part of its retirement benefits to its employees. The provident fund, to which both ICICI Bank and its employees contribute a defined amount, is a savings scheme under which ICICI Bank at present is required to pay to employees a minimum annual return as specified from time to time, which was specified at 8.1% for fiscal 2022. If such return is not generated internally by the fund, ICICI Bank is liable for the difference. There are separate provident funds for employees inducted from merged entities (Bank of Madura, The Bank of Rajasthan and Sangli Bank) and for other employees of the Bank. These funds are managed by in-house trustees. Each employee contributes 12.0% of his or her basic salary and the Bank contributes an equal amount to the funds. The investments of the funds are made according to rules prescribed by the Government of India. The accounts of the funds are audited by independent auditors. The total corpuses of the funds for employees inducted from merged entities and other employees of the Bank at year-end fiscal 2022, based on their audited financial statements, amount to Rs. 2.2 billion and Rs. 42.2 billion respectively, as compared to Rs. 2.4 billion and Rs. 36.9 billion, respectively, at year-end fiscal 2021.
Pension Fund
The Bank provides for pension, a deferred retirement plan covering certain employees of the former Bank of Madura, Sangli Bank and Bank of Rajasthan. The plan provides for pension payments, including dearness relief, on a monthly basis to these employees on their retirement based on the respective employee’s salary and years of service with the Bank. For the former Bank of Madura, Sangli Bank and Bank of Rajasthan employees in service, funds are managed by the trust and the liability is funded as per actuarial valuation. The trust purchases annuities from the Life Insurance Corporation of India and ICICI Prudential Life Insurance Company Limited as part of its master policies for payment of pension to retired employees of the former Bank of Madura, Sangli Bank and Bank of Rajasthan. Employees covered by the pension plan are not eligible for employer’s contribution under the provident fund plan. The corpus, based on audited financial statements at year-end fiscal 2022 was Rs. 18.9 billion compared to Rs. 19.9 billion at year-end fiscal 2021.
National Pension Scheme
National Pension Scheme is a voluntary, defined contribution retirement savings scheme. The Bank contributes up to 10% of basic salary to National Pension Scheme for employees who opt to participate in the scheme. These funds are invested by Pension Fund Regulatory and Development Authority and are regulated by professional fund managers as per the investment option selected by the respective employees. At the time of retirement, up to 60% of the accumulated contributions (including returns thereon) can be withdrawn as lump-sum by the employee. The residual accumulated contributions need to be used for the purchase of a life annuity from a Pension Fund Regulatory and Development Authority empaneled life insurance company. The Bank has contributed Rs. 224.8 million for fiscal 2022 (fiscal 2021: Rs. 182.7 million) to National Pension Scheme for employees who opted for the scheme.
Interest of Management in Certain Transactions
Except as otherwise stated in this annual report, no amount or benefit has been paid or given to any of our directors or executive officers.
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The following description is a summary of certain sector specific laws and regulations in India that are applicable to us. The information detailed in this chapter has been obtained from publications available in the public domain. The regulations set out below may not be exhaustive, and are only intended to provide general information.
The main legislation governing commercial banks in India is the Banking Regulation Act, 1949. The provisions of the Banking Regulation Act are in addition to and not, save as expressly provided in the Banking Regulation Act, in derogation of the Companies Act and any other law currently in force. Other important laws include the Reserve Bank of India Act, 1934 and Foreign Exchange Management Act, 1999 as amended from time to time. Additionally, the Reserve Bank of India, from time to time, issues guidelines to be followed by banks. Compliance with all regulatory requirements is evaluated with respect to financial statements under Indian GAAP. Banking companies in India are also governed by the provisions of the Companies Act and if such companies are listed on a stock exchange in India, then various regulations of the Securities and Exchange Board of India additionally apply to such companies.
Reserve Bank of India Regulations
Commercial banks in India are required under the Banking Regulation Act to obtain a license from the Reserve Bank of India to carry on banking business in India. This license is subject to such conditions as the Reserve Bank of India may choose to impose, such as, but not limited to, the bank having adequate capital and earnings prospects, the bank has the ability to pay its present and future depositors in full as their claims accrue, and that the affairs of the bank will not be or are not likely to be conducted in a manner detrimental to the interests of present or future depositors. The Reserve Bank of India can cancel the license if the bank, at any point, fails to meet the required conditions or if the bank ceases to carry on banking operations in India.
ICICI Bank is regulated and supervised by the Reserve Bank of India, because it is licensed as a banking company. The Reserve Bank of India requires us to furnish statements and information relating to our business. It has issued, among others, guidelines for commercial banks relating to banking activities and prudential guidelines relating to recognition of income, classification of assets, provisioning, exposure norms on concentration risk, valuation of investments and maintenance of capital adequacy. The Reserve Bank of India carries out its risk assessment of banks, under its risk based supervision exercise, on an annual basis. The Reserve Bank of India has also set up a Board for Financial Supervision, under the chairmanship of the Governor of the Reserve Bank of India.
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Regulations Relating to the Opening of Branches
Opening of branches and relocation of existing branches are governed by the provisions of Section 23 of the Banking Regulation Act.
The definition of a “banking outlet” includes all service delivery points of a bank, including business correspondent outlets. A banking outlet is a fixed point service delivery unit, manned by either a bank’s staff or its business correspondent, and where services of acceptance of deposits, encashment of checks/cash withdrawal or lending of money are provided for a minimum of four hours per day for at least five days a week. The bank should have a regular off-site and on-site monitoring of the banking outlet to ensure proper supervision, uninterrupted service delivery and timely addressing of customer grievances.
The branch authorization policy is based on the classification of centers into six tiers based on the population size according to the 2011 census. Banks are permitted to open banking outlets in all centers without the prior approval of the Reserve Bank of India, subject to certain requirements. Banks are mandated to allocate 25.0% of the total number of new banking outlets opened during a year to unbanked rural centers. An unbanked rural center is defined as an area classified as Tier 5 and Tier 6 centers that does not have core banking system enabled banking outlets. The Reserve Bank of India can withhold the general permission granted with respect to branch opening and impose penal measures on banks that fail to meet the requirements. Banks are allowed to set up onsite/offsite Automated Teller Machines (ATMs) at centers/places identified by them.
With an aim to increase the reach of digital banking services, the Reserve Bank of India issued guidelines on setting up of Digital Banking Units by commercial banks. These are fixed point business units having minimum digital infrastructure to offer digital banking products and services. These digital banking units will be treated as banking outlets.
Capital Adequacy Requirements
We are required to comply with the Reserve Bank of India’s capital adequacy guidelines. The Reserve Bank of India has implemented the Basel III framework in India effective April 1, 2013. The implementation of the Basel III framework was being phased in over several years to be fully implemented initially by March 31, 2019, and later revised to March 31, 2020. However, following the outbreak of the Covid-19 pandemic, the full implementation was made applicable with effect from October 1, 2021. The Reserve Bank of India has issued guidelines on capital disclosure requirements in addition to the existing Pillar 3 guidance. The guidelines prescribe reconciliation of all regulatory capital elements with the published financial statements and other disclosure requirements.
The total capital of a bank is classified into Tier 1 capital comprising of common equity Tier 1 and Additional Tier 1, and Tier 2 capital. Under the Reserve Bank of India’s Basel III guidelines, common equity Tier 1 capital is comprised of paid-up equity capital, reserves consisting of any statutory reserves, other disclosed free reserves, capital reserves representing surplus arising out of sale proceeds of assets, discounted value of revaluation reserves and foreign currency translation reserves. Additional Tier 1 capital includes perpetual debt instruments, perpetual non-cumulative preference shares and any other type of instrument generally notified by the Reserve Bank of India from time to time for inclusion in
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additional Tier 1 capital. Tier 2 capital includes, among other items, general provisions and loss reserves, debt capital instruments classified into Tier 2 any other type of instrument generally notified by the Reserve Bank of India from time to time for inclusion in Tier 2 capital. From fiscal 2019, banks were required to create an Investment Fluctuation Reserve of an amount equal to 2.0% of the total investments in the held-for-trading and available-for-sale categories so as to build buffers against a sharp increase in government bond yields. The Investment Fluctuation Reserve is eligible for inclusion in Tier 2 capital.
The Reserve Bank of India’s Basel III guidelines prescribe a minimum common equity Tier 1 risk-based capital ratio of 5.5% and a minimum Tier 1 risk-based capital ratio of 7.0% and a minimum total risk-based capital ratio of 9.0%. The guidelines require banks to maintain a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets above the minimum requirements to avoid restrictions on capital distributions and discretionary bonus payments. The capital conservation buffer has been introduced in a phased manner from March 31, 2016. The implementation of the last tranche of 0.625% of the capital conservation buffer became effective from October 1, 2021.
Banks identified as systemically important by the Reserve Bank of India based on their size, complexity, cross-jurisdictional activities and inter-connectedness in the financial sector are required to maintain additional common equity Tier 1 capital ranging from 0.2% to 0.8% of risk-weighted assets. This requirement is in addition to the capital conservation buffer. We were declared a systemically important bank in India by the Reserve Bank of India in August 2015, and have continued to be categorized as a systemically important bank in India in subsequent years. The additional common equity Tier 1 requirement for us is 0.20% of risk-weighted assets.
Banks are permitted to issue perpetual debt instruments that can qualify for inclusion as additional Tier 1 capital and debt capital instruments that can qualify for inclusion as Tier 2 capital. The Basel III guidelines stipulate that additional Tier 1 and Tier 2 capital instruments must have loss absorbency characteristics, which require them to be written down or be converted into common equity at a pre-specified trigger event. The guidelines prescribe two trigger points for instruments issued before October 1, 2021: a common equity Tier 1 ratio of 5.5% of risk-weighted assets before October 1, 2021; and a common equity Tier 1 ratio of 6.125% of risk-weighted assets on and after October 1, 2021. Instruments issued on or after October 1, 2021 must have a pre-specified trigger at common equity Tier 1 ratio of 6.125% of risk-weighted assets. The Reserve Bank of India has permitted temporary write-down features for non-equity capital instruments. The guidelines also permit call options on perpetual debt instruments and non-cumulative preference shares after five years. Banks can issue Tier 2 capital instruments with a minimum maturity of five years. Banks are allowed to issue additional Tier 1 and Tier 2 capital instruments to retail investors subject to approval of their boards and adherence to investor protection requirements.
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Coupons on Basel III instruments are required to be paid out of current year profits, and if current year’s profits are insufficient coupon may be paid out of revenue reserves. With regard to payment of coupon on additional Tier 1 capital instruments, if current year profits are not sufficient, coupon payment may be paid through profits carried forward from previous years, and/or reserves representing appropriation of net profits including statutory reserves. However, this would exclude share premiums, revaluation reserves, foreign currency translation reserves, investment reserves and reserves created on amalgamation. Appropriation from the statutory reserve shall be the last option when all other profit pools/reserves fall short of the coupon amount.
Effective October 1, 2019, the Reserve Bank of India mandated maintaining a minimum leverage ratio of 4.0% for domestic systemically important banks, including us, and 3.5% for other banks.
The Reserve Bank of India released the final guidelines on implementation of the counter-cyclical capital buffer for Indian banks in February 2015. These guidelines would impose higher capital requirements on banks during periods of high economic growth. The counter-cyclical capital buffer would range from 0% to 2.5% of risk-weighted assets of a bank, based on the variation in the credit-to-GDP ratio from its long-term trend and other parameters. The Reserve Bank of India would pre-announce the buffer at least four quarters prior to implementation. The Reserve Bank of India will also announce guidance regarding the treatment of the surplus capital when the counter-cyclical capital buffer returns to zero. At present, the Reserve Bank of India had not activated the counter-cyclical capital buffer. See also “Risk Factors— Risks that arise as a result of our presence in a highly regulated sector – We are subject to capital adequacy requirements stipulated by the Reserve Bank of India, including Basel III, as well as general market expectations regarding the level of capital adequacy large Indian private sector banks should maintain, and any inability to maintain adequate capital due to changes in regulations, a lack of access to capital markets, or otherwise may impact our ability to grow and support our businesses” and “ – Risks that arise as a result of our presence in a highly regulated sector – We are subject to liquidity requirements of the Reserve Bank of India, and any inability to maintain adequate liquidity due to changes in regulations, a lack of access to capital markets, or otherwise may impact our ability to grow and support our businesses.”
With respect to computation of risk-weighted assets for capital adequacy purposes, we follow the standardized approach for the measurement of credit and market risks and the basic indicator approach for the measurement of operational risk. In the measurement of risk-weighted assets on account of credit risk, degrees of credit risk expressed as a percentage weighting have been assigned to various balance sheet asset items and off-balance sheet items. The credit equivalent value of off-balance sheet items is determined by applying conversion factors to the notional amount of the off-balance sheet items. The value of each item is multiplied by the relevant risk weight (and conversion factor for off-balance sheet items) to produce risk-adjusted values of assets and off-balance sheet items. Loans secured by residential property have differential risk weights ranging from 35.0% to 50.0% based on the size of the loan and the loan-to-value ratio. Residential housing loans of up to Rs. 3.0 million with a loan-to-value ratio up to 80% and loans between Rs. 3.0 million and Rs. 7.5 million with a loan-to-value up to 80.0% are risk weighted at 35.0%. Loans of up to Rs. 3.0 million with a loan-to-value ratio greater than 80.0% but less than 90.0% and loans greater than Rs. 7.5 million with a loan-to-value up to 75.0% are risk weighted at 50.0%. Other exposures meeting the qualifying criteria of regulatory retail, defined by the Reserve Bank of India, have a risk weight of 75.0%, excluding personal loans, which have a risk weight of 100.0% and credit card receivables, which have a risk weight of 125.0%.
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As a countercyclical measure following the impact of Covid-19, in April 2022, the Reserve Bank of India decided to continue the rationalised risk weights for claims secured by residential property falling under the category of individual housing loans. As per the revised directions, irrespective of the amount, all new housing loans sanctioned from October 16, 2020 to March 31, 2023 will have a risk weight of 35.0% where the loan-to-value ratio is up to 80.0% and a risk weight of 50.0% where the loan-to-value is more than 80.0% and up to 90.0%. In October 2020, the Reserve Bank of India also increased the maximum threshold limit for the individuals and small business segment (with turnover of upto Rs. 500.0 million) from Rs. 50.0 million to Rs. 75.0 million. A risk weight of 75% would apply to all fresh and incremental exposures taken by the banks up to the revised limit of Rs. 75.0 million.
Credit exposures to rated corporations other than specified categories are risk weighted based on the external credit ratings at a facility level, with the risk weight ranging from 20.0% to 150.0%. Credit exposures to commercial real estate and unrated corporate exposures are risk weighted at 100.0%. Unrated corporate exposures where the exposure of the banking system exceeds Rs. 2.0 billion are risk-weighted at 150.0%. Exposures to capital markets are risk weighted at 125.0% and exposures to venture capital funds are risk weighted at 150.0%. Further, equity shares of corporations acquired by banks as part of a strategic debt restructuring of loans are risk weighted at 150.0%. Capital requirements for market risk are applicable to the trading book exposure (including derivatives) and securities included in the available-for-sale and held-for-trading categories, open gold positions, open foreign exchange position limits, trading positions in derivatives and derivatives entered into for hedging trading book exposures. Capital requirements for operational risk are computed based on 15.0% of average of gross income for the previous three financial years. Central counterparties are treated as financial institutions for the purpose of capital adequacy. Capital requirements are defined based on the nature of the central counterparty, and a bank may consider holding capital in excess of the minimum requirement if the exposures are riskier or there is no clarity on the nature of the central counterparty.
Under Pillar 2 of the Basel framework, banks are required to develop and put in place, with the approval of their boards, an Internal Capital Adequacy Assessment Process commensurate with their size, level of complexity, risk profile and scope of operations. The Reserve Bank of India has also issued guidelines on stress testing to advise banks to put in place appropriate stress testing policies and frameworks, including “sensitivity tests” and “scenario tests”, for the various risk factors, the details and results of which are included in the Internal Capital Adequacy Assessment Process. As per Reserve Bank of India guidelines on stress testing, banks have to carry out stress tests for credit risk and market risk to assess their ability to withstand shocks. The guidelines relate to the overall objectives, governance, design and implementation of stress-testing program. Banks are required to carry out risk factor-based stress testing, scenario-based stress testing and stress testing by employing shocks on a bank’s portfolio at a standalone and group level. In addition, banks are also required to create a reverse stress testing framework. Banks are classified into three categories based on size of risk-weighted assets. Complex and severe stress testing would be carried out by banks with risk-weighted assets of more than Rs. 2,000.0 billion.
Loan Loss Provisions and Non-Performing Assets
The Reserve Bank of India’s Master Circular on “Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances” dated October 1, 2021 as amended, provides
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consolidated instructions and guidelines relating to income recognition, asset classification and provisioning standards. The principal features of the Reserve Bank of India guidelines, which have been implemented with respect to our loans, debentures, lease assets, hire purchases and bills in our Indian GAAP financial statements, are set forth below.
Asset Classification
A non-performing asset is an asset in respect of which any amount of interest or principal is overdue for more than 90 days. In particular, an advance is a non-performing asset where:
| · | interest and/or installment of principal remains overdue for a period of more than 90 days in respect of a term loan; |
| · | the account remains “out-of-order” (as defined below) in respect of an overdraft or cash credit; |
| · | the bill remains overdue for a period of more than 90 days in case of bills purchased and discounted; |
| · | installment of principal or interest remains overdue for two crop seasons for short duration crops or for one crop season for long duration crops; |
| · | the amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitization transaction undertaken in terms of the Reserve Bank of India (Securitisation of Standard Assets) Directions, 2021; |
| · | in respect of derivative transactions, the overdue receivables related to positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment; or |
| · | in respect of credit card transactions, if the minimum amount due, as mentioned in the statement, remains overdue for a period of more than 90 days from the payment due date mentioned in the statement. |
All the overdue/asset classification flagging must be done as part of a bank’s day-end processes for the due date irrespective of the time of running such processes.
For cases where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power, the requirements, inter alia, stipulate that the account should be treated as ‘out of order’. An account shall be treated as ‘out of order’ if:
| i. | the outstanding balance in the cash credit/overdraft account remains continuously in excess of the sanctioned limit/drawing power for 90 days, or |
| ii. | the outstanding balance in the cash credit/overdraft account is less than the sanctioned limit/drawing power but there are no credits continuously for 90 days, or the outstanding balance in the account is less than the sanctioned limit/drawing power but credits are not enough to cover the interest debited during the previous 90 days period. |
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In a clarification issued by the Reserve Bank of India in November 2021, it was informed that the 'previous 90 days period' for determination of 'out of order' status of a cash credit/overdraft account shall be inclusive of the day for which the day-end process is being run. Further, in the case of borrowers having more than one credit facility from a lending institution, loan accounts shall be upgraded from non-performing to standard asset category only upon repayment of entire arrears of interest and principal pertaining to all the credit facilities.
Interest in respect of non-performing assets is not recognized or credited to the income account unless collected.
Non-performing assets are classified as described below.
Sub-Standard Assets. Assets that are non-performing assets for a period not exceeding 12 months. Such an asset has well-defined credit weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the bank will sustain some loss, if deficiencies are not corrected.
Doubtful Assets. Assets that have remained sub-standard for a period of 12 months. A loan classified as doubtful has all the weaknesses inherent in assets that are classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.
Loss Assets. Assets on which losses have been identified by the bank or internal or external auditors during the performance of their audit procedures or during the Reserve Bank of India inspection but the amount has not been written off fully.
There are separate guidelines for classification of loans for projects under implementation which are based on the date of commencement of commercial production and date of completion of the project as originally envisaged at the time of financial closure. For infrastructure projects, a loan is classified as non-performing if it failed to commence commercial operations within two years from the documented date of commencement and for non-infrastructure projects, the loan is classified as non-performing if it failed to commence operations within 12 months from the documented date of commencement. However, under certain scenarios, the guideline further allows an extension of the date of commencement of operations without classifying the asset as non-performing, with the period of extension depending on the type of project and the reason for the delay in achieving closure.
The Reserve Bank of India, under its risk-based supervision exercise, carries out the risk assessment of banks on an annual basis. As a part of this assessment, the Reserve Bank of India separately reviews asset classification and provisioning of credit facilities given by banks to its borrowers. This assessment is initiated subsequent to the completion of the annual audit and the publication of audited financial statements for the given financial year. The divergences, if any, in classification or provisioning arising out of the supervisory process are given effect to in the financial statements in subsequent periods after conclusion of the exercise. The divergences are required to be disclosed by banks in their financial statements if either the additional provisioning requirement
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assessed by the Reserve Bank of India exceeds 10.0% of the published profits before provisions and contingencies for the period, or the additional gross non-performing assets identified by the Reserve Bank of India exceeds 15.0% of the published incremental gross non-performing assets for the reference period, or both.
The assessment of divergence in asset classification and provisioning conducted by the Reserve Bank of India for ICICI Bank in fiscal 2019, fiscal 2020 and fiscal 2021 did not require any additional disclosures.
Restructured loans
Accounts that are restructured are required to be classified as non-performing, except for restructuring of project loans on account of delay in commencement of operations or if any specific Reserve Bank of India guidelines permit restructuring without a change in asset classification. With regard to restructuring of project loans, any extension in repayment of the loan beyond the prescribed period (two years for infrastructure projects and one year for non-infrastructure projects including commercial real estate projects) of the date of commencement of commercial operations from the originally planned date is treated as a restructuring of the account if there is a consequent shift in the repayment schedule. In cases where projects under implementation have been stalled primarily due to inadequacies of the existing promoters and there is a change in the ownership and management of the borrowing entity, a further period of extension of the date of commencement of commercial operations is permitted by two years.
Standard restructured loans are subject to higher standard asset provisioning requirements and higher risk weights for capital adequacy purposes. The higher standard asset provisioning requirements continue for two years from the commencement of the first payment of interest or principal, whichever is later on the credit facility with the longest period of moratorium. The higher risk weights continue until satisfactory performance under the revised payment schedule has been established for one year from the date when the first payment of interest/principal falls due under the revised schedule. Restructured loans continue to be classified as such until they cease to be subject to the higher standard asset provisioning and/or risk weight requirements. If the restructured account is overdue as per the revised schedule for a period beyond the minimum period prescribed for classification of a loan as non-performing, it is required to be downgraded to non-performing status with reference to the pre-restructuring payment schedule.
The June 2019 guideline also requires that the board approves policies on resolution of stressed accounts of banks. For the purpose of restructuring, the definition of ‘financial difficulty’ has been aligned with the guidelines issued by the Basel Committee on Banking Supervision. The signs of financial difficulty could include default, delisting of securities, insufficient cash flows assessed, non-performing status of credit facilities, etc. A borrower can be identified as being in financial difficulty even in the absence of arrears on an exposure.
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Loans classified as sub-standard and doubtful assets can also be restructured. Non-performing accounts on restructuring can be upgraded only when all the outstanding loans or facilities in the account perform satisfactorily for a period of at least one year from the commencement of the first payment of interest or principal, whichever is later, on the credit facility with the longest period of moratorium.
Covid-19 related regulations
In fiscal 2022, additional measures were announced by the Reserve Bank of India.
| · | A resolution framework 2.0 was announced by the Reserve Bank of India on May 5, 2020. Banks were permitted to offer a limited window to implement resolution plans in case of credit given to individuals, business loans to individuals and small businesses. This is subject to certain conditions including the borrower should not have availed of the resolution plan under the framework announced in fiscal 2021 and the aggregate exposure of the borrower, including non-fund based facilities, should not exceed Rs. 250 million as of March 31, 2021. The borrowers would continue to be classified as standard upon implementation of the resolution plan. The last date for invocation of resolution under this window was September 30, 2021. |
| · | A resolution framework 2.0 was announced for micro, small and medium enterprises, subject to meeting certain requirements. This was an extension of the earlier resolution framework announced in August 2020. The restructuring of the borrower account would have to be invoked by September 30, 2021 and implemented within 90 days from the date of invocation. An eligibility condition for availing the restructuring facility was that the aggregate exposure of the borrower, including non-fund based facilities, could not exceed Rs. 250 million at March 31, 2021. |
| · | Credit disbursed to new micro, small and medium enterprise borrowers was allowed to be deducted for the purpose of calculation of net demand and time liabilities, for calculation of the cash reserve ratio. This exemption was earlier available up to Rs. 2.5 million per borrower for credit disbursed up to October 1, 2021. This was extended further for credit disbursed up to December 31, 2021. |
| · | In order to mitigate the adverse impact of Covid-19 related stress on banks, the Reserve Bank of India allowed banks to utilize 100.0% of floating provisions/countercyclical provisioning buffer held by banks as on December 31, 2020 for making specific provisions for non-performing assets with the prior approval of their Boards. This utilization was permitted up to March 31, 2022. |
See also “Risk Factors—Risks Relating to Our Business—The future trajectory of the Covid-19 pandemic is uncertain and could adversely affect our business, the quality of our loan portfolio and our financial performance”.
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Provisioning and write-offs
Provisions under Indian GAAP are based on guidelines specific to the classification of the assets. The following guidelines apply to the various asset classifications:
Standard Assets: The allowances on the performing portfolios are based on guidelines issued by the Reserve Bank of India. The provisioning requirement is a uniform rate of 0.4% for all standard assets except:
| · | direct advances to agricultural and the small and micro enterprise sectors, which attract a provisioning requirement of 0.25%; |
| · | advances to commercial real estate non-residential sectors which attract a provisioning requirement of 1.0%; |
| · | advances to commercial real estate residential sector which attract a provisioning requirement of 0.75%; and |
| · | housing loans, where such loans are made at comparatively lower interest rates for the first year of the loan after which the rates are reset at higher rates, which attract a provisioning requirement of 2.0%. |
An additional provision between 0% and 0.8% is required on standard loans to entities having unhedged foreign currency exposure. Standard loans require a higher provision of 5.0% if any director of the company appears more than once in the list of willful defaulters. In case of fraud accounts, 100.0% provisioning has to be made with the option to make the provision over a period of four quarters. The provision requirement pertaining to fraud accounts is computed after adjusting for any financial collateral that may be available and is eligible under Basel III capital adequacy computation.
In a guideline issued in April 2017, the Reserve Bank of India requires banks to maintain provisions for standard assets at rates higher than the regulatory requirement in respect of advances to stressed sectors of the economy. Banks have to put in place a Board-approved policy for making higher provisions based on evaluation of risk and stress in various sectors. The policy will have to be reviewed on a quarterly basis. Further for assets referred to the National Company Law Tribunal under the Insolvency and Bankruptcy Code, banks have to make provisions to the extent of 50.0% of the secured portion and 100.0% of the unsecured portion of the outstanding loans.
Sub-standard Assets: A provision of 15.0% is required for all substandard assets as compared to the previous requirement of 10.0%. A provision of 25.0% is required for accounts that are unsecured. Unsecured infrastructure loan accounts classified as substandard require provisioning of 20.0%.
Doubtful Assets: A 100.0% provision/write-off is required against the unsecured portion of a doubtful asset and is charged against income. For the secured portion of assets classified as doubtful, a 25.0% provision is required for assets that have been classified as doubtful for a year, a 40.0% provision is required for assets that have been classified as doubtful for one to three years and a 100.0% provision is required for assets classified as doubtful for more than three years. The value assigned to the collateral securing a loan is the amount reflected on the borrower’s books or the realizable value determined by third-party appraisers.
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Loss Assets: The entire asset is required to be written off or provided for.
Restructured loans: The provision on restructured loans is required to be equal to the difference between the fair value of the loan before and after restructuring. The fair value of the loan before restructuring is computed as the present value of cash flows representing the interest at the existing rate charged on the loan before restructuring and the principal. The fair value of the loan after restructuring is computed as the present value of cash flows representing the interest at the rate charged under the loan’s restructured terms and the principal. Both sets of cash flows are discounted. The discount rate for computing the present value of future cash flows of a restructured account requires a rate equal to the actual interest rate charged to the borrower before restructuring to be used to discount the future cash flows for the purpose of determining the diminution in fair value of the loan on restructuring. A weighted average interest rate may be used as the discounting rate for accounts having multiple credit facilities with varying interest rates.
The Reserve Bank of India has issued prudential norms on income recognition, asset classification and provisioning pertaining to advances which covers norms relating to creation and utilization of floating provisions (i.e., provisions which are not made in respect of specific non-performing assets or are made in excess of regulatory requirements for provisions for standard assets). The floating provisions outstanding at year-end can be used only for contingencies under extraordinary circumstances for making specific provisions against non-performing accounts after obtaining approval from the board of directors and with the prior permission of the Reserve Bank of India. Extraordinary circumstances refer to losses which do not arise in the normal course of business and are exceptional and non-recurring in nature, such as natural calamities, civil unrest, collapse of currency, general meltdown in the markets affecting the entire financial system and exceptional credit losses. Floating provisions for advances and investments must be held separately and cannot be reversed by credit to the profit and loss account. Until utilization of such provisions, they can be netted off from gross non-performing assets to compute the net non-performing assets. Alternatively, floating provisions could be treated as part of Tier 2 capital within the overall ceiling of 1.25% of total risk-weighted assets.
Under the Banking Regulation Act, banking companies in India are required to comply with the directions of the Reserve Bank of India, including guidelines issued with respect to asset identification, asset classification and provisioning by banking companies. While preparing the financial statements under Indian GAAP, banking companies are required to comply with all regulatory requirements, including such directions issued by the Reserve Bank of India. The Reserve Bank of India issued a circular on February 11, 2016, instructing all scheduled commercial banks in India to comply with the Indian Accounting Standards (“Ind AS”) for financial statements for accounting periods beginning April 1, 2018, subject to any guideline or direction issued by the Reserve Bank of India in this regard. In April 2018, the Reserve Bank of India deferred the implementation of Ind AS by one year to begin on April 1, 2019, considering that there were legislative amendments to be made to the format of financial statements prescribed in the Third Schedule to Banking Regulation Act as well as the level of preparedness of many banks. In March 2019, the Reserve Bank of India deferred the implementation of the Ind AS until further notice as legislative amendments recommended were still under the consideration of the Government of India.
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Automation of income recognition, asset classification and provisioning process in banks
In September 2020, the Reserve Bank of India issued a circular for automation of income recognition, asset classification and provisioning processes in banks. As per this circular, all borrower accounts and investments of the bank should be covered in the automated IT based system for asset classification, upgradation and provisioning processes. The asset classification rules should be configured in the system in compliance with the regulatory requirements. The system based asset classification should be an ongoing exercise for upgrades and downgrades of borrower accounts. Banks should ensure that the asset classification status is updated as part of the day end process and should also be able to generate classification status report at any given point of time with actual date of classification of assets as non-performing assets or non-performing investments. Under any exceptional circumstances, where manual intervention is required to override the system classification, it must have at least a two levels of authorisation as approved by the Board, and such manual interventions shall be subject to audit. Banks were required to upgrade their systems by June 30, 2021 to comply with the requirements.
Master Direction on Transfer of Loan Exposure
Inter alia, in order to provide banks with option to resolve their non-performing assets, the Reserve Bank of India issued Master Direction – Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 dated September 24, 2021. As per these guidelines, the board of directors of a bank must establish a policy for transfer of loans. Purchases and sales of non-performing assets must be without recourse to the seller and on a cash basis, with the entire consideration being paid upfront, except in case of transfer of these loans to ARCs. The purchasing bank must hold the non-performing asset on its books for at least 12 months before it can sell the asset to another bank. The asset cannot be sold back to the original seller. The circular also allows selling of loans which are declared as fraud to asset reconstruction companies while transferring the regulatory obligations with respect to fraud classified borrowers.
Guidelines Relating to Use of Recovery Agents by Banks
The Reserve Bank of India has asked banks to put in place a due diligence process for the engagement of recovery agents, structured to cover, among others, individuals involved in the recovery process. Banks are expected to communicate details of recovery agents to borrowers and have in place a grievance redressal mechanism pertaining to the recovery process. The Reserve Bank of India has advised banks to initiate a training course for current and prospective recovery agents to support prudent recovery practices. In case of persistent complaints received by the Reserve Bank of India regarding violation of the guidelines, the Reserve Bank of India may consider imposing a ban on the bank from engaging recovery agents.
Legislative Framework for Recovery of Debts Due to Banks
The SARFAESI Act provides that a secured creditor may, in respect of loans classified as non-performing in accordance with the Reserve Bank of India guidelines, give notice in writing to the borrower requiring it to discharge its liabilities within 60 days, failing which the secured creditor may take possession of the assets constituting the security for the loan, and exercise management rights in relation thereto, including the right to sell or otherwise dispose of the assets. The SARFAESI Act also provides for the setting up of asset reconstruction companies regulated by the Reserve Bank of India to acquire assets from banks and financial institutions. A national asset reconstruction company and a national asset management company were established in fiscal 2022 with investment from banks and financial institutions, for acquiring and managing non-performing assets.
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The SARFAESI Act permits a lender to take over the business of a borrower under the SARFAESI Act under certain circumstances. The Enforcement of Security Interest and Recovery of Debts Law Amendment Act, 2016, requires the process of possession of collateral by banks, in the event of a default, to be completed by the district magistrate within 30 days. It also empowers the district magistrate to assist banks in taking over the management of the company, where the bank has converted the debt into equity and holds 51.0% or more in the company. A central registry has been created to maintain records of transactions related to secured assets, known as the Central Registry of Securitisation Asset Reconstruction and Security Interest. See also “—Regulations Relating to Sale of Assets to Asset Reconstruction Companies”. However, considering the procedures involved in legal litigations and with borrowers having the option to appeal the decision of the debt recovery tribunal, the process of recovery of loans is delayed.
Resolution of Stressed Assets
The Reserve Bank of India has periodically announced mechanisms for the resolution of stressed accounts, particularly with a view to address the stress faced by the Indian corporate sector and the increasing non-performing and restructured corporate loans in the Indian banking sector. This included the Corporate Debt Restructuring (CDR) system and the Joint Lenders’ Forum under which schemes like Strategic Debt Restructuring and the Scheme for Sustainable Structuring of Stressed Assets were announced. Subsequently the Indian Parliament passed the Insolvency and Bankruptcy Code in May 2016 providing a legal and time bound resolution framework for corporations under stress. Further, the Banking Regulation Act, 1949 was amended empowering the Reserve Bank of India to participate in the resolution of stressed assets and authorizing it to intervene where required. Following this amendment, the Reserve Bank of India instructed banks to initiate insolvency proceedings with respect to certain stressed corporate accounts under the Insolvency and Bankruptcy Code. During fiscal 2018, banks referred several large stressed accounts for resolution under the Insolvency and Bankruptcy Code and a few large accounts were resolved under the framework. In view of a strong institutional mechanism for resolution being established with the operation of the Insolvency and Bankruptcy Code, the Reserve Bank of India withdrew the earlier announced mechanisms for resolution of stressed accounts, including the Corporate Debt Restructuring system and the Joint Lenders’ Forum, through a notification issued in February 2018, under the Revised Framework for Resolution of Stressed Assets. The guideline was subsequently amended and in June 2019, the Reserve Bank of India issued a revised prudential framework for resolution of stressed assets by banks. The revised guideline allows banks to decide on referring an account for resolution under the Insolvency and Bankruptcy Code compared to the earlier requirement of referring in the event the resolution plan is not implemented within the stipulated timeline. However, it proposes higher provisioning in case the resolution plan is not implemented within stipulated timelines. The additional provisions are not required to be made if insolvency proceedings are initiated within 210 days of default. See also “Supervision and Regulation-Loan Loss Provisions and Non-Performing Assets”.
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Insolvency and Bankruptcy Code, 2016
The Insolvency and Bankruptcy Code, 2016, provides a time bound revival and rehabilitation mechanism. The insolvency resolution process can be initiated by the creditors at the occurrence of a single instance of default for above a specific threshold amount. It classifies the creditors into financial creditors and operational creditors, which include creditors that provide financial loans and debts arising from the operational nature of the debtor, respectively. Other key features include a specific timelines for dealing with insolvency resolution applications. The insolvency resolution plan prepared by the insolvency professionals has to be approved by a majority of financial creditors, which requires approval by the adjudicating authority and, if rejected, the adjudicating authority will pass an order for liquidation. The National Company Law Tribunal has been set up as the adjudicating authority, the National Company Law Appellate Tribunal has been set up to hear appeals on the orders of the adjudicating authority with jurisdiction over companies and limited liability entities, and the Insolvency and Bankruptcy Board of India has been set up as the new insolvency regulator overseeing insolvency professionals, information utilities and promote transparency. The code also provides a time-bound process for resolving insolvency.
The Banking Regulation (Amendment) Ordinance, 2017
In May 2017, the Government of India issued an ordinance amending the Banking Regulation Act, 1949 which empowers the Reserve Bank of India to participate in the resolution of stressed assets. The Ordinance amended section 35A of the Banking Regulation Act, 1949 and inserted two new sections 35AA and 35AB. Through this amendment, the Reserve Bank of India is authorized to intervene and instruct banks to resolve specific stressed assets and initiate insolvency resolution process where required. The Reserve Bank of India is also empowered to issue other directions for resolution, and appoint or approve for appointment, authorities or committees to advise banking companies for resolution of stressed assets.
Prudential Framework for Resolution of Stressed Assets by Banks
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In February 2018, the Reserve Bank of India had announced a revised framework for resolution of stressed assets aimed at time-bound resolution of non-performing and stressed borrowers, withdrawal of earlier resolution schemes like the Strategic Debt Restructuring and the Scheme for Sustainable Structuring of Stressed Assets, and commencement of proceedings under the Insolvency and Bankruptcy Code in respect of borrowers where a resolution satisfying specified criteria could not be achieved within a prescribed timeframe. However, in April 2019, the Supreme Court declared the Reserve Bank of India circular on revised framework for resolution of stressed assets as unconstitutional. Following this judgement, the Reserve Bank of India issued a revised framework for resolution of stressed assets. As per the Prudential Framework for Resolution of Stressed Assets by Banks, released by the Reserve Bank of India in June 2019, the process of implementing a resolution plan can be initiated by lenders as soon as a borrower is reported to be in default by any of the lenders. Banks have to undertake a review of the borrower within 30 days of a default in the borrower account. Banks have to enter into an inter-creditor agreement during the 30-day review period to decide rules for finalization and implementation of the resolution plan. Resolution plans involving restructuring or change in ownership for accounts where the aggregate banking system exposure is above Rs. 1.0 billion shall require independent credit evaluation of the residual debt by credit rating agencies authorized by the Reserve Bank of India. The guideline allows banks to decide on referring an account for resolution under the Insolvency and Bankruptcy Code compared to the earlier requirement of referring in the event the resolution plan is not implemented within the stipulated timeline. However, it proposes an additional provision of 20.0% if the resolution plan is not implemented within 180 days from the end of the 30 days review period, and a further 15.0% provision if the resolution plan is not implemented within 365 days from the commencement of the review period. The additional provisions are not required to be made if insolvency proceedings are initiated within 210 days of default.
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Regulations Relating to Sale of Assets to Asset Reconstruction Companies
The Reserve Bank of India has issued guidelines to banks on the process to be followed for sales of financial assets to asset reconstruction companies in the Master Direction on Transfer of Loans. These guidelines provide that a bank may sell financial assets to an asset reconstruction company provided the asset is a non-performing asset. These assets are to be sold on a “without recourse” basis, only. The banks selling financial assets should seek to ensure that there is no known liability devolving on them and that they do not assume any operational, legal or any other type of risks relating to the financial assets sold. Further, banks may not sell financial assets at a contingent price with an agreement to bear a part of the shortfall on ultimate realization. However, banks may sell specific financial assets with an agreement to share in any surplus realized by the asset reconstruction company in the future. While each bank is required to make its own assessment of the value offered in the sale before accepting or rejecting an offer for purchase of financial assets by an asset reconstruction company, in consortium or multiple banking arrangements where more than 75.0% by value and 60.0% by number of the banks or financial institutions accept the offer, the remaining banks or financial institutions are obliged to accept the offer. Consideration for the sale may be in the form of cash, bonds or debentures or security receipts or pass-through certificates issued by the asset reconstruction company or trusts set up by it to acquire the financial assets.
Banks can also invest in security receipts or pass-through certificates issued by the asset reconstruction company or trusts set up by it to acquire the financial assets. The Reserve Bank of India has also issued guidelines governing the affairs of asset reconstruction companies. The guideline provides norms relating to period of realization of assets by asset reconstruction company, mandatory holding of security receipts, period for formulating plan of recovery, etc. Banks are also allowed to reverse the excess provision in case a non-performing asset is sold to asset reconstruction companies at a value which is higher than the net book value subject to realization in cash and only when the sum of cash received by way of initial consideration and/or redemption or transfer of Security Receipts/Pass Through Certificates/other securities issued by asset reconstruction companies is higher than the net book value of the loan at the time of transfer and necessary disclosures. The quantum of excess provision reversed to the profit and loss account is limited to the extent to which cash received exceeds the net book value of the non-performing assets sold.
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Asset reconstruction companies are not permitted to acquire any non-performing financial assets from their sponsor banks on a bilateral basis. However, they may participate in auctions of non-performing assets by their sponsor banks.
All transactions relating to securitization, reconstruction of financial assets and the transactions relating to mortgage by deposit of title deeds to secure any loan or advances granted by banks and financial institutions are to be registered in the central electronic registry within 30 days of such transaction. The records will be available for search by any lender or any other person interested in dealing with the property and are designed to prevent frauds involving multiple lending against the same security as well as to prevent fraudulent sale of property without disclosing any existing security interest over such property.
Framework for Early Identification of Stress and Information Sharing
The Reserve Bank of India has issued a “Framework for Revitalizing Distressed Assets in the Economy.” The framework outlined an action plan for early identification of problem cases, creating a central repository of information on large credits, timely restructuring of accounts which were considered to be viable, and taking prompt steps by banks for recovery or sale of unviable accounts. Accounts have to be categorized into “special mention accounts” based on specified criteria. Banks are required to have three sub-categories of special mention accounts depending on the classification of accounts between the standard category and the sub-standard category. SMA-0 category includes accounts where the principal or interest payment is not overdue for more than 30 days but are showing incipient signs of stress; SMA-1 includes accounts where the principal or interest payment is overdue between 31-60 days; and SMA-2 which includes accounts where the principal or interest payment is overdue between 61-90 days.
The Reserve Bank of India issued the Prudential Framework for Resolution of Stressed Assets in June 2019. The framework continued with the classification of special mention accounts and required banks to undertake a review of the borrower within 30 days of a default in the borrower account and enter into an inter-creditor agreement during the 30-day review period to decide rules for finalization and implementation of the resolution plan. See also “ Supervision and Regulation—Legislative Framework for Recovery of Debts due to Banks” and “ Supervision and Regulation—Legislative Framework for Recovery of Debts due to Banks—Resolution of Stressed Assets—The Banking Regulation (Amendment) Ordinance, 2017”.
Reserve Bank of India guidelines provide a framework for dealing with loan frauds. The guidelines relate to detection, reporting and monitoring of fraud accounts. They prescribe continuous monitoring and red flagging of accounts based on early warning signals for accounts above Rs. 500 million. The guidelines also require reporting frauds on the Reserve Bank of India’s central repository of information on large credits for dissemination to other banks and enabling decision-making among banks in case of consortium or multiple banking arrangements. The framework also illustrates checks/investigations during the different stages of the loan life cycle and timelines have been defined to complete the due
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diligence for evaluation of an account. Restructuring or grant of additional facilities would not be available in case of fraud or red-flagged accounts. There are provisioning guidelines relating to fraud accounts that require banks to make a provision for the entire amount due to the bank over a period of four quarters. Where the provisioning is being made in more than one financial year, banks have to debit “other reserves” for the amount remaining un-provided at the end of the financial year, and accordingly reverse the amount in the quarters of the next financial year.
Regulations Relating to Advancing Loans
The provisions of the Banking Regulation Act govern the advancing of loans by banks in India. The Reserve Bank of India also issues directions covering the loan activities of banks. These directions and guidelines issued by the Reserve Bank of India have been consolidated in the Master Circular on “Loans and Advances—Statutory and Other Restrictions.”
Banks are free to determine their own lending rates but each bank must disclose its minimum interest rate which takes into consideration all elements of lending rates that are common across borrowers.
The Reserve Bank of India final guidelines on the computation of lending rates based on marginal cost of funds, called the Marginal Cost of Funds based Lending Rate, has been applicable on incremental lending from April 1, 2016 and is a tenor linked benchmark. The methodology to compute the marginal cost of funds based lending rate comprises of marginal cost of funds, negative carry on account of cash reserve ratio, operating costs and tenor premium. Some categories of loans can be priced without linkage to the marginal cost of funds based lending rate. Banks have to review and publish their marginal cost of funds based lending rate every month on a preannounced date for different maturities ranging from overnight rate up to one year. The periodicity of reset is one year or lower. Interest rates for all floating rate loans and fixed rate loans (including the fixed rate portion of hybrid loans) of tenor up to three years cannot be less than the marginal cost of funds based lending rate.
Effective from October 1, 2019, all new floating rate personal or retail loans and floating rate loans to micro and small enterprises extended by banks are linked to an external benchmark, and from April 01, 2020 loans to medium enterprises are also linked to an external benchmark. The interest rate under external benchmark is required to be reset at least once in three months. The external benchmark includes either the Reserve Bank of India policy repo rate, Government of India 91-day treasury bill yield, Government of India 182-day treasury bill yield or any other benchmark market interest rate produced by the Financial Benchmarks India Private Limited. We have adopted the repo rate as the external benchmark for linking our floating rate loans to these segments.
Under Section 20(1) of the Banking Regulation Act, a bank cannot grant any loans and advances against the security of its own shares and a banking company is prohibited from entering into any commitment for granting any loans or advances to or on behalf of any of its directors, or any firm in which any of its directors is interested as partner, manager, employee or guarantor, or any company (not being a subsidiary of the banking company or a company registered under Section 25 of the Companies Act, 1956 or a government company) of which, or the subsidiary or the holding company of which any of the directors of the bank is a director, managing agent, manager, employee or guarantor or in which he holds substantial interest, or any individual in respect of whom any of its directors is a partner or guarantor. There are certain exemptions in this regard as the explanation to the section provides that “loans or advances” shall not include any transaction which the Reserve Bank of India may specify by general or special order as not being a loan or advance for the purpose of this section.
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There are guidelines on loans against equity shares in respect of amount, margin requirement and purpose. The Reserve Bank of India has issued guidelines requiring banks to put in place a policy for exposure to real estate with the approval of their boards. The policy should include exposure limits, collaterals to be considered, collateral cover and margins and credit authorization. The Reserve Bank of India has also permitted banks to extend financial assistance to Indian companies for acquisition of equity in overseas joint ventures or wholly owned subsidiaries or in other overseas companies, new or existing, as strategic investment. Banks are not permitted to finance acquisitions by companies in India.
The Reserve Bank of India has issued instructions regarding sharing of information relating to credit, derivatives and unhedged foreign currency exposures among banks and to put in place an effective mechanism for information sharing. Under this framework, sanction of fresh loans and renewal of loans to new and existing borrowers should be done only after obtaining/sharing necessary information. In September 2013, the Reserve Bank of India announced the creation of a central repository of large common exposures across banks, to be based on submissions made by banks to the Reserve Bank of India on exposures of more than Rs. 100 million to individuals and entities. Subsequently, the limit was reduced to Rs. 50 million and above.
In December 2018, the Reserve Bank of India issued guidelines for delivery of bank credit. According to the guidelines, for borrowers having an aggregate fund-based working capital limit of Rs. 1.5 billion and above from the banking system, a minimum loan component of 40.0% on the fund-based working capital limits would be applicable from April 1, 2019, and would be revised to 60.0% from July 1, 2019. Drawing in excess of the minimum loan component threshold would be allowed in the form of cash credit/overdraft facility. The amount and tenor of the loan component may be fixed by banks in consultation with the borrowers, subject to the tenor of the loan component not being less than seven days. Since April 1, 2019, mandatory credit conversion factor of 20.0% on the undrawn portion of cash credit/overdraft facility has been applicable, irrespective of whether the facility is unconditionally cancellable or not. This guideline is applicable to both existing and new relationships.
Considering the significant increase in digital lending platforms, in June 2020, the Reserve Bank of India issued guidelines for loans sourced by banks and non-banking finance companies through digital lending platforms. As per the guideline, banks and non-banking finance companies, irrespective of whether they lend through their own digital lending platform or through an outsourced lending platform, must adhere to the Fair Practices Code guidelines. The Reserve Bank of India has issued instructions for engaging with digital lending platforms as agents to source borrowers and/or to recover dues. In January 2021, the Reserve Bank of India constituted a working group to study all aspects of digital lending activities in the regulated financial sector as well as by unregulated players and development a regulatory approach, which submitted its report in November 2021. In September 2021, the Reserve Bank of India has issued revised guidelines on securitisation and transfer of loan exposure. As per the revised guideline, there is a mandatory requirement of minimum holding period under the guidelines before transfer of loan and securitisation of the portfolio. The guideline prescribes the due diligence criteria, eligible loan exposure and prudential regulations in respect of loan transfer and securitisation transactions.
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Directed Lending
Priority Sector Lending
The guidelines on lending to priority sector require commercial banks to lend a certain percentage of their adjusted net bank credit to specific sectors (the priority sectors), such as agriculture, micro and small enterprises, micro-credit, education and housing finance. The target for total priority sector advances is set at 40.0% of adjusted net bank credit (which is net bank credit plus those investments made by banks in non-statutory liquidity bonds/debentures that are included in the held-to-maturity category, investments eligible to be treated as priority sector, investments in eligible government funds on account of priority sector shortfall, outstanding priority sector lending certificates excluding long-term bonds for infrastructure and affordable housing eligible for exemptions, and eligible advances extended in India against the incremental foreign currency deposits qualifying for exemption from cash reserve ratio/statutory liquidity ratio requirement) or of the credit equivalent amount of off balance sheet exposure, whichever is higher as of March 31 of the previous fiscal year. Banks falling short of their priority sector lending targets are required to contribute amounts equivalent to the shortfall to specific Government of India funds like the Rural Infrastructure Development Fund, established by the National Bank for Agriculture and Rural Development, or funds with other financial institutions like Small Industries Development Bank of India or National Housing Board.
The Reserve Bank of India’s overall target for priority sector lending was 40.0% of adjusted net bank credit or of the credit equivalent amount of off-balance sheet exposure, whichever is higher, with sub-targets of 10.0% for lending to small and marginal farmers and 7.5% to micro enterprises within the overall target of 18.0% in agriculture. Sectors qualifying for priority sector lending to include medium-sized enterprises, social infrastructure, renewable energy and loans to start-ups (up to Rs. 500.0 million). From fiscal 2022, the targets for lending to small and marginal farmers and weaker sections have been increased in a phased manner by the Reserve Bank of India. The target for lending to small and marginal farmers has been increased from 8.0% of adjusted net bank credit in fiscal 2021 to 9.0% in fiscal 2022, and will be increased further to 9.5% in fiscal 2023 and to 10.0% in fiscal 2024. The target for lending to identified weaker sections of society has been increased from 10.0% in fiscal 2021 to 11.0% in fiscal 2022, and will be increased further to 11.5% in fiscal 2023 and 12.0% in fiscal 2024.
Further, to address regional disparities in the flow of priority sector credit at the district level, the Reserve Bank of India has ranked districts on the basis of per capita credit flow to priority sector and build an incentive framework for increasing flow of credit to districts with comparatively lower credit. From fiscal 2022, a higher weight of 125.0% has been assigned to 205 districts where the credit flow is comparatively lower and a weight of 90.0% has been assigned to 184 districts where the credit flow is comparatively higher (per capita priority sector lending of Rs. 25,000). The list of districts will be valid until fiscal 2024 and would be reviewed thereafter.
The Reserve Bank of India has notified a new criterion for classifying an enterprise as micro, small and medium from July 2020. Micro enterprises include businesses with investment in plant and machinery or equipment not exceeding Rs. 10.0 million and turnover not exceeding Rs. 50.0 million; small enterprises are businesses with investment in plant and machinery or equipment not exceeding Rs. 100.0 million and turnover not exceeding Rs. 500.0 million; and medium enterprises are businesses with investment in plant and machinery or equipment not exceeding Rs. 500.0 million and turnover not exceeding Rs. 2.5 billion. In August 2020, the Reserve Bank of India issued guidelines requiring banks
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to ensure registration of their micro, small and medium enterprises borrowers on the government’s registration portal Udyam. The Udyam registration certificate is necessary for lending to micro, small and medium enterprises to qualify for priority sector from fiscal 2022. However, registration of retail and wholesale traders on the portal was not permitted, thus excluding them from priority sector lending. In July 2021, the government permitted retail and wholesale traders to register on the portal, resulting in them continuing to qualify as priority sector lending.
Priority sector lending achievements were evaluated on a quarterly average basis since fiscal 2017. From fiscal 2022, the priority sector achievements are computed based on the weightage assigned to the incremental priority sector credit in the identified districts. The necessary adjustments for weightage of districts and calculation of achievement would be done by the Reserve Bank of India on the basis of data submitted by banks on a quarterly basis.
The Reserve Bank of India has directed banks to maintain direct lending to non-corporate farmers at the banking system’s average level for the last three years, failing which banks will attract penalties for shortfall. The Reserve Bank of India would notify the banks of the banking system’s average level at the beginning of each year. The target for fiscal 2022 was set at 12.73% of adjusted net bank credit. The Reserve Bank of India has also directed banks to continue to pursue the target of 13.5% of adjusted net bank credit towards lending to borrowers who constituted the direct agriculture lending category. Housing loans to the low-cost or affordable housing segment up to a certain threshold are also eligible for the purpose of classification under priority sector.
Investments by banks in securitized assets, outright purchases of loans and assignments are eligible for classification under priority sector if the underlying assets themselves qualified for such treatment. The interest rates charged to ultimate borrowers by the originating entities in such transactions are capped for such transactions to be classified as priority sector.
The Reserve Bank of India has allowed banks to sell and purchase priority sector lending certificates in the event of excess/shortfall in meeting priority sector targets, which may help in reducing the shortfall in priority sector lending. These instruments are issued by banks that have a surplus in priority sector lending or any of its individual sub-segments and are purchased by banks having a shortfall, through a trading portal. Scheduled commercial banks, regional rural banks, local area banks, small finance banks and urban cooperative banks can participate in this trade. Four types of certificates for the categories of agriculture, small and marginal farmers, microenterprises and general category certificates have been allowed. There will be no transfer of risks or loan assets in these transactions. A bank can issue priority sector lending certificates up to 50.0% of the previous year’s priority sector lending achievement. The certificates will expire on March 31 and will not be valid beyond the last reporting date for the fiscal year. The calculation of priority sector lending would be the sum of the outstanding priority sector lending portfolio and the net priority sector lending certificates issued and purchased.
The Reserve Bank of India allows commercial banks, to engage with a non-deposit taking, systematically important non-banking finance company to co-originate loans for the creation of priority sector assets. This involves joint contribution of credit by both lenders and also sharing of risks and rewards between the bank and the non-banking financial company. Banks can claim priority sector status in respect of their share of credit. Following the Covid-19 pandemic, the Reserve Bank of India allowed classifying loans to non-banking finance companies as priority sector where the on-lending is to agriculture or micro and small enterprises. This was available until March 31, 2022.
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The Reserve Bank of India allows banks to issue long-term bonds for financing infrastructure and low-cost housing. The amount raised by way of these bonds is permitted to be excluded from adjusted net bank credit for the purpose of computing priority sector lending targets, except to the extent that the lending against these bonds is included in priority sector lending.
Banks falling short of their priority sector lending targets are required to contribute amounts equivalent to the shortfall to specific Government of India funds. i.e. Rural Infrastructure Development Fund (RIDF) established with NABARD and other funds with NABARD/NHB/SIDBI/MUDRA Limited. The contribution is made by subscribing to bonds issued with a maturity of up to seven years. The interest rates on these contributions are below market rates and are generally set depending on the bank rate as set by the Reserve Bank of India. For accounting periods commencing April 1, 2015, amounts equivalent to the shortfall placed with specific Government of India funds is included under Schedule 11, under “other assets” in the balance sheet of banks from the earlier categorization under investments. Non-achievement would be taken into account while granting regulatory clearances/approvals for various purposes.
Export Credit
The Reserve Bank of India allows exporters to avail short-term working capital financing at internationally comparable interest rates. Export credit is available both in rupee as well as in foreign currency. This enables exporters to have access to an internationally competitive financing option. Pursuant to existing guidelines, 12.0% of a bank’s adjusted net bank credit is required to be in the form of export credit. This target is in addition to the priority sector lending target of 40.0% of adjusted net bank credit. We provide export credit for pre-shipment and post-shipment requirements of exporter borrowers in rupees and foreign currencies. The Reserve Bank of India has allowed exporters with a satisfactory track record of at least three years to receive long-term export advance at concessional rates for execution of long-term supply contracts up to a maximum period of 10 years.
Credit Exposure Limits
As a prudential measure aimed at better risk management and avoidance of concentration of credit risks, the Reserve Bank of India has prescribed credit exposure limits for banks and long-term lending institutions in respect of their lending to individual borrowers and to all companies in a single group (or sponsor group).
The Reserve Bank of India requires banks to fix internal limits of exposure to specific sectors. These limits are subject to periodic review by the banks. We have fixed a ceiling of 15.0% on our exposure to any one industry (other than retail loans) and monitor our exposures accordingly.
Under Reserve Bank of India guidelines, a borrower having an aggregate fund-based credit limit of Rs. 100.0 billion will be considered a specified borrower. The normally permitted lending limit for specified borrowers is defined as an amount that is 50.0% of the incremental funds raised over and above the aggregate fund-based credit limit. The general provision required on the incremental exposure above the normally permitted lending limit would be 3.0% and the additional risk weight for such exposure over and above the applicable risk weight would be 75.0%.
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Further, the Reserve Bank of India has issued guidelines on large borrowers which prescribe a limit of 20.0% and 25.0% of the eligible capital base in respect of exposures to single counterparty and groups of connected counterparties with effect from April 1, 2019. The eligible capital base is defined as the Tier 1 capital of the bank as against the earlier norm of total capital funds. Exposure to a single non-banking finance company or a group of connected non-banking finance companies is restricted to 15.0% and 25.0%, respectively, of the eligible capital base. The definition of exposure for large borrowers includes off-balance sheet items converted into credit exposure equivalents through the use of credit conversion factors used for assessing credit risk under the standardized approach for risk based capital requirements. Non-centrally cleared derivatives exposures were exempted from the purview of the framework until September 30, 2021. In June 2019, the Reserve Bank of India introduced an economic inter-dependence criterion in the definition of connected counterparties, has been applicable since April 1, 2020. Following the outbreak of the Covid-19 pandemic, as a one-time measure to facilitate flow of resources to corporates, the permissible exposure of banks to a group of connected counterparties was increased from 25.0% to 30.0% of the capital base of a bank. This is applicable until June 30, 2021.
Corporate borrowers having total exposure of Rs. 50 million and above in the banking system are required to obtain a legal entity identifier registration. A borrower who does not obtain the legal entity identifier is not eligible for renewal or enhancement of credit facilities.
Limits on intra-group transaction and exposures
The Reserve Bank of India guidelines on management of intra-group transactions and exposures for financial conglomerates prescribe quantitative limits for intra-group financial transactions and prudential measures for non-financial transactions. The Reserve Bank of India has prescribed a single group entity exposure limit of 5.0% of paid-up capital and reserves of the bank for non-financial companies and unregulated financial services companies and 10.0% in case of regulated financial entities. The aggregate group exposure cannot exceed 20.0% of paid-up capital and reserves and surplus in case of all group entities (financial and non-financial) taken together and 10.0% in case of all non-financial companies and unregulated financial services companies taken together. Banks’ exposures to other banks/financial institutions in the group in the form of equity and other capital instruments are exempted from above limits. If the exposure exceeds the permissible limits, the excess amount would be deducted from common equity Tier 1 capital of the bank.
Regulations Relating to Investments and Capital Market Exposure Limits
In terms of Section 19(2) of the Banking Regulation Act, banks should not hold shares in any company except as provided in subsection (1) of that Act, whether as pledgee, mortgagee or absolute owner, of an amount exceeding 30.0% of the paid-up share capital of that company or 30.0% of its own paid-up share capital and reserves and surplus, whichever is less. Further, in terms of Section 19(3) of the Banking Regulation Act, banks should not hold shares, whether as pledgee, mortgagee or absolute owner, in any company in the management of which any managing director or manager of the bank is in any manner concerned or interested.
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The Reserve Bank of India guidelines on capital market exposures stipulate that a bank’s exposure to capital markets in all forms (both fund-based and non-fund-based) by way of investments in shares, convertible bonds/debentures, units of equity oriented mutual funds, loans against shares, and secured and unsecured advances to stock brokers, should not exceed 40.0% of its net worth on both a stand-alone and consolidated basis as of March 31 of the previous year. Within this overall limit, direct investments in shares, convertible bonds/debentures, and units of equity oriented mutual funds and all exposures to venture capital funds have been restricted to 20.0% of their net worth on both a stand-alone and consolidated basis. Banks are permitted to participate in Real Estate Investment Trusts and Infrastructure Investment Trusts within this overall limit. Bank investments in liquid schemes of debt oriented mutual funds are subject to a prudential cap of 10.0% of the bank’s net worth as of March 31 of the previous year. A 125.0% risk weight is assigned to all capital market exposures.
Investment by banks in specified instruments which are issued by other banks or financial institutions and are eligible for capital status for the investee bank/financial institution should not exceed 10.0% of the investing bank’s capital funds. Further, the banks/financial institutions should not acquire any fresh stake in a bank’s equity shares, if by such acquisition, the investing bank’s or financial institution’s holding exceeds 5.0% of the investee bank’s equity capital.
The Reserve Bank of India has issued guidelines on investments by banks in non-statutory liquidity ratio securities. As per the guidelines applicable to primary market subscriptions and secondary market purchases, banks are prohibited from investing in non-statutory liquidity ratio securities with an original maturity of less than one year, other than commercial paper, certificates of deposit and certain non-convertible debentures with original or initial maturity of up to one year issued by corporations and non-banking finance companies. Banks are also prohibited from investing in unrated securities. A bank’s investment in unlisted non-statutory liquidity ratio securities may not exceed 10.0% of its total investment in non-statutory liquidity ratio securities at the end of the preceding fiscal year. However, the bank’s investments in unlisted non-statutory liquidity ratio securities may exceed the 10.0% limit by an additional 10.0%, provided the investment is in securitization papers issued for infrastructure projects and bonds/debentures issued by securitization companies and reconstruction companies set up under the SARFAESI Act and registered with the Reserve Bank of India. Banks are permitted to invest in unrated bonds of corporations engaged in infrastructure activities within the ceiling of 10.0% for unlisted non-statutory liquidity ratio securities in order to encourage flow of credit to the infrastructure sector.
In order to promote adequate credit flow to infrastructure projects, banks are permitted to issue long-term bonds for financing infrastructure projects and low-cost housing. These bonds must have a minimum maturity of seven years, and they are exempt from reserve requirements such as cash reserve ratio and statutory liquidity ratio. They are also permitted to be deducted from adjusted net bank credit for the purpose of priority sector lending targets. These investments are subject to certain conditions including (i) investments in these bonds are not considered for the purpose of calculation of net demand and time liabilities, (ii) they are not held under the held-to-maturity category, (iii) a bank’s investment in these bonds cannot exceed 2.0% of its Tier 1 capital or 5.0% of the issue size, and (iv) an investing bank’s aggregate holding in such bonds will be capped at 10.0% of its total non-statutory liquidity ratio investments.
Banks are permitted to raise funds through issuance of rupee denominated bonds overseas. The Reserve Bank of India has permitted banks to issue perpetual debt instruments that can qualify for inclusion as additional Tier 1 capital and debt capital instruments that can qualify for inclusion as Tier 2 capital, by way of rupee denominated bonds in the overseas market, and long-term bonds for financing infrastructure and affordable housing projects.
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Banks’ Investment Classification and Valuation Norms
The key features of the Reserve Bank of India guidelines on categorization and valuation of banks’ investment portfolio are as follows:
| · | The entire investment portfolio is required to be classified under three categories: (a) held-to-maturity, (b) held-for-trading and (c) available-for-sale. Held-to-maturity includes securities so classified in accordance with the Reserve Bank of India guidelines; held-for-trading includes securities acquired with the intention of being traded to take advantage of the short-term price/interest rate movements; and available-for-sale includes securities not included in held-to-maturity and held-for-trading. Banks should decide the category of investment at the time of acquisition. |
| · | The held-to-maturity category can include statutory liquidity ratio securities up to a specified percentage of the demand and time liabilities and certain non-statutory liquidity ratio securities, including fresh recapitalization bonds received from the Government of India towards recapitalization requirement and held in the investment portfolio, investment in the equity of subsidiaries and joint ventures and investment in long-term bonds (with a minimum residual maturity of seven years) issued by companies engaged in infrastructure activities. The minimum residual maturity of seven years should be at the time of investment in these bonds. Once invested, banks may continue to classify these investments under the held-to-maturity category even if the residual maturity falls below seven years subsequently. However, banks’ investments in long-term bonds issued by other banks for their financing of infrastructure and affordable housing loans are not to be held in the held-to-maturity category. |
| · | Banks are permitted to exceed the limit of 25.0% of total investment under the held-to-maturity category provided the excess comprises only of statutory liquidity ratio securities, and the total statutory liquidity ratio securities held in the category are not more than 19.50% of the net demand and time liabilities. In April 2021, banks were granted a special dispensation to enhance the statutory liquidity ratio securities held in the category to up to 22.0% of the net demand and time liabilities. In April 2022, the Reserve Bank of India decided to further enhance the existing held to maturity limit to 23.0% and allow banks to include securities acquired between April 1, 2022 and March 31, 2023 under the enhanced limit of 23.0%. The enhanced limit shall be restored to 19.5% in a phased manner beginning from June 30, 2023 till March 31, 2024. |
| · | Profit or loss on the sale of investments in both held-for-trading and available-for-sale categories are taken in the income statement. Profit on the sale of investments in the held-to-maturity category, net of tax and statutory reserve, is appropriated to the capital reserve account after being taken in the income statement. Loss on any sale is recognized in the income statement. |
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| · | The market price of the security available from the stock exchange, the price of securities in subsidiary general ledger transactions, the Reserve Bank of India price list or prices declared by Primary Dealers Association of India jointly with the Fixed Income Money Market and Derivatives Association of India serves as the “market value” for investments in available-for-sale and held-for-trading securities. |
| · | Investments under the held-for-trading category should be sold within 90 days; in the event of inability to sell due to adverse factors including tight liquidity, extreme volatility or a unidirectional movement in the market, the unsold securities should be shifted to the available-for-sale category. |
| · | Investments may be shifted from or to held-to-maturity with the approval of the board of directors once a year, normally at the beginning of the accounting year; shifting of investments from available-for-sale to held-for-trading may be done with the approval of the board of directors, the Asset Liability Management Committee or the Investment Committee; shifting from held-for-trading to available-for-sale is generally not permitted. With regard to sales and transfers of securities from or to the held-to-maturity category, if the value of sales exceeds 5.0% of the book value of the investment held in the held-to-maturity category at the beginning of the year, the market value of the investment will have to be disclosed in the notes to the financial accounts in the annual report along with the excess book value over market value for which a provision was not made. |
Held-to-maturity securities need not be marked-to-market and are carried at acquisition cost, unless it is more than the face value, in which case the premium should be amortized over the period remaining to maturity. Investments under available-for-sale category are marked-to-market at quarterly intervals or at more frequent intervals and held-for-trading securities valued at market at monthly intervals or at more frequent intervals and provided for as in the case of those in the available for sale category. Depreciation or appreciation for each basket within the available-for-sale and held-for-trading categories is aggregated. Net appreciation in each basket, if any, which is not realized, is ignored, while net depreciation is provided for.
Investments in security receipts or pass through certificates issued by asset reconstruction companies or trusts set up by asset reconstruction companies should be valued at the lower of: (a) the redemption value of the security receipts or pass through certificates; and (b) the net book value (defined as book value less provisions held) of the financial asset. However, if the instrument issued by securitization/asset reconstruction companies is limited to the actual realization of the financial asset assigned to the instrument, the net asset value should be obtained from the securitization/asset reconstruction companies for valuation of the investments.
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With the aim of building adequate reserves to protect against sudden increase in yields, the Reserve Bank of India previously advised banks to create an Investment Fluctuation Reserve effective from the start of fiscal 2019. A minimum amount equal to either the net profit on sale of investments during the year or net profit for the year excluding mandatory appropriations, whichever is lower, would have to be transferred to the Investment Fluctuation Reserve. The amount in the Investment Fluctuation Reserve should cover at least 2.0% of the held-for-trading and available-for-sale portfolio, on a continuing basis. Where feasible, this requirement should be achieved within a period of three years. The Investment Fluctuation Reserve would be eligible for inclusion in tier 2 capital. In case the balance in the Investment Fluctuation Reserve is in excess of the minimum requirement of 2.0% of the held-for-trading and available-for-sale portfolio, banks can drawdown the excess amount at the end of the accounting year. If the balance is less than the minimum requirement, drawdown would be permitted only on meeting the minimum common equity tier 1/tier 1 capital requirements and cannot exceed the extent by which mark-to-market provisions surpass the net profit on sale of investments during the year.
In January 2022, the Reserve Bank of India released a discussion paper on Review of Prudential Norms for Classification, Valuation and Operations of Investment Portfolio of Commercial Banks. The key proposals in the discussion paper include categorization of the investment portfolio into held-to-maturity, available for sale and fair value through profit and loss account. It also proposes removal of ceiling on investments in the held to maturity category as a percentage to total investments as also the ceiling on statutory liquidity ratio securities that can be held in the held to maturity category, and carrying equity investments in subsidiaries, joint ventures and associates at cost under the held to maturity category. The framework, if approved, will be effective from April 1, 2023, with banks being allowed to make the transitional adjustments based on the mark-to-market position as at that date in the balance of ‘Reserves and Surplus’.
Limit on Transactions through Individual Brokers
Guidelines issued by the Reserve Bank of India require banks to appoint brokers for transactions in securities. These guidelines also require that a disproportionate part of the bank’s business should not be transacted only through one broker or a few brokers. If for any reason this limit is breached, the Reserve Bank of India has stipulated that the board of directors of the bank should be informed on a half yearly basis of such occurrence and ratify such action.
Prohibition on Short-Selling
The Reserve Bank of India permits scheduled commercial banks and primary dealers to undertake short sale of Indian central government dated securities, subject to the short position being covered within a maximum period of three months. The short selling entity ordinarily has to borrow securities from the repo market, but in exceptional situations of market stress (e.g., a short squeeze), it can deliver securities from its own held-to-maturity or available for sale or held-for-trading portfolios. All notional short sales have to be closed by an outright purchase in the market, and the securities so borrowed have to be brought back to the same portfolio, without any change in book value.
The Reserve Bank of India permits re-repo of government securities, including state development loans and treasury bills, acquired under reverse repo subject to prescribed conditions. It has also permitted re-repo of securities received under its Liquidity Adjustment Facility with market participants. To liberalize the eligible short sale participants and also relax the entity-wise limits and security category limits for short-selling in government securities, the guidelines, among other things, set out security level limits on short sales, operational requirements, and reporting and internal control policies.
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Subsidiaries and Other Financial and Non-Financial Sector Investments
Banks need prior permission of the Reserve Bank of India to incorporate or acquire a subsidiary. Banks are required to maintain an “arm’s-length” relationship with subsidiaries and with mutual funds sponsored by the bank in regard to business parameters such as not taking undue advantage in borrowing or lending funds, transferring/selling/buying of securities at rates other than market rates, giving special consideration for securities transactions, in supporting/financing the subsidiary or financing our clients through them when the bank is not able or not permitted to do so itself. Banks have to observe the prudential norms stipulated by the Reserve Bank of India, from time to time, in respect of our underwriting commitments. Pursuant to such prudential norms, underwriting by a bank or the underwriting commitment of its subsidiaries under any single obligation shall not exceed 15.0% of an issue.
Under the Reserve Bank of India guidelines, a bank’s equity investments in a subsidiary company, or a financial services company (including a financial institution, a stock or other exchange or a depository) which is not a subsidiary, should not exceed 10.0% of the bank’s paid-up share capital and reserves and the total investments made in all subsidiaries and all non-subsidiary financial services companies should not exceed 20.0% of the bank’s paid-up share capital and reserves. However, the cap of 20.0% does not apply, nor is the prior approval of the Reserve Bank of India required, if investments in financial services companies are held under the “held-for-trading” category, and are not held beyond 90 days. The Reserve Bank of India has advised that a bank may seek prior approval of the regulator in case the 20.0% limit is likely to be breached on account of any new investment in subsidiaries or joint ventures.
In November 2020, the Reserve Bank of India released the report of an internal working group to review the extant ownership and corporate structure guidelines for Indian private sector banks and sought feedback on the recommendations by January 15, 2021. The recommendations include allowing large corporate houses as promoters of banks after necessary amendments to the Banking Regulation Act, 1949 to address the risks of connected lending and exposures between the banks and other financial and non-financial group entities and strengthening of the supervisory mechanism; an increase in the minimum initial capital requirement for licensing new universal banks from Rs. 5.0 billion to Rs. 10.0 billion and for new small finance banks from Rs. 2.0 billion to Rs. 3.0 billion; and a non-operative holding company structure for all new licenses. The report recommended that banks licensed before 2013 could move to a non-operative holding company structure at their discretion within five years from announcement of tax neutrality for the transition. In November 2021, the Reserve Bank of India accepted few recommendations made by the internal working group including a non-operative financial holding company structure for all new licenses issued for universal banks.
Banks meeting the minimum prescribed capital ratios, including the capital conservation buffer and that made net profits as of March 31 of the previous year need not obtain prior approval from the Reserve Bank of India for equity investments in financial service companies where after such investment, the holding of the bank remains less than 10.0% of the investee company’s paid-up capital, and the holding of the bank, along with its subsidiaries or joint ventures or entities, continues to remain less than 20.0% of the investee company’s paid-up capital. A bank’s equity investments in companies
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engaged in non-financial services activities are subject to a limit of 10.0% of the investee company’s paid-up share capital or 10.0% of the bank’s paid-up share capital and reserves, whichever is less. For the purpose of this limit, equity investments held under the held-for-trading category are included. Investments within these limits would not require prior approval of the Reserve Bank of India. Equity investments in any non-financial services company held by a bank, or entities which are bank’s subsidiaries, associates or joint ventures, and mutual funds managed by asset management companies controlled by the bank should in the aggregate not exceed 20.0% of the investee company’s paid-up share capital. Any investment by a bank in excess of 10.0% of the investee company’s paid-up share capital, but not exceeding 30.0%, requires the approval of the Reserve Bank of India.
A bank may hold equity in excess of 10.0% of a non-financial services investee company’s paid-up capital without the prior approval of the Reserve Bank of India if the additional acquisition is made through a restructuring of debt or corporate debt restructuring, strategic debt restructuring or is acquired by the bank in order to protect its interest on loans/investments made in a company. However, banks have to submit to the Reserve Bank of India a time bound action plan for disposal of such shares within a specified period.
Banks are permitted to invest up to 10.0% of the paid up capital/unit capital in a Category I/Category II Alternative Investment Fund. Investment by banks in Category III Alternative Investment Fund is prohibited and investment by a bank’s subsidiary in a Category III Alternative Investment Fund is subject to the regulatory minimum prescribed by the Securities and Exchange Board of India.
The Reserve Bank of India has permitted banks to become a Clearing Member of the commodity derivatives segment of recognized exchanges of the Securities and Exchange Board of India subject to satisfying prudential norms and offering broking services only through a separate subsidiary set up for the purpose or one of its existing subsidiaries and fulfilling the terms and conditions mentioned in the master direction on financial services provided by banks.
Regulations Relating to Deposits
The Reserve Bank of India permits banks to independently determine interest rates offered on term deposits. However, banks cannot pay interest on current account deposits. Interest rates payable on savings deposits are not regulated. However, a uniform interest rate must be paid on deposits up to Rs. 100,000 and differential rates can be paid on deposits of over Rs. 100,000, depending on the amount in the account. The payment of interest on savings bank account deposits is calculated on daily product basis.
Domestic time deposits and rupee-denominated non-resident ordinary accounts have a minimum maturity of seven days. Rupee denominated non-resident external rupee accounts have a minimum maturity of one year. Time deposits from non-resident Indians denominated in foreign currency have a minimum maturity of one year and a maximum maturity of five years.
Banks are allowed to offer differential rates of interests on domestic deposits of the same maturity subject to the following conditions:
| · | bulk deposits are of Rs. 20 million and above (definition of bulk deposits was revised from Rs 10 million to Rs. 20 million in February 2019), and |
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| · | interest on deposits is paid in accordance with the schedule of interest rates disclosed in advance by the bank and not pursuant to negotiation between the depositor and the bank. Banks are required to maintain the bulk deposit interest rate card in their core banking system to facilitate supervisory review. |
The Reserve Bank of India allows banks to offer early withdrawal facility in a term deposit as a distinguishing feature for offering differential rates of interest. All term deposits of individuals of Rs. 1.5 million and below should, necessarily, have premature withdrawal facility. For all other term deposits, customers should be given the option to choose between term deposits either with or without premature withdrawal facility. Banks will be required to disclose in advance the schedule of interest rates payable on deposits.
Banks are free to determine the interest rates on non-resident (external) rupee deposits and ordinary non-resident accounts. However, the interest rates cannot exceed the rate offered by the bank on comparable domestic rupee deposits.
In view of the impending discontinuance of certain tenors of USD-LIBOR as a benchmark rate, the interest rates on foreign currency non-resident (B) deposits shall be linked to a widely accepted overnight alternative reference rate for the respective currency.
Accordingly, the interest rates offered on foreign currency non-resident (B) deposits with tenors of one to less than three years is fixed at the alternative reference rate for the respective currency/swap plus 250 basis points and for three to five years is fixed at the alternative reference rate for the respective currency/Swap plus 350 basis points.
With a view to increasing the availability of financial services across regions and population segments, the Reserve Bank of India has advised banks to make available a basic savings bank deposit account without having the requirement of any minimum balance.
In July 2022, in view of the sharp depreciation in the exchange rate between April-July 2022, the Reserve Bank of India announced several measures. This included exempting incremental foreign currency non-resident (B) deposits and non-resident external rupee deposits from cash reserve ratio and statutory liquidity ratio requirements. This is with effect from the reporting fortnight beginning July 30, 2022 and will be valid for deposits raised up to November 4, 2022. Further, the restriction with respect to interest rates offered on incremental non-resident external deposits mobilized by banks was temporarily withdrawn with effect from July 7, 2022 until October 31, 2022.
Regulations Relating to Payments
On January 5, 2021, the Reserve Bank of India decided to introduce the Legal Entity Identifier system for all payment transactions of value Rs.500 million and above undertaken by non-individual entities using centralised payment systems like real time gross settlement and national electronic funds transfer. These directions were effective from April 1, 2021. Further, non-individual borrowers having aggregate fund based and non-fund based exposure of Rs. 50 million and above up to Rs. 100 million from banks and financial institutions are required to obtain the legal entity identifier code by April 30, 2025.
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Further, the Reserve Bank of India announced operational guidelines for the payments infrastructure development fund scheme aimed at encouraging more deployment of digital payments infrastructure across tier-3 to tier-6 centres, with a special focus on north-eastern states of the country. This scheme would be operational for three years effective from January 1, 2021, and may be extended for two more years, if necessary. Multiple payments acceptance devices and infrastructure supporting card payments like physical PoS, mobile PoS, general packet radio service, public switched telephone network, QR code-based payments are covered under this scheme. The Reserve Bank of India would contribute a sum of Rs. 2.50 billion to the corpus and the authorised card networks would contribute in all a sum of Rs. 1.00 billion. Contributions to this scheme is mandatory for banks and card networks.
As non-bank entities are also emerging as key players in payments, the Reserve Bank of India allowed non-bank entities regulated by it, including non-bank pre-paid instrument issuers, card networks, trade receivables discounting system platform operators and white-label ATM operators, subject to certain eligibility criteria, to obtain direct membership in centralised payment systems - Real Time Gross Settlement and National Electronic Funds Transfer. These systems primarily could thus far be accessed only via banks.
The Reserve Bank of India in its circular dated September 7, 2021 has enhanced applicability of the extant framework on card tokenisation services to Card-on-File Tokenisation services as well. Further, card issuers have been permitted to offer card tokenisation services as Token Service Providers. Further, the Reserve Bank of India in its circular dated January 3, 2022 has issued a framework for carrying out digital payments in offline mode using cards, wallets, mobile devices, and other modes of digital payments.
Regulations Relating to Customer Service and Customer Protection
Enhancing customer service and customer protection is a focus area for the Reserve Bank of India and has regularly emphasized on offering efficient, fair and speedy customer service. In this regard, the Reserve Bank of India has issued several guidelines. Banks are mandated to have a uniform pricing policy for all customers across all branches, irrespective of the branch in which the account was opened. No bank is permitted to undertake the business of investment advisory services except through a separate subsidiary set up for the purpose or one of its existing subsidiaries.
Further, banks are not permitted to charge foreclosure charges or prepayment penalties on floating rate term loans sanctioned to individual borrowers. Banks are not permitted to levy penal charges for non-maintenance of minimum balance in inoperative accounts. For non-maintenance of minimum balances in savings bank accounts, the penal charges should be a fixed percentage levied on the amount of difference between the actual balance maintained and the minimum balance as agreed upon at the time of opening an account. A suitable structure on minimum balances and penal charges should be finalized for recovery of charges. Further, the balance in the savings account should not turn into a negative balance solely on account of levy of charges for non-maintenance of the minimum balance.
The Reserve Bank of India has issued a charter of customer rights, which provides the broad overarching principles for the protection of bank customers. The charter describes five basic rights of bank customers which are the right to fair treatment, the right to transparency, fair and honest dealing, the right to suitability, the right to privacy and the right to grievance redress and compensation.
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The Reserve Bank of India has issued procedural guidelines for redressal of grievances by an internal ombudsman. According to the guidelines, a bank shall examine the grievances as per its internal grievance redressal mechanism and in case the bank decides to reject a complaint and/or decides to provide only partial relief to the complainant, it should forward such cases to the chief customer service officer/internal ombudsman for further examination. Cases where the bank disagrees with the decision of the internal ombudsman should be reported to the Reserve Bank of India by the internal ombudsman and also the bank with a copy to the respective Banking Ombudsman. Further, the Internal Ombudsman Scheme covers, among other things, appointment/tenure, roles and responsibilities, procedural guidelines and oversight mechanism for the Internal Ombudsman. The Reserve Bank of India has also launched the Ombudsman Scheme for digital transactions for redressing complaints relating to deficiency in customer services in digital transactions conducted through non-bank entities regulated by the Reserve Bank of India.
In order to further strengthen the customer grievance redressal mechanism in banks, the Reserve Bank of India has decided to put in place a comprehensive framework including enhanced disclosures by banks on customer complaints, recovery of cost of redressal from banks for the maintainable complaints received against them in Offices of Banking Ombudsman in excess of the peer group average, and undertaking intensive review of the grievance redressal mechanism and supervisory action against banks that fail to improve their redressal mechanism in a time bound manner.
The Reserve Bank of India has integrated all the existing three Ombudsman schemes were (i) the Banking Ombudsman Scheme, 2006; (ii) the Ombudsman Scheme for Non-Banking Financial Companies, 2018; and (iii) the Ombudsman Scheme for Digital Transactions, 2019 into a single scheme know as the Integrated Ombudsman Scheme, 2021.
The Reserve Bank of India has issued directions to banks for determining customer liability in case of Unauthorized Electronic Banking Transaction. The facility of electronic transactions (other than ATM cash withdrawals) may not be offered to customers who do not provide mobile numbers. The Reserve Bank of India has advised banks to clearly define the rights and obligations of customers in case of unauthorized transactions in specified scenarios. Further, banks are required to formulate/revise their customer relations policy, with approval of their Boards, to cover aspects of customer protection, including the mechanism of creating customer awareness on the risks and responsibilities involved in electronic banking transactions and customer liability in cases of unauthorized electronic banking transaction. The Reserve Bank of India has extended the customer protection framework to prepaid payment instruments (PPIs) as well. In March 2020, the Reserve Bank of India issued guidelines to regulate the activities of payment aggregators and has also provided baseline technology-related recommendations to payment gateways.
The Reserve Bank of India does not allow entities regulated by it, including banks, to deal in virtual currencies or to provide services facilitating any person or entity in dealing with or settling virtual currencies. Such services include maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them and transfer/receipt of money in accounts relating to purchase/sale of virtual currencies. Regulated entities that were already providing such services were required to exit those relationships within three months.
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In January 2020, the Reserve Bank of India advised banks to issue or re-issue, all cards (physical and virtual) and enable them for use only at contact based points of usage like ATMs and point of sale (PoS) devices within India. The banks shall provide cardholders a facility for enabling card not present (for domestic and international online transactions) transactions, card present (for international transactions) transactions and contactless transactions. For existing cards, issuers may decide whether to disable the card not present (domestic and international) transactions, card present (international) transactions and contactless transaction rights. Existing cards that have never been used for online (card not present) / international / contactless transactions shall be mandatorily disabled for this purpose.
On August 6, 2020, the Reserve Bank of India advised that authorised payment system operators (including banks and non-banks) implement an online dispute resolution system for resolving customer disputes and grievances pertaining to digital payments, using a system-driven and rule-based mechanism with zero or minimal manual intervention by January 1, 2021. The payment system operators shall provide access to such a system to its participating members viz. payment system participants.
On February 18, 2021, the Reserve Bank of India issued master directions on digital payment security controls, which provides necessary guidelines for the regulated entities to set up a robust governance structure and implement common minimum standards of security controls for channels like internet, mobile banking, card payments, among others. The guidelines have been effective since August 18, 2021.
Deposit Insurance
Demand and time deposits accepted by Indian banks must be insured with the Deposit Insurance and Credit Guarantee Corporation, a wholly owned subsidiary of the Reserve Bank of India. The limit on insurance coverage for depositors in insured banks was raised from Rs. 100,000 to Rs. 500,000 per depositor from February 4, 2020. Banks are required to pay the insurance premium for the eligible amount to the Deposit Insurance and Credit Guarantee Corporation on a semi-annual basis. The cost of the insurance premium cannot be passed on to the customer. Under the Companies Act, 2013, deposit insurance is mandatory for companies accepting deposits.
The Depositor Education and Awareness Fund Scheme, 2014—Section 26A of the Banking Regulation Act, 1949
The Reserve Bank of India has advised that banks shall calculate the cumulative balances in all eligible accounts which are unclaimed for more than 10 years along with interest accrued, and the amount due in each calendar month shall be transferred on the last working day of the subsequent month.
Regulations Relating to Know Your Customer and Anti-Money Laundering
The Prevention of Money Laundering Act, 2002, seeks to prevent and criminalize money laundering and terrorist financing. It also provides for the freezing and confiscation of assets concerned in money laundering/terrorism offences, and the formation of the Financial Intelligence Unit. This Act lays down the obligations on designated entities (including banks and financial institutions) for maintaining records of prescribed transactions and for reporting certain transactions to the Financial
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Intelligence Unit. It also lists out the predicate offences that come under the purview of the Act, the appointment of the Designated Director and the Principal Officer and their respective obligations under the Act. Prevention of Money-Laundering Rules have also been framed under such Act. This Act and such Rules have since been amended from time to time.
The Reserve Bank of India has provided comprehensive directions to banks/financial institutions with regard to know-your-customer, anti-money laundering and combating financing of terrorism procedures in line with the provisions of the Prevention of Money Laundering Act 2002 and Rules notified thereunder. This is in line with the recommendations made by the Financial Action Task Force on Anti-Money Laundering standards and on Combating Financing of Terrorism. The objective of these directions is to prevent banks from being used, intentionally or unintentionally, by criminal elements for money laundering or terrorist financing activities. The guidelines cover key aspects including customer acceptance policy, customer due-diligence procedures, monitoring of transactions and risk management. The guidelines also cover enhanced due diligence measures, regulatory reporting as per the Prevention of Money Laundering Act, 2002, appointment of designated director and principal officer, training of employees and independent audit of anti-money laundering/know your customer framework and provision for simplified know your customer procedures for opening small accounts. These directions are updated from time to time.
The regulated entities of the Reserve Bank of India have to upload data on know-your-customer (KYC) pertaining to individual accounts opened on or after January 1, 2019 onto the central KYC registry. In December 2020, the Reserve Bank of India issued guidelines for uploading data on know-your-customer of legal entities opened on or after April 1, 2021 on the central KYC registry. Given the ongoing restrictions related to the Covid-19 pandemic, the Reserve Bank of India on May 5, 2021 instructed banks that no restrictions on accounts would be imposed where the periodic updation of data on know-your-customer was pending until December 31, 2021 which was subsequently extended to March 31, 2022. On May 10, 2021, the Reserve Bank of India issued revised re-KYC directions wherein digital channels including e-mail, automated teller machines, internet and mobile banking and video based customer identification process was enabled for completion of re-KYC. In addition to individual customers, video based customer identification process was extended to conduct customer due diligence for proprietorship concerns, authorized signatories and beneficial owners of legal entities and for regularization of accounts opened using one-time password based e-KYC in a non-face-to-face mode.
Regulations on Asset Liability Management
The Reserve Bank of India’s regulations for asset liability management require banks to draw up asset liability gap statements separately for rupee and foreign currencies for the domestic and overseas operations of the bank. These gap statements are prepared by scheduling all assets and liabilities according to the stated and anticipated re-pricing date, or maturity date. The statements are submitted to the Reserve Bank of India on a periodic basis. The Reserve Bank of India has advised banks to actively monitor the difference in the amount of assets and liabilities maturing or being repriced in a particular period and to place internal prudential limits on the gaps in each time period, as a risk control mechanism.
According to Reserve Bank of India guidelines regarding prudential limits for interbank liabilities, a bank’s interbank liabilities cannot exceed 200.0% of its net worth as on the last day of the previous fiscal year. Individual banks have been permitted, with the approval of their boards of directors, to fix a
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lower limit for their interbank liabilities, keeping in view their business model. However, banks whose capital to risk assets ratio is at least 25.0% more than the minimum capital to risk assets ratio as on the last day of the previous fiscal year, are allowed a higher limit with respect to interbank liability of up to 300.0% of their net worth. The limits prescribed include only fund based, interbank liabilities within India (including interbank liabilities in foreign currency to banks operating within India), and interbank liabilities outside India are excluded. The Reserve Bank of India guidelines also stipulate that existing limits on call-money borrowing shall form a sub-limit of the above-mentioned limit. At present, on a daily average basis, call/notice money borrowings should not exceed 100% of a bank’s capital funds. However, banks are allowed to borrow a maximum of 125.0% of their capital funds on any day during a fortnight.
The Reserve Bank of India has issued guidelines on duration gap analysis for interest rate risk management. The guidelines are aimed at providing an indication of the interest rate risk to which the bank is exposed. The report on interest rate sensitivity as per duration gap analysis is being submitted to the Reserve Bank of India on a quarterly basis. Further, instructions and guidelines have been enhanced in line with the Basel Committee on Banking Supervision Principles for Sound Liquidity Risk Management and Supervision. The guideline includes enhanced guidance on liquidity risk governance, measurement, monitoring and the reporting to the Reserve Bank of India on liquidity positions.
The Reserve Bank of India has also issued guidelines requiring banks to meet liquidity requirements in the form of liquidity coverage ratio and net stable funding ratio to ensure banks maintain sufficient funds for meeting short-term and long-term asset maturities.
Following the outbreak of Covid-19 pandemic, the Reserve Bank of India introduced Targeted Long Term Repo Operations, which were auctions of targeted long term repos of up to three-years tenor at a floating rate linked to the repo rate. Liquidity accessed by banks under the targeted long term repo operations had to be deployed in investment grade corporate bonds, commercial paper and non-convertible debentures. The Reserve Bank of India subsequently also announced a second phase of targeted long term repo operations on April 17, 2020, wherein 50.0% of funds must be deployed to microfinance institutions and non-banking financial companies. Investments made under these facilities will be classified as held-to-maturity, even in excess of the 25.0% of total investment permitted to be included in the held-to-maturity category. Exposures under this facility will not be included under the Large Exposure Framework.
Foreign Currency Dealership
The Reserve Bank of India has granted us a full-fledged authorized dealers’ license to deal in foreign exchange through our designated branches. Under this license, we have been granted permission to:
| • | engage in foreign exchange transactions in all currencies; |
| • | open and maintain foreign currency accounts abroad; |
| • | raise foreign currency and rupee-denominated deposits from non-resident Indians; |
| • | grant foreign currency loans to onshore and offshore corporations; |
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| • | open documentary credits; |
| • | grant import and export loans; |
| • | handle collection of bills, and funds transfer services; |
| • | issue guarantees; and |
| • | enter into derivative transactions and risk management activities that are incidental to our normal functions authorized under our organizational documents and as permitted under the provisions of the Banking Regulation Act. |
Further, banks have been permitted to hedge foreign currency loan exposures of Indian corporations in the form of interest rate swaps, currency swaps and forward rate agreements, subject to certain conditions. Banks in the authorized dealer category may become trading or clearing members of the currency derivatives segment to be set up by stock exchanges recognized by the Securities and Exchange Board of India, subject to their fulfilling the requirements of (i) minimum net worth of Rs. 5.0 billion, (ii) minimum capital adequacy ratio of 10.0%, (iii) net non-performing assets not exceeding 3.0% and (iv) net profit for the previous three years.
Our foreign exchange operations are subject to the guidelines specified by the Reserve Bank of India. As an authorized dealer, we are required to enroll as a member of the Foreign Exchange Dealers Association of India, which prescribes the rules relating to foreign exchange business in India. We are also among banks that submit data to regulatory authorities/bodies for the setting of financial benchmarks wherever we are nominated. Banks submitting data would have to implement an internal board approved policy on governance of the benchmark submission process and periodically submit a confirmation on compliance with the guidelines. Further, the Financial Benchmarks India Private Limited (FBIL) has been set up which administers the overnight interbank rate and is based on the actual traded rate every morning. In March 2018, the Reserve Bank of India advised the Financial Benchmarks India Private Limited to take over the responsibility of computing and disseminating of the reference rate for US$/Rupee and the exchange rate of other major currencies, and the FBIL began the process from July 10, 2018. Authorized dealers, like us, are required to determine our limits on open positions and maturity gaps in accordance with the Reserve Bank of India guidelines and these limits are approved by the Reserve Bank of India.
Gold Monetization Scheme and Sovereign Gold Bonds
As per the gold monetization scheme of the Reserve Bank of India, banks are allowed to mobilize gold deposits and provide loans against these deposits. The minimum deposit under the gold deposit scheme at any one time is 10 grams of raw gold with short-term bank deposits allowed for a minimum of one to three years, and treated as on-balance sheet liability, and medium-term deposits of five to seven years and long-term of 12-15 years. The medium and long-term deposits will be the liability of the Indian central government. The redemption of medium and long-term deposits, at the option of the depositor, can be either in the Indian rupee equivalent of the value of the deposited gold or in the gold itself.
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The Reserve Bank of India has also issued guidelines on sovereign gold bonds with investments in such bonds being eligible for statutory liquidity ratio calculations. The investment in sovereign gold bond is restricted based on the investor type. The bonds could also be used as collateral for loans.
Statutes Governing Foreign Exchange and Cross-Border Business Transactions
Foreign exchange and cross-border transactions undertaken by banks are subject to the provisions of FEMA. Banks are required to monitor transactions of customers based on predefined rules using a risk-based approach. The transaction monitoring system envisages identification of unusual transactions, undertaking due diligence on such transactions and, if confirmed as suspicious, reporting to the Financial Intelligence Unit of the respective jurisdiction. Our transaction monitoring system is periodically reviewed and is being supplemented with appropriate anti-money laundering software technology solutions.
The Reserve Bank of India issues guidelines on External Commercial Borrowings and Trade Credits from time to time. The guidelines do not permit financial intermediaries, including banks, to raise such borrowings or provide guarantees in favor of overseas lenders for such borrowings other than issuance of rupee denominated bonds overseas in accordance with the framework for issuance of rupee denominated bonds overseas.
The framework for external commercial borrowing comprises of two components: Foreign currency denominated external commercial borrowing and rupee denominated external commercial borrowing. Lending by overseas branches and subsidiaries of Indian banks is permitted only for foreign currency denominated external commercial borrowings with the exception of convertible bonds and exchangeable bonds in foreign currency.
In December 2021, the Reserve Bank of India redefined the benchmark rate for foreign currency external commercial borrowings and trade credits, which now refers to any widely accepted inter-bank rate or alternative reference rate of six-month tenor, applicable to the currency of borrowing. The all in-cost ceiling for new foreign currency external commercial borrowings and trade credits is fixed at 500 basis points and 300 basis points, respectively, over the benchmark rates and for existing external commercial borrowings and trade credits linked to LIBOR whose benchmarks are changed to an alternative reference rate, the all-in cost ceiling has been revised upwards by 100 basis points to 550 basis points and 350 basis points, respectively, over the alternative reference rate.
For rupee denominated external commercial borrowings, the benchmark is set to the prevailing yield of the Government of India securities of corresponding maturity. The Minimum average maturity period for external commercial borrowings is three years. However, for borrowers in the manufacturing sector with borrowings up to US$ 50 million, a minimum average maturity of one year is permitted.
Utilization of external commercial borrowing are restricted for capital market investments or acquisitions in India or real estate investments or purchase of land (except when used for affordable housing, construction and development of special economic zones and industrial parks/integrated townships) or working capital purposes or general corporate or repayment of rupee loan and on-lending for all such restricted purposes. The list of eligible borrowers also includes companies in the infrastructure sector, non-banking financial companies categorised as infrastructure finance companies, asset finance companies, holding companies and core investment companies, housing finance
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companies and port trusts subject to hedging provisions. Indian resident borrowers are allowed to raise trade credit in rupees after entering into a loan agreement with the overseas lender, subject to certain conditions. Tenors of trade credit are restricted to three years, and tenors longer than three years are to be treated as external commercial borrowing. Further, overseas lenders of rupee denominated trade credits are now eligible to hedge their exposure in rupees through permitted derivative products in the onshore market. Borrowers are also permitted to raise external commercial borrowings for the purpose of refinancing an existing external commercial borrowing. Overseas branches/subsidiaries of Indian banks can refinance external commercial borrowings of highly rated (AAA) companies as well as certain categories of public sector undertakings, provided the outstanding maturity of the original borrowing is not reduced and the all-in-cost of fresh external commercial borrowings is lower than the existing external commercial borrowing. Partial refinance of existing external commercial borrowings is also permitted subject to these conditions. Further, eligible corporate borrowers classified as special mention account-2 or non-performing are allowed to raise funds through external commercial borrowings for repayment of rupee loans availed domestically for capital expenditure in manufacturing and the infrastructure sector under any one-time settlement with lenders. Lender banks are now allowed to sell such loans to other eligible lenders other than foreign branches and overseas subsidiaries of Indian banks through assignment subject to compliance with all in cost and minimum average maturity. Indian banks are permitted to participate as arrangers/underwriters, market makers and traders in rupee-denominated bonds issued overseas subject to prudential norms.
Banks are not allowed to issue letter of undertakings/letter of comforts for trade credits for imports into India by banks. Letters of credit and bank guarantees for trade credits for imports into India continue to be issued subject to compliance with Reserve Bank of India guidelines. The Reserve Bank of India has prescribed operational controls with regard to SWIFT.
The Reserve Bank of India issued directions in April 2020 on facilities for hedging exchange risk by residents and non-residents. According to the directions, derivative products can be offered to any person resident in India or resident outside India having foreign exchange risk on anticipated or contracted basis. For the purpose of offering derivative contracts users will be classified as retail user and non-retail users. While offering derivative contracts involving rupee, authorized dealers need to ensure that, the notional and tenor of the contract does not exceed the value and tenor of the exposure, and the same exposure has not been hedged using any another derivative contract. This has been applicable since September 1, 2020. The Reserve Bank of India has permitted non-residents to undertake transactions in the rupee interest rate derivatives markets for the purpose of hedging interest rate risk or otherwise. For the purpose of other than hedging, non-residents, other than individuals are permitted to take overnight index swaps transactions directly with market maker in India or by way of back to back arrangements through a foreign branch/parent/group entity of the market maker.
The Reserve Bank of India has issued the Electronic Trading Platforms Directions, 2018. As per the directions, an Electronic Trading Platform (ETP) is any electronic system, other than a recognized stock exchange, on which transactions in eligible instruments including securities, money market instruments, foreign exchange instruments, derivatives, or other instruments as may be specified by the Reserve Bank of India are contracted. Banks seeking authorization to operate an ETP are required to earmark a minimum capital of Rs. 50 million for the purpose. In June 2019, the Reserve Bank of India introduced an electronic trading platform for buying/selling foreign exchange by retail customers of banks. This is aimed at enhancing transparency, competition and better pricing for retail customers. The platform can be accessed by any customer of a bank who has a need to purchase or sell US dollar against the rupee for delivery on cash basis, tom basis or spot basis subject to certain conditions.
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In January 2020, the Reserve Bank of India permitted authorized Category-I banks to voluntarily undertake transactions outside of onshore market hours. Transactions with a person residing outside India may be undertaken outside of onshore market hours through a bank’s foreign branches and subsidiaries. Further, banks in India that operate International Financial Services Centre banking units have been permitted to participate in the non-deliverable market since June 1, 2020.
In February 2021, the Reserve Bank of India permitted banks to post and collect margin, in India and outside India for permitted derivative contracts entered into with a person resident outside India. Margin in India is permitted in the form of Indian currency, freely convertible foreign currency, government securities and listed AAA-rated rupee bonds issued by person resident in India. Further, banks are permitted to post and collect margin outside India in freely convertible foreign currency and debt securities issued by foreign sovereigns with a credit rating of AA- and above.
In March 2021, the Reserve Bank of India modified prudential guidelines in line with the ‘The Bilateral Netting of Qualified Financial Contracts Act, 2020’, to effect bilateral netting benefit for the purpose of counterparty exposure computation, capital adequacy and provisioning norms. The Reserve Bank of India has notified derivatives, repo and reverse repo transactions as qualified financial contracts.
In July 2021, the Reserve Bank of India issued guidelines on “Roadmap for LIBOR transition.” Banks were encouraged to cease, and also encourage their customers to cease, entering into new financial contracts that reference LIBOR as a benchmark and instead use any widely accepted Alternative Reference Rate, as soon as practicable and in any case by December 31, 2021. While certain US dollar LIBOR settings will continue to be published until June 30, 2023, the extension of the timeline for cessation is primarily aimed at ensuring roll-off of USD LIBOR-linked legacy contracts, and not to encourage continued reliance on LIBOR. The Reserve Bank of India, through its circular dated August 6, 2021, has also clarified that changes in the terms of a derivative contract on account of change in reference rate necessitated due to transition from LIBOR to an alternative reference rate shall not be treated as restructuring of the derivative contract, provided all other parameters of the original contract remain unchanged.
In September 2021, the Reserve Bank of India issued revised guidelines for offering over-the-counter derivatives. It has prescribed broad principles to be adhered by market makers with respect to governance frameworks, introduction of new products, user dealing conduct, pricing and valuation, risk management, internal control, and internal audit.
In February 2022, the Reserve Bank of India issued revised directions for credit derivatives which applies to credit derivative transactions undertaken in over-the-counter markets and on recognised stock exchanges. Banks are allowed to act as market makers to transact in single name credit default swaps on rated corporate bonds and debentures, money market debt instruments and unrated rupee corporate bonds and debentures issued by special purpose vehicles set up by infrastructure companies.
In February 2022, the Reserve Bank of India permitted banks in India to offer foreign currency settled Overnight Indexed Swaps (OIS) transactions to person not resident in India, other than individuals, as well as to other Authorized Dealer Category-I banks. Banks can undertake these transactions through their branches in India, through their International Financial Services Centre (IFSC) Banking Units (IBUs) or through their foreign branches.
Foreign Currency Borrowings by Banks in India
The Reserve Bank of India has allowed banks to borrow funds from their overseas branches and correspondent banks (including borrowings for financing export credit, external commercial borrowings and overdrafts from their head office/nostro account) up to a limit of 100.0% of unimpaired Tier 1 capital or US$10 million, whichever is higher.
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All the regulations and guidelines issued by the Reserve Bank of India, as amended from time to time, in connection with foreign currency borrowings by banks in India have been consolidated in the master circular on Risk Management and Interbank Dealings. The aforesaid limit applies to the aggregate amount availed of by all the offices and branches in India from all their branches or correspondents abroad and also includes overseas borrowings in gold for funding domestic gold loans. Capital funds raised by issue of innovative perpetual debt instruments and other overseas borrowings with the specific approval of the Reserve Bank of India will continue to be outside the limit of 100.0% of unimpaired Tier 1 capital.
In view of the sharp depreciation in the exchange rate during April-July 2022, the Reserve Bank of India allowed banks to utilise funds raised from overseas foreign currency borrowings between July 8, 2022 and October 31, 2022 for lending in foreign currency. Such lending shall be subject to the end-use prescriptions as applicable to external commercial borrowings. This facility shall be available till the maturity/repayment of the overseas foreign currency borrowings.
Information Technology and Cyber Security
The Reserve Bank of India has issued guidelines on information security, electronic banking, technology risk management and cyber frauds. While the guidelines are not “one-size-fits-all,” the implementation of the guidelines need to be risk-based and commensurate with the nature and scope of activities engaged by banks and the technology environment prevalent in the bank and the support rendered by technology to the business processes. The guidelines broadly cover nine subject areas relating to information technology vis-à-vis information technology governance, information security, IT operations, IT services outsourcing, information systems audit, cyber frauds, business continuity planning, customer education and legal issues. The implementation of the guidelines is to be monitored by the top management on an ongoing basis.
In June 2022, the Reserve Bank of India issued a separate draft Master Direction on Outsourcing of IT Services. The guideline allows banks to undertake outsourcing of IT and IT enabled services without the prior approval of the Reserve Bank of India. However, banks intending to outsource any of its IT activities shall put in place a comprehensive Board approved IT outsourcing policy. The policy shall incorporate, inter alia, role and responsibilities of the Board, Board Committee and Senior Management, IT function, business function, and oversight & assurance functions in respect of outsourcing of IT services. The Policy shall also cover the criteria for selection of such activities as well as service providers, delegation of authority depending on risk and materiality, disaster recovery and business continuity plans, systems to monitor and review the operations of these activities and termination processes and exit strategies, including business continuity in the event of a third-party service provider exiting the outsourcing arrangement. Appropriate due diligence shall be performed to assess the capability of the service provider to comply with obligations in the outsourcing agreement on an ongoing basis, when considering or renewing an Outsourced IT Services arrangement. A Risk Management framework for outsourcing of IT Services shall include processes and responsibilities for identification, measurement, mitigation/ management and reporting of risks associated with Outsourcing of IT Services arrangements. The guideline has also issued specific requirements with regard to storage, computing and movement of data in cloud environments and requires banks to establish a cloud adoption policy. Such a policy should, inter alia, identify the activities that can be moved to the cloud, enable and support protection of various stakeholder interests, ensure compliance with regulatory requirements, including those on privacy, security, data sovereignty, recoverability and data storage requirements, aligned with data classification.
Banks are required to put in place a cyber-security policy containing an appropriate approach to combat cyber threats given the level of complexity of business and acceptable levels of risk. The cyber security policy should be separate and distinct from the broader IT policy and the aspects that need to be covered in the aforementioned strategy include an arrangement for continuous surveillance, comprehensive network and database security, protection of customer information, cyber crisis management plan, strengthening cyber security, organizational arrangements and awareness about cyber security among senior/top management.
In view of the changing nature of cyber risks driven by several factors, the Reserve Bank of India has advised banks to ensure that the information assets (more particularly customer service information) were well protected at all locations/points and security ecosystem were adequately geared up, Further, Banks have been advised to take steps in providing sustained assurance on cyber security initiatives by identifying the shortcomings and initiating timely action to address them promptly, to enforce proper authentication mechanism and to adopt and document a ‘security by design’ approach in the implementation of all digital products offered to the customers. The Reserve Bank of India has instructed banks to present details of significant cyber security incidents periodically to the board/information technology sub-committee of the board for suitable directions.
In April 2022, the Indian Computer Emergency Response Team (“CERT-In”), a nodal agency for responding to computer security incidents set up by the Government of India, issued directions on information security practices, procedure, prevention, response and reporting of cybersecurity incidents for Safe and Trusted Internet. As per the directions issued, amongst other obligations, corporates including banks are mandated to report all cyber incidents to CERT-In within 6 hours of noticing such incidents or being brought to their notice about such incidents. Companies are required to maintain logs of all their information and communications technology (“ICT”) systems for 180 days in India. A copy of ICT logs may be stored outside India also as long as the obligation to produce logs to CERT-In is adhered to by the entities in a reasonable time. Companies are required to synchonise their ICT system clock by connecting to the Network Time Protocol (“NTP”) Server of National Informatics Centre (“NIC”) or National Physical Laboratory (“NPL”), or with other NTP servers traceable to the NTP servers of NIC or NPL. Body corporates whose systems span multiple jurisdictions may connect to other time sources; however, they must ensure that such sources do not deviate from NIC or NPL’s time sources.
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Various critical sectors such as power & energy; banking, financial services & insurance; telecom; transport; government and strategic & public enterprises and subsequently their information technology infrastructure have been identified as critical information infrastructure through a gazette notification by the Government of India. In June 2022, the computer resources of ICICI Bank relating to the Core Banking Solution, Real Time Gross Settlement and National Electronic Fund Transfer comprising Structured Financial Messaging Server, were declared as critical information infrastructure, and the computer resources of the Bank’s associated dependencies to be protected systems under the Information Technology Act, 2000. All organisations having protected systems are required to comply with certain rules notified by the Government of India and any incapacitation or destruction of protected system would cause a debilitating impact on national security, governance, economy and social well-being of a nation.
See also “Risk Factors—Risks Relating to Technology—We face security risks, including denial of service attacks, hacking, social engineering attacks targeting our colleagues and customers, malware intrusion or data corruption attempts, and identity theft that could result in the disclosure of confidential information, adversely affect our business or reputation, and create significant legal and financial exposure”.
Legal Reserve Requirements
Cash Reserve Ratio
A bank is required to maintain a specified percentage of its net demand and time liabilities, excluding interbank deposits, by way of cash reserve with itself and by way of balance in current account with the Reserve Bank of India. The following liabilities are excluded from the calculation of the demand and time liabilities to determine the cash reserve ratio:
| · | interbank liabilities; |
| · | liabilities to primary dealers; |
| · | refinancing from the Reserve Bank of India and other institutions permitted to offer refinancing to banks; and |
| · | perpetual debt qualifying for lower Tier 1 capital treatment. |
The cash reserve ratio was at 4% of a bank’s demand and time liabilities adjusted for the exemptions which include (but are not limited to) (i) the paid up capital, reserves and credit balance of the bank; (ii) net income tax provision; (iii) amount received from Deposit Insurance and Credit Guarantee Corporation towards claims and held by banks pending adjustments; (iv) provision not being a specific liability arising from contracting additional liability and created from profit and loss account; and (v) demand and time liabilities in respect of their offshore banking units. Due to the outbreak of Covid-19 pandemic, in March 2020, the Reserve Bank of India reduced the cash reserve ratio requirement by 100 basis points from 4.00% to 3.00% of net demand and time liabilities. This was gradually restored to 4.0% in a phased manner with banks required to maintain the cash reserve ratio at 3.5% of their net demand and time liabilities effective from the fortnight beginning March 27, 2021 and at 4.0% effective from fortnight beginning May 22, 2021. In May 2022, the Reserve Bank of India increased the cash reserve ratio by 50 basis points from 4.00% to 4.50% of net demand and time liabilities, effective from the reporting fortnight beginning May 21, 2022.
Further, to improve flow of credit to retail, auto, residential housing and micro, small and medium enterprises, the Reserve Bank of India advised that incremental loans to the sector would be deducted from net demand and time liabilities for the purpose of cash reserve ratio requirement. Incremental
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credit was be calculated by segment and based on the difference between outstanding credit as on January 31, 2020 and subsequent fortnights up to July 31, 2020. The incremental credit computed, after reducing repayments and non-performing assets, is eligible for deduction from net demand and time liabilities for a maximum period of five years, (i.e. up to January 24, 2025), or the tenure of the loan, whichever is earlier.
In February 2021, the Reserve Bank of India permitted banks to deduct the amount equivalent to credit disbursed to new micro, small and medium enterprise borrowers (who have not availed credit from the banking system as on January 1, 2021) from their net demand and time liabilities for calculation of the cash reserve ratio. This exemption was available only up to Rs. 2.5 million per borrower disbursed up to the fortnight ending October 1, 2021, for a period of one year from the date of origination of the loan or the tenure of the loan, whichever is earlier. In May 2021, the exemption timeline was extended until December 31, 2021.
The Reserve Bank of India does not pay any interest on cash reserve ratio balances. The cash reserve ratio has to be maintained on an average basis for a fortnightly period. The daily cash reserve requirement on any day of the fortnight has to be 90.0% of the requirement. Following the outbreak of Covid-19 pandemic, the Reserve Bank of India reduced the minimum daily maintenance of the cash reserve ratio from 90.0% of the requirement to 80.0% effective from March 28, 2020. This was a one-time dispensation available up to September 25, 2020.
Statutory Liquidity Ratio
In addition to the cash reserve ratio, a bank is required to maintain a specified percentage of its net demand and time liabilities by way of liquid assets like cash, gold or approved unencumbered securities. Investments in sovereign gold bonds are also allowed to be considered in the calculation of statutory liquidity ratio. The statutory liquidity ratio has been gradually reduced over the years since fiscal 2017. Currently, the statutory liquidity ratio is at 18.0%, effective since April 2020.
Liquidity Coverage Ratio
In line with the Basel III framework, banks in India are required to maintain a minimum liquidity coverage ratio which is a ratio of the stock of high quality liquid assets to total net cash outflows over the next 30 calendar days under certain prescribed stressed conditions. The liquidity coverage ratio is designed to ensure that a bank maintains an adequate level of unencumbered high quality liquid assets to meet any acute liquidity requirements over a hypothetical stressed period lasting 30 days and the requirement was phased in over time. A minimum liquidity coverage ratio requirement of 100.0% has been required since January 1, 2019. Following the outbreak of the Covid-19 pandemic, the liquidity coverage ratio to be maintained by banks was lowered from 100.0% to 80.0% until September 30, 2020, and was subsequently increased to 90.0% starting from October 1, 2020 and further to 100.0% from April 1, 2021.
As noted above, banks in India are already required, under Indian law and regulation, to maintain a statutory liquidity ratio at or above a prescribed percentage (currently 18.0%). The statutory liquidity ratio is calculated as the ratio of a bank’s liquid assets, such as cash, gold or approved unencumbered securities (the “statutory liquidity ratio securities”), to its net demand and time liabilities. Statutory liquidity ratio securities include Indian central government securities as well as certain securities issued
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by Indian state governments. Further, as per guidelines issued on liquidity standards, the Reserve Bank of India allows banks, under certain stressed conditions, to avail themselves of a special liquidity facility against certain securities classified as level one high quality liquid assets. The facility, called the Facility to Avail Liquidity for Liquidity Coverage Ratio, is operated by the Reserve Bank of India. Access to the facility is included in a bank’s liquidity coverage ratio. Although the statutory liquidity ratio is not a part of the Basel III liquidity standards, a portion of a bank’s statutory liquidity ratio securities may be recognized as high quality liquid assets under the Reserve Bank of India’s liquidity coverage ratio guidelines.
The Reserve Bank of India permits banks to recognize as level one high quality liquid assets under the liquidity coverage ratio, statutory liquidity ratio securities having a value of up to (i) 2.0% of a bank’s net demand and time liabilities, for securities eligible for availing liquidity under the Reserve Bank of India’s marginal standing facility; (ii) an additional 5.0% of a bank’s net demand and time liabilities, for securities eligible for availing liquidity under the Reserve Bank of India’s Facility to Avail Liquidity for Liquidity Coverage Ratio. A total of 18.0% of net demand and time liabilities comprising statutory liquidity ratio securities is available for banks to recognize as level one high quality liquid assets. In March 2020, following the outbreak of the Covid-19 pandemic, the Reserve Bank of India raised the borrowing limit under the marginal standing facility from 2.0% to 3.0% of a bank’s net demand and time liabilities outstanding at the end of the second preceding fortnight with immediate effect. The enhanced limit was applicable from March 27, 2020 until December 31, 2021. In December 2021, the Reserve Bank of India returned to the normal dispensation. Accordingly, banks were able to dip into the statutory liquidity ratio up to 2.0% of net demand and time liabilities instead of the earlier 3.0% for overnight borrowing under the marginal standing facility with effect from January 1, 2022.
Since the marginal standing facility was reduced to 2.0% from 3.0% of net demand and time liabilities from January 1, 2022, the total high quality liquid asset carve out from the mandatory statutory liquidity ratio, which can be reckoned for meeting the liquidity coverage ratio requirement, was also reduced to 17.0% of net demand and time liabilities (2.0% marginal standing facility plus 15.0% Facility to Avail Liquidity for Liquidity Coverage Ratio) from 18.0%. In April 2022, the Reserve Bank of India permitted banks to reckon Government securities as level one high quality liquid assets under Facility to Avail Liquidity for Liquidity Coverage Ratio within the mandatory statutory liquidity ratio requirement up to 16.0% of net demand and time liabilities from the earlier 15.0%. Accordingly, the total high quality liquid asset carve out from the mandatory statutory liquidity ratio, which can be reckoned for meeting the liquidity coverage ratio requirement is 18.0% of net demand and time liabilities.
Statutory liquidity ratio securities include certain Indian state government securities that would also qualify as level one high quality liquid assets under the Reserve Bank of India guidelines, while the Basel III liquidity standards include only national sovereign securities. Banks in India generally hold a significant proportion of their statutory liquidity ratio securities in the form of investments in Indian central government securities which would qualify as level one high quality liquid assets under the Basel III standards.
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Since 2016 onwards, the liquidity coverage ratio standard, liquidity risk monitoring tools and liquidity coverage ratio disclosure standards are applicable to Indian banks on a consolidated basis.
Net Stable Funding Ratio (NSFR)
The Reserve Bank of India has issued final guidelines on net stable funding ratio. The implementation of the ratio was applicable with effect from October 1, 2020. The ratio promotes resilience over a longer time horizon by requiring banks to fund their activities with more stable sources on an ongoing basis. The net stable funding ratio is defined as the amount of available stable funding relative to the amount of required stable funding. Banks will be required to maintain a ratio of at least 100.0% on an ongoing basis.
To enable banks to manage liquidity risks more effectively, in January 2022, the Reserve Bank of India released a revised Basel III framework on liquidity standards. As per the guideline, the threshold limit for deposits and other extensions of funds made by non-financial small business customers was increased from Rs. 50 million to Rs. 75 million for the purpose of maintenance of liquidity coverage ratio and net stable funding ratio.
Leverage ratio
The Reserve Bank of India has issued guidelines requiring a minimum leverage ratio of 4.0% for domestic systemically important banks and 3.5% for other banks. This has been effective from October 1, 2019. Banks have to meet the leverage ratio requirement at all times. The leverage ratio is measured as tier 1 capital divided by the total exposure and aims to constrain the build-up of leverage in the banking system.
Ownership Restrictions
The Government of India regulates foreign ownership in Indian banks. Foreign investors (including indirect foreign investment) may own up to 74.0% of the equity share capital of a private sector bank in India subject to rules and regulations issued by the Government of India and the Reserve Bank of India from time to time. While foreign investments of up to 49.0% in private sector banks is under automatic route and do not require any specific approval, foreign investments beyond 49.0% and up to 74.0% require prior approval of the Government of India, unless such investments are otherwise exempted from the requirement for approval. Investments by foreign investors exempted from the requirement for Government of India approval include certain aggregate foreign portfolio investments up to 49.0% or the relevant sectoral cap (whichever is lower) that do not result in the transfer of ownership or control from Indian residents to non-resident investors, and foreign investment through rights and bonus issues fulfilling certain conditions. Additionally, in the case of proposals requiring prior approval of the Government of India, such proposals involving total foreign equity inflow of more than Rs. 50.0 billion, also require approval of the Cabinet Committee on Economic Affairs.
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Guidelines with regard to shareholding in private sector banks issued by the Reserve Bank of India are as follows:
| · | individual and non-financial corporate entities can have a shareholding up to 10.0% in private sector banks; |
| · | non-diversified unlisted financial institutions can hold up to 15.0%; |
| · | well-diversified listed financial institutions including the Government of India can hold up to 40.0%; and |
| · | higher stake by promoters/non-promoters through capital infusion by domestic or foreign entities will require the approval of the Reserve Bank of India. |
Voting rights are capped at 26.0%. However, any acquisition of shareholding/voting rights of 5.0% or more will require the prior approval of the Reserve Bank of India.
Holding Companies
In May 2011 a working group formed by the Reserve Bank of India released key recommendations favoring a financial holding company structure for the financial sector, particularly large financial groups, with a separate regulatory framework for these holding companies.
The Reserve Bank of India, in its guidelines for new private sector banking licenses, has mandated all new banks pursuant to the issuance of such licenses, to be set up under a financial holding company structure. In June 2020, the Reserve Bank of India indicated that it is reviewing the current guidelines pertaining to ownership, governance and corporate structure of private sector banks in India and has set up an internal working group to recommend and harmonize the standards applicable to private sector financial companies. The areas being considered include ownership and control in Indian private sector banks, eligibility to apply for a banking license, holding of financial subsidiaries through non-operative financial holding company, promoter shareholding (including timelines for dilution of shareholding) and any other issue that may be considered relevant. In November 2020, Reserve Bank of India released the report of the Internal Working Group to review the extant ownership and corporate structure guidelines for Indian private sector banks and sought feedback on the recommendations by January 15, 2021. The recommendations include allowing large corporate houses as promoters of banks after necessary amendments to the Banking Regulation Act, 1949 to address the risks of connected lending and exposures between banks and other financial and non-financial group entities and strengthening of the supervisory mechanism; an increase in the minimum initial capital requirement for licensing new universal banks from Rs. 5.0 billion to Rs. 10.0 billion and for new small finance banks from Rs. 2.0 billion to Rs. 3.0 billion; and a non-operative holding company structure for all new licenses. The report recommended that banks licensed before 2013 could move to a non-operative holding company structure at their discretion within five years from announcement of tax neutrality for the transition. The final guidelines in this regard are awaited.
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Restrictions on Payment of Dividends
The Banking Regulation Act requires banks to completely write off capitalized expenses and transfer 20.0% of the disclosed yearly profit to a reserve account before declaring a dividend.
Banks have to comply with the following prudential requirements to be eligible to declare dividends:
| · | The capital adequacy ratio is at least 9.0% for the preceding two completed years and the accounting year for which the bank proposes to declare a dividend. |
| · | The net non-performing asset ratio is less than 7.0%. |
| · | The Bank is in compliance with the prevailing regulations and guidelines issued by the Reserve Bank of India, including the creation of adequate provision for the impairment of assets, staff retirement benefits, transfer of profits to statutory reserves, etc. |
| · | The proposed dividend will be paid out of the current year’s profit. |
| · | Under the Reserve Bank of India’s Basel III guidelines, banks are subject to higher minimum capital requirements and must maintain a capital conservation buffer above the minimum requirements to avoid restrictions on capital distribution. The capital conservation buffer was phased in and fully implemented by March 31, 2019 as prescribed by the Reserve Bank of India. The Reserve Bank of India has clarified that dividend payment by banks would be governed by the application of the above guidelines, once the capital conservation framework is in effect. In case a bank does not meet the capital adequacy norms for two consecutive years, but has a capital adequacy ratio of at least 9.0% for the accounting year for which it proposes to declare a dividend, it would be eligible to do so if its net non-performing asset ratio is less than 5.0%. Banks that are eligible to declare dividends under the above rules can do so subject to the following: |
| · | The dividend payout ratio (calculated as a percentage of dividend payable in a year to net profit during the year) must not exceed 40.0%. The maximum permissible dividend payout ratio would vary from bank to bank, depending on the capital adequacy ratio in each of the last three years and the net non-performing asset ratio. Banks should have a minimum capital adequacy ratio of 9.0% for three consecutive years (including the accounting year for which it proposes to declare dividend) and a net non-performing assets ratio of less than 7.0% to be eligible to declare dividends. A bank with a net non-performing assets ratio of less than 3.0% can declare a dividend of up to 35.0% if its capital adequacy ratio for three years is 11.0% or above, a dividend of 30.0% if its capital adequacy ratio is 10.0% or more and up to 25.0% if its capital adequacy ratio is 9.0% or above. A bank with a net non-performing assets ratio between 3.0% and 5.0% |
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can declare a dividend of up to 25.0%, 20.0% and 15.0% against the three-year capital adequacy ratio of 11.0%, 10.0% and 9.0%, respectively. Similarly, a bank with a net non-performing assets ratio between 5.0% and 7.0% can declare a dividend of up to 15.0%, 10.0% and 5.0% against the three-year capital adequacy ratios of 11.0%, 10.0% and 9.0%, respectively.
| · | If the profit for the relevant period includes any extraordinary income, the payout ratio must be calculated after excluding that income for compliance with the prudential payout ratio. |
| · | The financial statements pertaining to the financial year for which the bank is declaring a dividend should be free of any qualification by the statutory auditors, which might have an adverse effect on the profit during that year. If there are any such qualifications, the net profit should be suitably adjusted while computing the dividend payout ratio. |
| · | Due to uncertainties as a result of the Covid-19 pandemic, in April 2020 the Reserve Bank of India restricted banks from making any further dividend payouts from the profits pertaining to the financial year ended March 31, 2020. In April 2021, the Reserve Bank of India allowed banks to pay dividend from the profits for the financial year ended March 31, 2021, subject to the quantum of dividend being not more than 50% of the amount determined as per the dividend payout ratio prescribed in extant guidelines. |
Moratorium, Reconstruction and Amalgamation of Banks
The Reserve Bank of India can apply to the Government of India to suspend the business of a banking company. The Government of India, after considering the application of the Reserve Bank of India, may order a moratorium staying commencement of action or proceedings against such company for a maximum period of six months. During such period of moratorium, the Reserve Bank of India may (a) in the public interest; (b) in the interest of the depositors; (c) in order to secure the proper management of the bank; or (d) in the interests of the banking system of the country as a whole, prepare a scheme for the reconstruction of the bank or merger of the bank with any other bank. In circumstances entailing reconstruction of the bank or merger of the bank with another bank, the Reserve Bank of India invites suggestions and objections on the draft scheme prior to placing the scheme before the Government of India for its approval. The Indian central government may approve the scheme with or without modifications. The law does not require consent of the shareholders or creditors of such banks. The Reserve Bank of India has consolidated all regulations relating to amalgamation of private sector banks in the Master Direction—Amalgamation of Private Sector Banks, Directions, 2016.
Regulations on Amalgamation between Private Sector Banks and between Banks and Non-Banking Finance Companies
The Reserve Bank of India has issued guidelines on amalgamation between private sector banks and between banks and non-banking finance companies. The guidelines particularly emphasize the
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examination of the rationale for mergers, the systemic benefits arising from it and the advantages accruing to the merged entity. With respect to a merger between two private sector banks, the guidelines require the draft scheme of merger to be approved by the shareholders of both banks with a two-thirds majority after approval by the boards of directors of the two banks concerned. The draft scheme should also consider the impact of the merger on the valuation, profitability and capital adequacy ratio of the amalgamating bank and verify that the reconstituted board conforms to the Reserve Bank of India norms. The approved scheme needs to be submitted to the Reserve Bank of India for valuation and approval in accordance with the Banking Regulation Act, along with other documentation such as the draft document of proposed merger, copies of all relevant notices and certificates, swap ratio, share prices, etc. With respect to a merger of a bank and a nonbanking company, where the non-banking company is proposed to be amalgamated with the bank, the banking company has to obtain the approval of the Reserve Bank of India after the scheme of amalgamation is approved by its Board and the Board of the non-banking finance company, but before it is submitted to the tribunal for approval. See also “—Other Statutes—Competition Act.”
Credit Information Bureaus
Pursuant to the Credit Information Companies (Regulation) Act, 2005, every credit institution, including a bank, has to become a member of a credit information bureau and furnish to it such credit information as may be required of the credit institution by the credit information bureau about individuals or groups who enjoy a credit relationship with it. Banks are also required to share information on investments in commercial paper and unhedged foreign currency exposures of borrowers to the credit information companies. Other credit institutions, credit information bureaus and such other persons as the Reserve Bank of India specifies may access such disclosed credit information. Seeking to strengthen the coverage and use of credit information, the Reserve Bank of India standardized the data formats for furnishing of credit information to credit information companies, common classification of credit scores and best practices to be followed by credit information companies.
Financial Stability and Development Council and Financial Sector Legislative Reforms Commission
The Financial Stability and Development Council is an independent body established by the Government of India that oversees regulation and strengthens mechanisms for maintaining financial stability. The institution monitors macro-prudential supervision of the economy and the functioning of large financial conglomerates, addresses inter-regulatory coordination issues and focuses on financial literacy and financial inclusion activities. The Government of India has also set up a Financial Sector Legislative Reforms Commission to review the financial sector laws and to bring them in line with the requirements of the sector. The Commission has proposed an Indian Financial Code that consolidates different laws governing the financial sector. The framework incorporates components like consumer protection, regulation, capital controls, systemic risk and resolution. It also proposed the transition to a regulatory system where the Reserve Bank of India regulates the banking and payments system and of a Unified Financial Agency subsuming all other existing financial sector regulators like the Insurance Regulatory Development Authority of India and the Securities and Exchange Board of India.
The Securities and Insurance Laws (Amendment and Validation) Bill, 2010, provides a mechanism to settle disputes between regulators. A committee chaired by the Finance Minister, with the governor of the Reserve Bank of India as vice chairperson and chairpersons of the Securities and Exchange Board of India, Insurance Regulatory and Development Authority of India, Pension Fund Regulatory of India and Development Authority and secretaries of the Department of Economic Affairs and Department of Financial Services would make the final decision on such disputes.
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In view of the growing significance of financial technology innovations and their interface with the financial sector, the sub-committee of the Financial Stability and Development Council has set up a working group to look into aspects and developments in fintech. Accordingly, the Reserve Bank of India set up a working group with representatives from various regulatory bodies, rating agencies and select banks. The group has recommended introducing an appropriate framework for a ‘regulatory sandbox’ within a well-defined space and duration. In fiscal 2021, the Reserve Bank of India introduced a thematic approach to regulatory sandbox in the fintech sector. The first cohort was launched in November 2019 focussing on retail payments as its theme, the second cohort was launched in December 2020 with the theme cross border payments,the third cohort focussed on lending to micro, small and medium enterprises and the fourth cohort launched in October 2021 on prevention and mitigation of financial frauds.
Resolution Regime for Financial Institutions
The Financial Stability and Development Council constituted a high level working group to consider the strengthening of the resolution regime for financial institutions. The working group submitted its report in May 2014. Some key recommendations of the group include setting up of an independent Financial Resolution Authority which would be responsible for implementation of the resolution framework in coordination with respective financial sector regulators. The financial resolution framework should be legally enforceable and extend to all financial institutions including banks, non-banks and financial conglomerates. The framework identifies a set of tools like liquidation, purchase and assumption, and bail-in which involve converting existing creditors into shareholders, temporary public ownership, etc. The resolution framework should avoid use of taxpayers’ money and ensure imposition of losses to shareholders and unsecured creditors. In case of financial institutions under distress and deemed to be systemically important, the Government of India taking control of the financial institution can be a last option for resolution when all other options fail. As part of a comprehensive code on resolution of financial firms, the Financial Resolution and Deposit Insurance Bill, 2017 was introduced in Parliament in August 2017 to provide a system for quick, orderly and efficient resolution of financial firms in favor of depositors. This code provides a specialized resolution mechanism to deal with bankruptcy situations in banks, insurance companies, and financial sector entities. The Bill was withdrawn in 2018.
Prompt Corrective Action by the Reserve Bank of India
The Prompt Corrective Action is a framework under which banks with weak financial condition are put under watch by the Reserve Bank of India and subject to restrictions on operations and business. As per the guidelines, a bank may be placed under the framework at any point in time, if it is found to breach any of the parameters prescribed. In November 2021, the Reserve Bank of India reviewed and revised the existing Framework on Prompt Corrective Action (PCA). The key criteria for invocation of the prompt correct action include (i) falling below a capital adequacy ratio of 10.25% and/or below a common equity Tier 1 ratio of 6.75%, (ii) exceeding net non-performing asset ratio of 6.0%, or (iii) a leverage ratio of below 4.0%.
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Depending upon the extent of breach, the bank may be classified into three risk thresholds and will be accordingly restricted from business expansion and other mandatory action for resolution. Depending on the risk threshold, the actions may include restriction on capital expenditure (other than for technological upgradation within Board approved limits). A bank breaching the risk threshold where the common equity Tier 1 falls below 3.625% could be considered for resolution through tools like amalgamation, reconstruction and winding-up.
Discretionary Corrective Actions now include, resolution of the bank by amalgamation or reconstruction (Ref. Section 45 of Banking Regulation Act 1949); a prohibition on expansion of credit/ investment portfolios, other than investment in government securities and other high quality liquid investments; restrictions on or reduction in variable operating costs; and restrictions on or reduction of outsourcing activities and new borrowings.
Exit from being subject to prompt corrective action and withdrawal of restrictions may be considered in the following scenario: (i) if no breaches in risk thresholds in any of the parameters are observed as per four continuous quarterly financial statements, one of which should be an audited annual financial statement (subject to assessment by Reserve Bank of India), or (ii) based on supervisory comfort of the Reserve Bank of India, including an assessment on sustainability of profitability of the bank.
Regulations Governing Use of Business Correspondents
To increase the outreach of banking and promote greater financial inclusion, the Reserve Bank of India allows banks to engage business correspondents for providing banking and financial services at locations other than a bank branch. Business correspondents offer a limited range of banking services at low cost, as setting up a brick and mortar branch may not be viable in all areas. Banks are required to take full responsibility for the acts of omission and commission of the business correspondents that they engage and to conduct due diligence for minimizing agency risks. The entities permitted to act as business correspondents included individuals such as retired bank employees, retired teachers, individual owners of small, independent grocery stores, medical and fair price shops and certain other individuals. The non-individual entities include non-government organizations or microfinance institutions set up under societies/trust acts, societies registered under mutually aided cooperative societies acts of various states, or the Cooperative Societies Acts of various states, not-for-profit companies and post offices. Banks are also allowed to engage companies with large and widespread retail outlets and registered under the Companies Act and non-deposit taking non-banking financial companies as business correspondents Further, with a view to scale up the business correspondent channel, the Reserve Bank of India requires the board of banks to review the operations and payment of remuneration to business correspondents at least once every six months. The Reserve Bank of India has also proposed to create a registry of business correspondents.
Regulations Governing Mobile Banking
The Reserve Bank of India has permitted Indian banks to offer mobile banking services to their customers. Transactions involving a debit to the customer’s account should have a two-level authentication to execute the transaction. The Reserve Bank of India has issued guidelines requiring banks to provide easy registration for mobile banking services, including generation of the personal identification number through multiple channels. While use of mobile banking services for cross-border transactions was previously restricted, the restriction was subsequently removed. Services on mobile applications can now be used for both rupee based transaction in the domestic market and for undertaking cross-border transactions.
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Regulations Governing Prepaid Payment Instruments
The Reserve Bank of India has issued master directions on issuance and operation of prepaid payment instruments. These instruments can be issued by banks and non-bank entities only after obtaining prior approval from the Reserve Bank of India. Issuers are required to have Board approved policy for issuance of various types/categories of prepaid instruments, engaging agents, co-branding arrangement, re-validation of gift instruments and all related activities. Small pre-paid instruments (or minimum-detail Prepaid Payment Instruments) up to Rs. 10,000 can be issued by accepting minimum details and are required to be converted into full-KYC Prepaid Payment Instruments within 24 months from the date of issuance if facility of cash loading / reloading is provided. Prepaid Payment Instruments up to Rs. 200,000 can be issued after completing KYC of the Prepaid Payment Instrument holder. Gift instrument can be issued up to a maximum value of Rs. 10,000. Prepaid Payment Instruments (other than gift Prepaid Payment Instruments and Mass Transit System Prepaid Payment Instruments) shall necessarily have additional factor of authentication. The aspects of co-branded prepaid instruments, fraud prevention, customer protection, grievance handling and information system audit are also highlighted in the directions.
Income Computation and Disclosure Standards
The Central Board of Direct Taxes Income Computation and Disclosure Standards (“ICDS”) provides guidelines for computation of taxable income. These guidelines are not for the purpose of maintaining the books of accounts. These guidelines are applicable to all taxpayers, including us, that follow the accrual system of accounting for the purpose of computation of income. In case there is a conflict between the provisions of the Income Tax Act, 1961 (the “Indian Income Tax Act”) and the income computation and disclosure standards prescribed by the tax authority, the provisions of the Indian Income Tax Act shall prevail. The broad areas covered by the guidelines issued by the tax authority include valuation of inventories, construction contracts, revenue recognition, tangible fixed assets, effects of changes in foreign exchange rates, government grants, securities, borrowing costs, contingent liabilities and assets, and relating to accounting policies.
Structural Reforms
Amendments to the Banking Regulation Act
In 2012, the Indian Parliament amended the laws governing the banking sector. The amendment to the Banking Regulation Act was enacted in 2013. The main amendments were as follows:
| · | permit all private banking companies to issue preference shares that will not carry any voting rights; |
| · | make prior approval by the Reserve Bank of India mandatory for the acquisition of more than 5.0% of a banking company’s paid-up capital or voting rights by any individual or firm or group, and empower the Reserve Bank of India to impose conditions while granting approval for such acquisition; |
| · | empower the Reserve Bank of India, after consultations with the Indian central government, to supersede the board of a private sector bank for a total period not exceeding 12 months, during which time the Reserve Bank of India will have the power to appoint an administrator to manage the bank; |
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| · | give the Reserve Bank of India the right to inspect affiliates of enterprises or banking entities (affiliates include subsidiaries, holding companies or any joint ventures of banks); and |
| · | ease the restrictions on voting rights by making them proportionate to the shareholding up to a cap of 26% in the case of private sector banks from the earlier 10%, and 10% in the case of public sector banks from the earlier 1%. |
Requirements of the Banking Regulation Act
Prohibited Business
The Banking Regulation Act specifies the business activities in which a bank may engage. Banks are prohibited from engaging in business activities other than the specified activities.
Reserve Fund
Any bank incorporated in India is required to create a reserve fund to which it must transfer not less than 25.0% of the profits of each year before dividends. If there is an appropriation from this account, the bank is required to report the same to the Reserve Bank of India within 21 days, explaining the circumstances leading to such appropriation. The Government of India may, on the recommendation of the Reserve Bank of India, exempt a bank from requirements relating to its reserve fund.
Restriction on Share Capital and Voting Rights
Banks can issue only ordinary shares. No shareholder in a banking company can exercise voting rights on poll in excess of 26.0% of total voting rights of all the shareholders of the banking company.
Public sector banks are permitted to issue preference shares and make preferential allotments or private placements of equity. According to current provisions private sector banks in India are not permitted to issue preference shares. Legislation has been introduced in the Parliament to amend the Banking Regulation Act to allow all banks to issue redeemable and non-redeemable preference shares. The Government of India, on the recommendation of the Reserve Bank of India, had granted us an exemption which allowed the inclusion of preference capital in our capital structure until the maturity of these shares.
The Reserve Bank of India has clarified that prior approval will be required for acquisition of shares or voting rights of 5.0% or more in private sector banks. Shareholders having 5.0% or more of the paid-up share capital of a private bank would have to give an annual declaration to the bank on their ‘fit and proper’ status. Approval of the Reserve Bank of India will not be required in case of fresh acquisitions by an existing major shareholder up to an aggregate holding of 10.0%.
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Regulatory Reporting and Examination Procedures
The Reserve Bank of India is responsible for supervising the Indian banking system under various provisions of the Banking Regulation Act, 1949 and the Reserve Bank of India Act, 1934. This responsibility is discharged by the Reserve Bank of India’s Department of Banking Supervision for all scheduled commercial banks excluding regional rural banks. The supervision framework is evolving over a period of time and the Reserve Bank of India has been progressively moving in line with Basel “Core Principles for Effective Banking Supervision”. The existing supervisory framework has been modified towards establishing a risk based supervision framework.
This framework is intended to make the supervisory process for banks more efficient and effective, with the Reserve Bank of India applying differentiated supervision to each bank based on its risk profile. A detailed qualitative and quantitative assessment of the bank’s risk is conducted by the supervisor on an ongoing basis and a Risk Assessment Report is issued by the Reserve Bank of India. The Reserve Bank of India has designated a senior supervisory manager for the banks under this framework who will be the single point of contact for a designated bank.
We have been subject to supervision under this framework since fiscal 2013. The Reserve Bank of India also discusses the report with our management team, including the Chairman of the Bank, the Chairman of the Audit Committee, and the Managing Director and CEO. The risk assessment report, along with the report on actions taken by us, has to be placed before our Board of Directors. On approval by our board of directors, we are required to submit the report on actions taken by us to the Reserve Bank of India. See also, “—Loan Loss Provisions and Non-Performing Assets—Asset Classification.”
Appointment and Remuneration of the Chairman, Managing Director and Other Directors
We are required to obtain prior approval of the Reserve Bank of India before we appoint our chairman, managing director and any other executive directors and fix their remuneration. The Reserve Bank of India is authorized to remove an appointee from the posts of chairman, managing director and other executive directors on the grounds of public interest, interest of depositors or to ensure our proper management. Further, the Reserve Bank of India may order meetings of our Board of Directors to discuss any matter in relation to us, appoint observers to such meetings and in general may make such changes to the management as it may deem necessary and may also order the convening of a general meeting of our shareholders to elect new directors. We cannot appoint as a director any person who is a director of another banking company. The Reserve Bank of India has issued guidelines on “fit and proper” criteria for directors of banks. Our directors must satisfy the requirements of these guidelines.
The Reserve Bank of India has issued guidelines on the compensation of wholetime directors/chief executive officers/risk takers and control function staff of private sector and foreign banks operating in India. The guidelines include principles for effective governance of compensation, alignment of compensation with risk taking and effective supervisory oversight and engagement by stakeholders. In fiscal 2020, the Reserve Bank of India issued revised guidelines for compensation of wholetime directors, chief executive officers, risk takers and control function staff. As per the guidelines, banks are required to identify the material risk takers whose actions have a material impact on the risk exposure of the bank, and who satisfy the qualitative and quantitative criteria as specified in the guidelines. Further, the compensation structure of wholetime directors, chief executive officers and material risk takers has
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been changed. Perquisites having monetary ceiling has been included in the fixed pay and share linked instruments have been included in the variable pay. The amount of variable pay must be a substantial portion of the compensation i.e. at least 50% of the pay must be variable and is limited to 300% of the fixed pay. The guidelines also specify the proportion of cash and non-cash components that may be included in the variable pay. Banks are also required to put in place appropriate modalities to incorporate malus and clawback mechanism with respect to misconduct and risk, as well as and mandatory imposition in case of divergence in non-performing assets and provisioning beyond the Reserve Bank of India prescribed thresholds for public disclosure. This guideline has been applicable for pay cycles beginning from April 1, 2020.
The Reserve Bank of India has issued guidelines on compensation of non-executive directors of private sector banks. According to the guidelines, the Board of Directors, in consultation with its remuneration committee, should formulate and adopt a comprehensive compensation policy for the non-executive directors (other than the part-time, non-executive chairman). In the policy, the Board may provide for the payment of compensation in the form of a profit-related commission, subject to the bank making profits. Such compensation should not exceed Rs. 1 million per annum for each director. In addition to sitting fees and expenses related to attending meetings of the board and its committees as per extant statutory norms, the bank may provide for payment of compensation to non-executive directors in the form of a fixed remuneration commensurate with an individual director’s responsibilities and demands on time and which are considered sufficient to attract qualified competent individuals. However, such fixed remuneration for a non-executive director, other than the chair of the board, shall not exceed Rs. 2.0 million per annum. Further, private sector banks have to obtain prior approval of the Reserve Bank of India for granting remuneration to the part-time, non-executive chairman under Section 10B(1A)(i) and 35B of the Banking Regulation Act, 1949.
The Reserve Bank of India has also issued guidelines on minimum qualifications and experience required while inviting application for the position of Chief Financial Officer and Chief Technology Officer in banks.
In March 2020, the Reserve Bank of India revised the format for obtaining declaration and undertaking required for conducting due diligence of directors to determine their fit and proper status prior to appointment. This pertains to declarations and undertakings and allied matters for appointment of a managing director and chief executive officer/chief executive officer/part-time chairperson at a bank.
| Penalties |
The Reserve Bank of India may impose penalties on banks and their employees in case of infringement of regulations under the Banking Regulation Act. The penalty may be a fixed amount or may be related to the amount involved in any contravention of the regulations. The penalty may also include imprisonment.
Assets to be Maintained in India
Every bank is required to ensure that its assets in India (including import-export bills drawn in India and the Reserve Bank of India approved securities, even if the bills and the securities are held outside India) are not less than 75.0% of its demand and time liabilities in India.
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Restriction on Creation of Floating Charge
Prior approval of the Reserve Bank of India is required for creating floating charge on our undertaking or property. Currently, all of our borrowings, including bonds, are unsecured.
Maintenance of Records
Banks are required to maintain books, records and registers. The Banking Regulation Act specifically requires banks to maintain books and records in a particular manner and file the same with the Registrar of Companies on a periodic basis. The provisions for production of documents and availability of records for inspection by shareholders as stipulated under the Companies Act and the rules thereunder would apply to us as in the case of any company. The Know Your Customer Guidelines framed by the Reserve Bank of India also provide for certain records to be updated at regular intervals. As per the Prevention of Money Laundering Act, 2002, records of a transaction are to be preserved for five years from the date of the transaction between a customer and the bank. The Know-Your-Customer records are required to be preserved for a period of five years from the date of cessation of relationship with the customer. The Banking Companies (Period of Preservation of Records) Rules, 1985 requires such records to be preserved for eight years. The Banking Companies (Period of Preservation of Records) Rules, 1985 requires a bank’s records of books, accounts and other documents relating to stock and share registers to be maintained for a period of eight years.
The Reserve Bank of India has advised system providers to ensure that data relating to payment systems operated by them are stored only in a system located in India. The data should include the full end-to-end transaction details/information collected/carried/processed as part of the message/payment instruction. For the foreign leg of the transaction, if any, the data can also be stored in the foreign country, if required. For directions notified by CERT-In relating to obligation on maintenance of logs of the information and communications technology systems, see “—Information Technology and Cyber Security.”
On-tap Licensing of Universal Banks
In 2016, the Reserve Bank of India released guidelines for continuous licensing of universal banks in the private sector. According to the guidelines, the minimum net worth for these banks must be Rs. 5.0 billion and the promoters are required to hold a minimum of 40.0% of the paid-up capital, which will be locked-in for five years and brought down to 15.0% over a period of 12 years. Eligible promoters include non-banking finance companies, individuals with 10 years of experience in banking and finance, and entities/groups in the private sector that have total assets of at least Rs. 50.0 billion with non-financial business accounting for less than 40% of total assets. Foreign shareholding of up to 74.0% is allowed. Promoting entities that have other group entities shall set up the bank only through the non-operative financial holding company structure. Specialized banking activities can be conducted through a separate entity held under the holding company. The Reserve Bank of India has received new applications for universal banks which are under consideration under the on-tap licensing policy. The Reserve Bank of India has set up a Standing External Advisory Committee, headed by a former deputy governor, to evaluate the applications received for universal banks and small finance banks. Further, since December 2019, the Reserve Bank of India has also introduced on-tap licensing for small finance banks.
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Governance of Banks
In June 2020, the Reserve Bank of India released a discussion paper on governance of banks. In view of the growing complexity of the financial sector and with an aim to strengthen the governance standards in Indian banks, the Reserve Bank of India has proposed to align the current regulatory framework with global best practices including those issued by the Basel Committee of Banking Supervision, Financial Stability Board and the Banks Board Bureau. The broad areas covered in the discussion paper include the responsibilities of the board of directors, qualification and selection of board members, structure and practices of the board and its committees, role and expectations from the senior management, risk management, internal audit and other relevant areas. If adopted, the regulations would be applicable to all scheduled commercial banks, including public sector banks, private sector banks and foreign banks operating in India as wholly owned subsidiaries or under the branch model.
As part of steps taken to strengthen risk management in banks, the Reserve Bank of India has issued guidelines which aim to separate credit risk management function from the credit sanction process and also brings uniformity in the approach followed by banks. As per the guidelines, a Board approved policy defining the role and responsibilities of the Chief Risk Officer has to be established, with clearly defined reporting lines either to the Managing Director/Chief Executive Officer or the risk management committee of the bank. The Chief Risk Officer should not have a dual role, report into any business vertical or be given any business targets. The Chief Risk Officer can be removed or transferred only with the approval of the Board. In April 2021, the Reserve Bank of India issued instructions with regard to the Chair and meetings of the board, composition of certain committees of the board, age, tenure and remuneration of directors, and appointment of wholetime directors of banks. The instructions are applicable to private sector banks including small finance banks and wholly owned subsidiaries of foreign banks. As per the guidelines, the Chair of the board has to be an independent director, and the quorum of the board meetings shall be one-third of the total strength of the board or three directors, whichever is higher. The audit committee and the nomination and remuneration committee shall be constituted with only non-executive directors and the risk management committee shall be constituted with majority of non-executive directors. The upper age limit for non-executive directors, including the Chair, is 75 years and the total tenure of a non-executive director on the board of a bank cannot exceed eight years. A re-appointment of the director after completing eight years can be considered after a minimum gap of three years. A wholetime director cannot continue in the post after 15 years, and any reappointment can be considered only after a gap of three years.
In September 2020, the Reserve Bank of India advised that as part of a robust compliance system, banks are required to have an effective compliance culture, independent compliance function and a strong compliance risk management programme. As per the guidelines, banks shall have a board-approved compliance policy explaining its compliance philosophy, expectations on compliance culture, role of Chief Compliance Officer (CCO), processes for managing and reporting on compliance risk throughout the bank. Banks are required to develop and maintain a quality assurance and improvement program covering all aspects of the compliance function and such programs are subject to an independent external review periodically (at least once in every three years). The policy shall be reviewed at least once a year. The selection of the candidate for the post of the Chief Compliance Officer shall be done on the basis of a well-defined selection process and recommendations made by the senior executive level selection committee constituted by the Board for this purpose. The Chief Compliance Officer shall be appointed for a minimum fixed tenure of not less than three years.
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Appointment of auditors
The appointment of the statutory auditors of banks is subject to the approval of the Reserve Bank of India. In July 2017, the Reserve Bank of India advised that audit firms, after completing their four-year tenure in a particular private sector or foreign bank, will not be eligible for appointment as statutory central auditors of the same bank for a period of six years. In May 2021, the Reserve Bank of India issued guidelines for the appointment of statutory auditors and statutory central auditors, with the appointment tenure reduced from four years to three years. Further, for entities with an asset size of Rs. 150.0 billion and above, the statutory audit will have to be conducted under joint audit by at least two audit firms. The Reserve Bank of India can direct a special audit in the interest of the depositors or in the public interest. The Reserve Bank of India has also put in place a graded enforcement action framework to enable appropriate action in respect of statutory auditors where any lapses in conducting a bank’s statutory audit have been observed. Lapses that would be considered for invoking the enforcement framework include misstatement of a bank’s financial statements, wrong certifications, wrong information given in the Long Form Audit Report, and variances in audited financial statements found during the Reserve Bank of India’s inspection and non-adherence to instructions and guidelines issued by the Reserve Bank of India.
Other Statutes
Companies Act
Companies in India, including banks, in addition to the sector-specific statutes and the regulations and guidelines prescribed by the sectoral regulators, were required to comply with relevant provisions of the Companies Act 1956. In 2013, the Indian Parliament enacted the new Companies Act, including, among other things, provisions to make independent directors more accountable, improve corporate governance practices and make corporate social responsibility mandatory for companies above a certain size and require them to spend a minimum of 2.0% of the average net profits of the preceding three years for corporate social responsibility initiatives. Any shortfall in this regard was required to be explained in the annual report. In January 2021, the government made amendments to the corporate social responsibility rules, and made it mandatory to spend the minimum requirement of 2.0% of average net profits of preceding three years. Any shortfall has to be transferred to the Unspent Corporate Social Responsibility Account and spent as stipulated by law.
Competition Act
The Competition Act, 2002 established the Competition Commission of India with the objective of promoting competition, preventing unfair trade practices and protecting the interest of consumers. The Competition Act, 2002 prohibits anti-competitive agreements and abuse of market dominance, and requires the approval of the Competition Commission for mergers and acquisitions involving companies above a certain size.
Secrecy Obligations
The obligations of banks relating to maintaining secrecy arise out of common law principles governing relationships with customers. Banks cannot disclose any information to third parties except under clearly defined circumstances. The following are the exceptions to this general rule:
| • | where disclosure is required to be made under any law; |
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| • | where there is an obligation to disclose to the public; |
| • | where we need to disclose information in its interest; and |
| • | where disclosure is made with the express or implied consent of the customer. |
Banks are also required to disclose information if ordered to do so by a court. The Reserve Bank of India may, in the public interest, publish the information obtained from the bank. Under the provisions of the Banker’s Books Evidence Act, a copy of any entry in a bankers’ book, such as ledgers, day books, cash books and account books certified by an officer of the bank may be treated as prima facie evidence of the transaction in any legal proceeding.
Regulations Governing Offshore Banking Units
The Government of India and the Reserve Bank of India have permitted banks to set up offshore banking units in Special Economic Zones, which are specially delineated duty-free enclaves deemed to be foreign territory for the purpose of trade operations, duties and tariffs. We have an offshore banking unit located in the Santacruz Electronic Exports Promotion Zone, Mumbai. The key regulations applicable to offshore banking units include, but are not limited to, the following:
| · | Offshore banking units are required to adopt liquidity and interest rate risk management policies prescribed by the Reserve Bank of India in respect of overseas branches of Indian banks as well as within the overall risk management and asset and liability management framework of the bank subject to monitoring by the bank’s board of directors at prescribed intervals. Further, the bank’s board would be required to set comprehensive overnight limits for each currency for these branches, which would be separate from the open position limit of the parent bank. |
| · | Offshore banking units may raise funds in convertible foreign currency as deposits and borrowings from non-residents including non-resident Indians but excluding overseas corporate bodies. |
| · | Offshore banking units may operate and maintain balance sheets only in foreign currency. |
| · | The loans and advances of offshore banking units would not be reckoned as net bank credit for computing priority sector-lending obligations. |
| · | Offshore banking units must follow the Know Your Customer guidelines and must be able to establish the identity and address of the participants in a transaction, the legal capacity of the participants and the identity of the beneficial owner of the funds. |
| · | The Special Economic Zone Act, 2005 permitted offshore banking units to additionally undertake the following activities: |
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| · | lend outside India and take part in international syndications/consortiums on par with foreign offices; |
| · | invest in foreign currency denominated debt of Indian units; and |
| · | extend facilities to subsidiaries/units of Indian entities, located outside India. |
Regulations Governing Banking Units in International Financial Services Centres in India
As per guidelines issued by the Reserve Bank of India, public and private sector banks dealing in foreign exchange are permitted to set up one banking unit in each international financial services center in India. Banks will have to take prior approval of the Reserve Bank of India for opening a banking unit, and this will be treated on par with a foreign branch of an Indian bank. The minimum capital requirement for these banking units would be US$20 million. The parent bank would be required to provide a minimum capital of US$20 million or equivalent in any foreign currency to its international banking units which should be maintained at all times on an on-going basis at the parent level. Funds raised by the banking units, including borrowings in foreign currency, would have to be from persons not resident in India. Deployment of funds can be with both person’s resident in India as well as not resident in India. However, deployment of funds with person’s resident in India shall be subject to the provisions of Foreign Exchange Management Act, 1999. Liabilities of these units would be exempted from cash reserve ratio and the statutory liquidity ratio requirements of the Reserve Bank of India. The banking units will have to maintain the minimum regulatory capital as prescribed by the Reserve Bank of India and prudential norms applicable to overseas branches of Indian banks would apply to these banking units. The banking units would operate and maintain their balance sheet only in foreign currency and will not be allowed to deal in Indian rupees, except having a special rupee account for administrative expenses. The loans and advances of these banking units would not be reckoned for priority sector lending requirements. India has only one International Financial Services Centre called the Gujarat International Finance Tec-City (GIFT) located in Gandhinagar, Gujarat.
Since fiscal 2018, banking units in International Financial Services Centres have been permitted to undertake derivative transactions including transacting in structured products, becoming a member of an exchange in the interest rate and currency derivative segments, becoming a professional clearing member for clearing and settlement in the derivatives segment, and maintaining special non-resident rupee accounts with a bank in India for handling its administrative expenses in Indian rupees. In January 2020, the Reserve Bank of India issued directions allowing International Banking Units to participate in exchange traded currency derivatives on rupee (with settlement in foreign currency) listed on stock exchanges set up at International Financial Services Centres. Banks should obtain their Board’s approval for undertaking such transactions. The Authorised Dealer Category I banks with international banking units at International Financial Services Centres are permitted to offer non-deliverable derivative contracts to persons not residing in India from June 1, 2020. All non-deliverable derivative contract transactions are required to be reported on the platform of Clearing Corporation of India Limited.
In April 2020, the government established the International Financial Services Centres Authority (IFSCA), a unified authority, for the development and regulation of financial products, financial services and financial institutions in the International Financial Services Centre. Prior to the setting up
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of the authority, the domestic financial regulators regulated the business at the Centre. In November 2020, the International Financial Services Centres Authority announced regulations for banking and investment activities in the International Financial Services Centre. Banking units were permitted to undertake additional activities, subject to compliance with the terms and conditions or guidelines as specified by the Authority. Banking Units at the International Financial Services Centre may borrow funds, including in foreign currency, from its parent, domestic branches of Indian banks, overseas branches of Indian banks and a person resident outside India (including other banking units). The banking units may deploy funds with persons resident in India as well as persons not resident in India. Borrowing from a person resident in India and deployment of funds with persons resident in India shall be subject to the provisions of the Foreign Exchange Management Act, 1999. Banking units may also act as lenders in rupee denominated loans, in any form, to persons resident in India, subject to specific provisions. Banking units are also permitted to accept deposits and can provide foreign currency accounts to qualified individuals, persons resident outside India who are corporate or institutional entities, and persons resident in India for investment in International Financial Services Centre.
With a view to further enhancing 'ease of doing banking business', the International Financial Services Centres Authority has issued the IFSCA Banking Handbook which is a compendium of directions of the Authority to the international banking units operating in GIFT IFSC and to the banking companies incorporated in India or outside India looking to set up an international banking units as a branch in GIFT IFSC. The Handbook is organised in three components viz (a) General directions, (b) Conduct of Business directions, and (c) Prudential Directions applicable to BUs. The provisions of IFSCA Banking Handbook has been effective since January 1, 2022.
In April 2022, the International Financial Services Centres Authority released a guidance framework on sustainable and sustainability linked lending by financial institutions in IFSC. As per the framework, international banking units shall develop a board approved policy on sustainable lending by March 31, 2023. From financial year beginning April 1, 2023, entities shall have at least 5% of their gross loans in the form of lending to green/sustainable/ sustainability-linked sectors/facilities. The 5.0% target shall be computed on incremental loans and advances in a financial year.
Consolidated Supervision Guidelines
Key features of the Reserve Bank of India guidelines for consolidated accounting and consolidated supervision of banks are:
Consolidated Financial Statements: Banks are required to prepare consolidated financial statements intended for public disclosure.
Consolidated Prudential Returns: Banks are required to submit to the Reserve Bank of India consolidated prudential returns reporting their compliance with various prudential norms on a consolidated basis, excluding insurance subsidiaries and group companies engaged in businesses not pertaining to financial services.
See also “Selected Statistical Information—Loan Concentration.”
In 2004, the Reserve Bank of India published the report of a working group on the monitoring of financial conglomerates, which proposed the following framework:
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| · | identification of financial conglomerates that would be subjected to focused regulatory oversight; |
| · | monitoring intra-group transactions and exposures and large exposures of the group to outside counter parties; |
| · | identifying a designated entity within each group that would collate data in respect of all other group entities and furnish the same to its regulator; and |
| · | formalizing a mechanism for inter-regulatory exchange of information. |
The framework covers entities under the jurisdiction of the Reserve Bank of India, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority of India and the National Housing Bank and would in due course be extended to entities regulated by the proposed Pension Fund Regulatory and Development Authority. The Reserve Bank of India has identified us and our related entities as a financial conglomerate with ICICI Bank as the designated entity responsible for reporting to the Reserve Bank of India.
The financial sector regulators the Reserve Bank of India, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority of India and the Pension Fund Regulatory and Development Authority, signed a memorandum of understanding to cooperate in the field of consolidated supervision and monitoring of financial conglomerates.
Regulations and Guidelines of the Securities and Exchange Board of India
The Securities and Exchange Board of India was established to protect the interests of investors in securities and to promote the development of and to regulate the Indian securities market. We and our subsidiaries and affiliates are subject to the Securities and Exchange Board of India regulations for public capital issuances, private placements as well as underwriting, custodian, designated depository participant, merchant banker, depositary participant, investment advisory, private equity, trading member, clearing member, asset management, portfolio management, banker to the issue, research analyst and debenture trusteeship activities. These regulations provide for our registration with the Securities and Exchange Board of India for each of these activities, functions and responsibilities. We and our subsidiaries are required to adhere to codes of conduct applicable for these activities.
Special Status of Banks in India
The special status of banks is recognized under various statutes including the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and the SARFAESI Act. As a bank, we are entitled to certain benefits under various statutes including the following:
| • | The Recovery of Debts and Bankruptcy Act, 1993 provides for establishment of Debt Recovery Tribunals for expeditious adjudication and recovery of debts due to any bank or Public Financial Institution or to a consortium of banks and Public Financial Institutions. Under this Act, the procedures for recoveries of debt have been simplified and time frames have been fixed for speedy disposal of cases. Upon establishment of the Debt Recovery Tribunal, no court or other authority can exercise jurisdiction in relation to matters covered by this Act, except the higher courts in India in certain circumstances. |
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| • | The SARFAESI Act focuses on improving the rights of banks and financial institutions and other specified secured creditors as well as asset reconstruction companies by providing that such secured creditors can take over management control of a borrower company upon default and/or sell assets without the intervention of courts, in accordance with the provisions of the SARFAESI Act. |
Income Tax Benefits
As a banking company, the Bank is entitled to certain tax benefits under the Indian Income Tax Act. We are allowed a deduction of up to 20.0% of the profits derived from the business of providing long-term finance (defined as loans and advances extended for a period of not less than five years) for industrial or agricultural development, development of infrastructure facility in India or development of housing in India, computed in the manner specified under the Indian Income Tax Act and carried to a Special Reserve Account. The deduction is allowed subject to the aggregate of the amounts transferred to the Special Reserve Account for this purpose from time to time not exceeding twice our paid-up share capital and general reserves. The amount withdrawn from such a Special Reserve Account would be chargeable to income tax in the year of withdrawal, in accordance with the provisions of the Indian Income Tax Act. In accordance with the guidelines issued by the Reserve Bank of India in December 2013, banks are required to create deferred tax liability on the special reserve on a prudent basis. The deferred tax liability is permitted to be charged through the profit and loss account. In India, while computing taxable income, provision on non-performing loans is allowed as a deduction from income only up to 8.5% of the total income and 10.0% of the aggregate average advances made by the rural branches of the bank. The balance of the provisions, which comprises a significant majority of the provision, is allowed as a deduction from the taxable income at the time of write-off of the loans.
Regulations Governing Insurance Companies
The Insurance Laws (Amendment) Act, 2021, was passed by the Indian Parliament and notified in March 2021. The Act, among other things, raised the foreign investment limit in the insurance sector from 49.0% to a composite limit of 74.0%. In an earlier amendment to the law in 2015 it eliminated the requirement that promoters of an insurance company reduce their stake to 26.0% after ten years.
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ICICI Prudential Life Insurance Company Limited and ICICI Lombard General Insurance Company Limited, our subsidiary and affiliate offering life insurance and general insurance products, respectively, are subject to the provisions of the Insurance Act, 1938 and subsequent rules and amendments notified, and the various regulations prescribed by the Insurance Regulatory and Development Authority of India (IRDAI or Authority). These regulate and govern, among other things, registration as an insurance company, investment, solvency margin requirements, licensing/ registration of insurance agents and other insurance intermediaries, advertising, sale and distribution of insurance products and services and protection of policyholders’ interests.
The governance framework for insurance companies includes the board of directors, key management personnel, constitution of various committees such as the policyholder protection committee, define the role of appointed actuaries, appointment of auditors and relationship with stakeholders. The Insurance Regulatory and Development Authority of India has also issued regulations on the payment of commissions and rewards to agents and insurance intermediaries. The Authority also issued guidelines on insurance e-commerce allowing an insurer or an insurance intermediary to set up an electronic platform for online sales and servicing.
In September 2019, the Insurance Regulatory and Development Authority of India introduced “Regulatory sandbox” to provide a conducive environment for insurtech and fintech companies to develop innovations in the insurance space. Under the regulations, the Authority approved 33 products on January 14, 2020 followed by 16 products in the second tranche on March 31, 2020 and 18 products in the third tranche on June 3, 2020. Our general insurance subsidiary received approval for five products in the first tranche, for one product in the second tranche and in the third tranche received approval for three products and the life Insurance subsidiary received approval for five products in the second tranche.
The Insurance Regulatory and Development Authority of India periodically issues guidelines pertaining to life insurance business. The Insurance Regulatory and Development Authority of India has issued regulations relating to unit-linked life insurance products, non-linked life insurance products and health insurance products. The key regulations on linked and non-linked products include a minimum sum assured at seven times the annual premium; liquidity option for financial exigencies; and increase in revival period to three years for ULIPs and five years for traditional products. The key regulations are related to commissions payable to agents and distributors, lapse of policies, surrender values and minimum death benefits. There are regulations with regard to registration of corporate agents for the sale of insurance products where a corporate agent may tie up with up to three insurance companies each in life, nonlife and health insurance sectors.
In the wake of the Covid-19 pandemic, insurers were permitted to devise need based short term health policies subject to the prescribed conditions and in accordance with IRDAI (Health Insurance) Regulations. Additionally, two standard health products called Covid specific standard benefit based health policy (Corona Raksha Policy) and Covid Standard health policy (Corona Kavach Policy) were introduced to address the health insurance needs of public. Insurers were also permitted to grant moratorium of three months towards payment of instalments falling due between March 1, 2020 and May 31, 2020. The Insurance Regulatory and Development Authority of India recognised make-shift or The Insurance Regulatory and Development Authority of India issued a circular on Prudent management of financial resources of insurers. According to this, in the context of Covid-19 pandemic, insurers were permitted to take a conscious call in the matter of declaring dividends for fiscal 2021 after considering their capital, solvency and liquidity positions which had been earlier restricted.
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The Insurance Laws (Amendment) Act, 2021, has allowed the foreign shareholding limit in insurance companies at 74.0%. The foreign investment rules shall be as prescribed by the Government. In May 2020, the Insurance Regulatory and Development Authority of India had permitted insurance intermediaries including insurance brokers, re-insurance brokers, corporate agents, third-party administrators and such others to receive 100.0% foreign direct investment under the automatic route.
Regulations Governing Mutual Funds
ICICI Prudential Asset Management Company, our asset management subsidiary, is subject to provisions of the Securities and Exchange Board of India (Mutual Fund) Regulations 1996, as amended from time to time and various circulars issued thereunder. The regulations, among other things, provides for registration of a mutual fund, restrictions on business activities of asset management companies, a process for launching of mutual fund schemes, requirements for investment objectives of a scheme and valuation policies and pricing, and disclosures and reporting requirements, among other things. Further, the regulations provide for various investment restrictions, including a cap on investing in a single company, group or sector and restrictions on investing in associates and group companies.
The key changes announced in the regulations by the Securities and Exchange Board of India are as follows:
| • | Guidelines on Know Your Customer processes, use of technology and Aadhaar Authentication services for know your customer. |
| • | Guidelines on changing the investment mandate of multi cap funds with a minimum investment of 25% each in large cap, small cap and mid cap stocks to ensure multi cap funds hold a well diversified portfolio. |
| • | Introduction of a new category of mutual funds called as Flexi-cap mutual funds which will invest across various market capitalisations (large cap, mid caps and small cap). |
| • | Guidelines related to execution of trades of commercial paper/corporate bond through Request for Quote (RFQ) platform were issued to enhance the transparency pertaining to debt schemes. |
| • | Guidelines related to uniform applicability of NAV upon realization of funds have been issued which enables investors to get the purchase NAV of the day when investor's money reaches the asset management company, irrespective of the size of the investments. |
| • | Guidelines related to product labeling (Risk-o-meter) of the mutual fund schemes wherein apart from the existing five categories of risk, a “very high” risk category has been introduced to help investors make better decisions about their investments in high risk mutual funds. |
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| • | Doubling of the foreign investment limit per mutual fund house to USD 600.0 million from the existing limit of USD 300.0 million. |
| • | Guidelines on inter scheme transfers of securities to take cognisance of movement of bad credit from one scheme to another. |
Code of conduct for fund managers and dealers.
| • | Guidelines related to holding of atleast 10% of the net assets of all the open ended debt mutual fund schemes in liquid assets. |
| • | Guidelines related to setting up of limited purpose clearing corporation for clearing and settling repo transactions in corporate debt securities. |
Our asset management subsidiary is also subject to separate guidelines issued by the Securities and Exchange Board of India for its other business verticals i.e. portfolio management services, alternative investment funds, venture capital funds, among others.
Regulations Governing International Operations
Our international operations are governed by regulations in the countries in which we have a presence. Further, the Reserve Bank of India has notified that foreign branches or subsidiaries of Indian banks can offer structured financial and derivative products, which are not permitted in the domestic market, only at established financial centers outside India, such as New York, London, Singapore, Hong Kong, Frankfurt and Dubai, among others. At other centers, the branches and subsidiaries of Indian banks can only offer those products permissible in the domestic market. For undertaking activities not permitted in the domestic market at these centers, banks will have to obtain approval from the Reserve Bank of India.
Overseas Banking Subsidiaries
Our wholly owned subsidiary in the United Kingdom, ICICI Bank UK PLC, is authorized and regulated by the Prudential Regulation Authority and Financial Conduct Authority. Our subsidiary in the United Kingdom has seven branches located in the United Kingdom and one branch in mainland Europe, located in Eschborn, Germany. The Bank has expanded its presence in the UK by establishing six business centers.
Our wholly owned subsidiary in Canada, ICICI Bank Canada (a Schedule II Bank in Canada), is regulated by the Office of the Superintendent of Financial Institutions. Our subsidiary in Canada has seven branches located in Canada.
Offshore Branches
The Foreign Exchange Management (Borrowing and Lending) Regulations, 2018, as amended, and rules issued thereunder, permit a branch located outside India of a bank incorporated or constituted in India to borrow in foreign currency in the normal course of its banking business outside India, subject to the directions or guidelines issued by the Reserve Bank of India from time to time and the regulatory authority of the country where the branch is located.
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Our Singapore branch is currently engaged in corporate and institutional banking, private banking, retail banking and treasury-related activities. The Singapore branch has Qualified Full Banking privileges which entitles us to take retail deposits. The branch also has the approval to operate an Asian Currency Unit. In Bahrain, we have a retail branch, regulated by the Central Bank of Bahrain. The Bahrain branch is permitted to transact banking business with approved financial institutions within Bahrain, and offer banking services to individuals and institutions in Bahrain and outside Bahrain. It is also permitted to offer banking services to non-resident Indians in Bahrain. Our branch in Hong Kong is regulated by the Hong Kong Monetary Authority. Our branch in the Dubai International Financial Centre (DIFC) is regulated by the Dubai Financial Services Authority and is licensed to accept deposits, provide credit, arranging credit or deal in investments and advising on financial products or credit. Our branch in New York is regulated by the Federal Reserve Board and the Office of the Comptroller of the Currency. Our branch in China is regulated by the China Banking and Insurance Regulatory Commission and the branch in South Africa is regulated by the South Africa Reserve Bank. In addition, we also have an Offshore Banking Unit located in the Santacruz Electronic Exports Promotion Zone, Mumbai and an IFSC Banking Unit at Unit No 408, 4th Floor, Brigade International Financial Centre, GIFT Multi Services SEZ, Gandhinagar 382 344,Gujarat, India. In the Union Budget for fiscal 2020, the Indian government announced the extension of deduction of 100.0% of profit to ten years for units in Gujarat International Finance Tec-City.
In December 2021, the Reserve Bank of India released a circular regarding infusion of capital in overseas branches and subsidiaries and retention/repatriation/transfer of profits in these centres by banks incorporated in India. As per the circular, prior approval of the Reserve Bank of India would not be required for capital infusion/ transfers (including retention/repatriation of profits) for banks which meet the regulatory capital requirements (including capital buffers). Banks shall however seek the approval of their boards for the same. Banks are required to report all such instances of infusion of capital and/retention/transfer/repatriation of profits in overseas branches and subsidiaries to the Reserve Bank of India.
Representative Offices
We have representative offices in various jurisdictions that are regulated by the respective regulatory authorities.
Foreign Account Tax Compliance Act
The Government of India entered into a Model 1 inter-governmental agreement with respect to the Foreign Account Tax Compliance Act with the United States. ICICI Bank has registered with the Internal Revenue Service in the United States. In addition, the United States has entered into Model 1 inter-governmental agreements with respect to the Foreign Account Tax Compliance Act with the United Kingdom, Canada, Germany, Singapore, the United Arab Emirates, South Africa, Bahrain and reached a similar agreement in substance with China, Malaysia and Indonesia, and a Model 2 inter-governmental agreement with respect to Foreign Account Tax Compliance Act with Hong Kong. ICICI Bank has taken measures to comply with the terms of applicable intergovernmental agreements with respect to the Foreign Account Tax Compliance Act and any regulations issued thereunder.
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Common Reporting Standards
The Common Reporting Standard formally referred to as the Standard for Automatic Exchange of Financial Account Information, is an information standard for the automatic exchange of information, developed in the context of the Organization for Economic Cooperation and Development. In India requirements under the Foreign Account Tax Compliance Act/Common Reporting Standard are implemented by the Central Board of Direct Taxes. The common reporting standard has been adopted by the United Kingdom, Canada, Germany, Hong Kong, Singapore, Malaysia, Indonesia, South Africa, China, the United Arab Emirates and Bahrain.
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Restrictions on Conversion of Rupees
There are restrictions on the conversion of rupees into dollars. The Foreign Exchange Management Act, 1999 regulates transactions involving foreign exchange and provides that certain transactions cannot be carried out without the general or special permission of the Reserve Bank of India. The Foreign Exchange Management Act, 1999 has substantially eased the restrictions on current account transactions (with a few exceptions). However, the Reserve Bank of India continues to exercise control over capital account transactions (i.e., those which alter the assets or liabilities, including contingent liabilities, of persons). The Government of India has notified rules and the Reserve Bank of India has issued regulations under the Foreign Exchange Management Act, 1999 to regulate the various kinds of capital account transactions, including certain aspects of the purchase and issuance of shares of Indian companies. The Reserve Bank of India has also permitted authorized dealers to freely allow remittances by individuals up to US$ 250,000 subject to certain restrictions per financial year for any permissible current or capital account transactions or a combination of both, under the Liberalized Remittance Scheme.
Restrictions on Sale of the Equity Shares underlying ADSs and Repatriation of Sale Proceeds
There are no end-use restrictions on ADR issue proceeds except for the real estate sector and stock markets, in which investment of ADR issue proceeds is prohibited.
An ADR holder is entitled to hold or transfer ADRs or redeem them into underlying ordinary shares with the option to continue holding ordinary shares. ADR holders are entitled to same bonus and rights issue as any ordinary shareholder of the company.
ADSs issued by Indian companies to non-residents have free convertibility outside India. Under current Indian laws there is a general permission for the sale/transfer of equity shares underlying ADSs obtained after conversion of ADRs by a person not resident in India to a resident of India if the sale is proposed to be made through a recognized stock exchange or when the underlying shares are being sold in terms of an offer made under Securities Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. For all other cases of sale of shares underlying the ADRs, permission of the Reserve Bank of India is required.
If a sale of securities has taken place in terms of the rules laid down by the government, Reserve Bank of India guidelines and other applicable regulations, then provided (i) the securities were held on repatriation basis, (ii) either the securities has been sold in compliance with the pricing guidelines issued by the Reserve Bank of India or Reserve Bank of India’s approval has been obtained in other cases and (iii) a no objection/tax clearance certificate from income tax authority had been obtained, the sale proceeds may be freely remitted.
A new scheme called ‘Depository Receipts Scheme, 2014’(DR Scheme, 2014) for investments under ADR/GDR has been effective from December 15, 2014 which provides for repeal of extant guidelines for Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993 except to the extent relating to foreign currency convertible bonds.
The issuance of fresh depositary receipts and any changes/modifications in the existing terms and conditions of ADR/GDR should be in accordance with DR Scheme, 2014 or/and is subject to approval/clarification from Reserve Bank of India/Securities and Exchange Board of India.
In terms of schedule IX of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 dated October 17, 2019, pertaining to investment in Depository receipts by a person resident outside India, the guidelines are as below:
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Issue or transfer of eligible instruments to a foreign depository for the purpose of issuance of depository receipts by eligible person(s)-
| (a) | Any security or unit in which a person resident outside India is allowed to invest under these rules shall be eligible instruments for issue of Depository Receipts in terms of DR Scheme, 2014. |
| (b) | A person shall be eligible to issue or transfer eligible instruments to a foreign depository for the purpose of issuance of depository receipts in accordance with the DR Scheme, 2014 and guidelines issued by the Central Government in this regard. |
| (c) | A domestic custodian may purchase eligible instruments on behalf of a person resident outside India, for the purpose of converting the instruments so purchased into depository receipts in terms of DR Scheme, 2014. |
| (d) | The aggregate of eligible instruments which may be issued or transferred to foreign depositories, along with eligible instruments already held by persons resident outside India, shall not exceed the limit on foreign holding of such eligible instruments under the Act, rules or regulations framed there under. |
| (e) | The eligible instruments shall not be issued or transferred to a foreign depository for the purpose of issuing depository receipts at a price less than the price applicable to a corresponding mode of issue or transfer of such instruments to domestic investors under the applicable laws. |
Depository Receipts issued under the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 shall be deemed to have been issued under the corresponding provisions of DR Scheme 2014 and have to comply with the provisions specified in this schedule.
The Securities and Exchange Board of India vide a circular dated October 10, 2019 has provided a framework for issue of depositary receipts. As per the circular, only a company incorporated in India and listed on a recognized stock exchange in India may issue permissible securities or their holders may transfer permissible securities, for the purpose of issue of depositary receipts subject to compliance with the eligibility criteria defined by the Securities and Exchange Board of India. Securities and Exchange Board of India has further issued operational guidelines dated October 1, 2020 for monitoring foreign holding in depository receipts. Pursuant to the same, every listed company shall appoint one Indian depository as the designated depository for the purposes of monitoring such limits.
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Restriction on Foreign Ownership of Indian Securities
The Government of India strictly regulates ownership of Indian companies by foreigners. Foreign investment in securities issued by Indian companies, including the equity shares represented by ADSs, is governed by the Foreign Exchange Management Act, 1999, and rules and regulations thereunder, as amended from time to time (“Act”). The Act authorizes the Reserve Bank of India to impose restrictions on inflow or outflow of the foreign exchange and provides that certain transactions cannot be carried out without the general or special permission of the Reserve Bank of India or relevant departments of the Government of India. The Foreign Exchange Management Act, 1999 has eased restrictions on current account transactions. However, the Reserve Bank of India continues to exercise control over capital account transactions (i.e., those which alter the assets or liabilities, including contingent liabilities, of persons). The Government has laid down rules and the Reserve Bank of India has issued regulations under the Foreign Exchange Management Act, 1999 to regulate the various kinds of capital account transactions, including certain aspects of the purchase and issuance of shares of Indian companies.
The issue or transfer of any security of an Indian company by a person resident outside of India, foreign investment in equity instruments (equity shares, compulsorily convertible debentures, compulsorily convertible preference shares and share warrants) as well as issuance of rupee denominated shares for issuing ADSs, are all governed by applicable rules and regulations issued under the Foreign Exchange Management Act, 1999 and by the Securities and Exchange Board of India, and shall be made only in accordance with the terms and conditions specified under such rules and regulations.
The foreign investment limit in Indian companies includes, in addition to foreign direct investments, investment by Foreign Portfolio Investors, Non-Resident Indians, Foreign Currency Convertible Bonds, American Depository Receipts, Global Depository Receipts and convertible preference shares held by foreign entities.
The Foreign Exchange Management (Non-debt Instruments) Rules, 2019, as amended (“Rules”) provide for, among other things, the following restrictions on foreign ownership for private sector banks:
| · | Foreign investors (including indirect foreign investment made by foreign portfolio investors) may own up to 74.0% of the equity share capital of a private sector bank in India subject to rules and regulations issued by the Government of India and the Reserve Bank of India from time to time. While foreign investment up to 49.0% in private sector banks does not require any specific approval, foreign investment beyond 49.0% and up to 74.0% requires prior approval of the Government of India, unless such investments are otherwise exempted from the requirement for approval. Investments by foreign investors exempted from the requirement for Government of India approval include aggregate foreign portfolio investment (as defined in the Rules) up to 49% of the paid-up capital on a fully diluted basis or a sectoral cap (whichever is lower) that does not result in the transfer of ownership or control of the resident Indian company from resident Indian citizens or transfer of ownership or control to persons resident outside India and other investments by a person resident outside India shall be subject to the conditions of Government approval and compliance of sectoral conditions as laid down in the Rules. The Rules allow Indian companies to freely issue rights and bonus shares to existing non-resident shareholders, subject to adherence to sectoral cap and fulfilling certain conditions laid out in the applicable laws and statute. The aggregate foreign investment limit of 74.0% includes investments by way of foreign direct investments, ADSs/Global Depositary Receipts (Depository Receipts), Foreign Currency Convertible Bonds (mandatorily and compulsorily convertible) and investment under the Portfolio Investment Scheme by foreign portfolio investors and non-resident Indians/Overseas Citizens of India, and also includes shares acquired by subscription to private placements and public offerings and acquisition of shares from existing shareholders. At least 26.0% of the paid-up capital would have to be held by Indian residents at all times, except in regard to a wholly owned subsidiary of a foreign bank. |
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| · | Additionally, in case of proposals requiring prior approval of the Government of India, those proposals involving total foreign equity inflow of more than Rs. 50.0 billion, shall require approval of the Cabinet Committee on Economic Affairs. |
| · | An individual non-resident Indian’s holding is restricted to 5.0% of the total paid-up share capital both on repatriation and non-repatriation basis and the aggregate limit of investment by all non-resident Indians cannot exceed 10.0 % of the total paid up capital both on repatriation and non-repatriation basis. However, non-resident Indian holdings can be allowed up to 24.0% of the total paid-up capital, both on repatriation and non-repatriation basis, subject to a special resolution to this effect passed by the shareholders of the bank. |
| · | Any foreign investment in private banks by any person (including his relatives and associate enterprises and persons acting in concert) whereby such shareholding reaches or exceeds 5.0% shall require prior approval from the Reserve Bank of India for acquisition of shares or voting rights. The Reserve Bank of India shall assess the “fit and proper” status of such foreign investors according to the criteria laid down under the Master Direction dated November 19, 2015 on ‘Prior approval for acquisition of shares or voting rights in private sector banks’ and the Master Direction – Ownership in Private Sector Banks Directions, 2016 issued by the Reserve Bank of India, which will include extensive information on ownership of the investors and beneficial interest in the shares/voting rights being acquired. Additionally, the ceiling on voting rights is 26.0% of the total voting rights of a bank. |
| · | A foreign bank may operate in India through only one of the three channels: (i) branches (ii) a wholly-owned subsidiary and (iii) a subsidiary with aggregate foreign investment up to a maximum of 74.0% in a private bank. A foreign bank regulated by a banking supervisory authority in its home country and meeting the Reserve Bank of India’s licensing criteria will be allowed to set up a wholly-owned subsidiary in India. A foreign bank will be permitted to establish a wholly-owned subsidiary either through conversion of existing branches into a subsidiary or through a fresh banking license. A foreign bank will be permitted to establish a subsidiary through acquisition of shares of an existing private sector bank provided at least 26.0% of the paid-up capital of the private sector bank is held by residents at all times. A subsidiary of a foreign bank will be subject to the licensing requirements and conditions broadly consistent with those for new private sector banks. |
Under the Portfolio Investment Scheme:
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| i. | Effective from April 1, 2020, foreign portfolio investors, as referred in Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019, may hold share capital up to sectoral cap applicable to such Indian company. However, an Indian company may, with the resolution of its Board of Directors and a special resolution: (i) decrease the aggregate limit before March 31, 2020 to a lower threshold of 24% or 49% or 74% or (ii) increase the aggregate limit to 49% or 74% or the sectoral cap or any statutory ceiling. However, once the aggregate limit is increased, the limit cannot be reduced later. No single foreign portfolio investor may own 10% or more of total paid-up equity capital on behalf of itself or its sub-accounts. |
| ii. | Overseas corporate bodies are not permitted to invest under the Portfolio Investment Scheme, although they may continue to hold investments that have already been made under the Portfolio Investment Scheme until such time as these investments are sold on the stock exchange. Overseas corporate bodies are derecognized as a class of investor entity by the Reserve Bank of India under various routes and schemes under the foreign exchange rules and regulations. |
Foreign Portfolio Investment Scheme – Purchase of shares or convertible debentures or warrants
The Securities and Exchange Board of India issued the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019, as amended from time to time. Under the foreign portfolio investment regime, foreign institutional investors, sub-accounts and qualified foreign investors were merged into a new investor class called as foreign portfolio investors. A foreign portfolio investor registered with the Securities and Exchange Board of India can purchase shares or convertible debentures or warrants of an Indian company. The total holding by each foreign portfolio investor or an investor group shall be less than 10.0% of the total paid-up equity capital on a fully diluted basis or less than 10.0% of the paid-up value of each series of debentures or preference shares or share warrants issued by an Indian company. If the total investment exceeds the aforementioned threshold of below 10.0%, the foreign portfolio investor shall divest the excess holding within five trading days from the date of settlement of the trades resulting in the breach. In the event of failure to do so, the entire investment in the company by such foreign portfolio investors including its investor group shall be considered as Foreign Direct Investment and the foreign portfolio investor and its investor group shall not make further portfolio investment in that company. The clubbing of investment limit of foreign portfolio investors is based on common ultimate beneficial ownership. Except for the exemptions provided in these regulations, multiple entities registered as foreign portfolio investors and directly or indirectly, having common ownership of more than 50.0% or common control, shall be treated as part of the same investor group and the investment limits of all such entities shall be clubbed at the investment limit as applicable to a single foreign portfolio investor.
Transfer of equity instruments by a person resident outside India
A person resident outside India (other than a non-resident Indian/overseas citizen of India or a former overseas corporate body) may transfer by way of sale or gift the equity instruments of an Indian company or units held by him or it to any person resident outside India provided that:
| i. | prior government approval shall be obtained for any transfer in case the company is engaged in a sector which requires government approval; |
| ii. | where the equity instruments are held by the person resident outside India on a non-repatriable basis, the transfer by way of sale where the transferee intends to hold the equity instruments on a repatriable basis, shall be in compliance with and subject to the adherence to entry routes, sectoral caps or investment limits, as specified in Rules and attendant conditionalities for such investment, pricing guidelines, documentation and reporting requirements for such transfers, as may be specified by the Reserve Bank of India from time to time. |
A person resident outside India holding equity instruments of an Indian company or units:
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| i. | may transfer the same to a person resident in India by way of gift; |
| ii. | may sell the same to a person resident in India on a recognized stock exchange in India through a registered broker in the manner prescribed by Securities and Exchange Board of India; or |
| iii. | may sell the same to a person resident in India, subject to the adherence to pricing guidelines, documentation and reporting requirements for such transfers as may be specified by the Reserve Bank of India in consultation with the Government from time to time. |
The Reserve Bank of India guidelines relating to acquisition by purchase or otherwise of equity shares of a private sector bank, if such acquisition results in any person owning or controlling 5.0% or more of the paid-up capital of the bank, are also applicable to non-resident investors investing in our shares. For more details on the Reserve Bank of India guidelines relating to acquisition by purchase or otherwise of shares of a private bank, see “Supervision and Regulation—Ownership Restrictions”.
Reporting of foreign investments
The Reserve Bank of India has issued guidelines on reporting of foreign investments with the objective of integrating different reporting structures for foreign investments in India. As per the guidelines issued on June 7, 2018, a Single Master Form has been introduced that must be filed online. The Single Master Form, as amended from time to time, provides a facility for reporting total foreign investments in an Indian entity as well as investments by persons residing outside India in an investment vehicle.
Indian entities not complying with this pre-requisite will not be able to receive foreign investments (including indirect foreign investments) and will be deemed non-compliant under Foreign Exchange Management Act, 1999 and regulations made thereunder, as amended from time to time.
From September 2018, all the reporting prescribed under “Foreign Investment in India”, except if specifically stated otherwise, is required to be done through the Single Master Form, as amended from time to time, available on the Foreign Investment Reporting and Management System platform of the Reserve Bank of India.
Currently, an Indian entity or an investment vehicle making a downstream investment in another Indian entity which is considered as indirect foreign investment for the investee Indian entity in terms of Foreign Exchange Management (Non-Debt Instrument) Rules, 2019, shall notify the Secretariat for Industrial Assistance about such investment (including modality of investment in new/existing ventures) within 30 days, even if shares have not been allotted. Such entity or investment vehicle shall also file Form DI with the Reserve Bank of India within 30 days from the date of allotment of equity instruments.
Issue of ADSs
Indian companies are permitted to raise foreign currency resources through the issuance of shares represented by ADSs to foreign investors under the Depository Receipts Scheme, 2014, as amended from time to time. Such issuance is subject to sectoral cap, entry route, minimum capitalization norms, pricing norms, among other things, as applicable as per the rules and regulations established by the Government of India and/or Reserve Bank of India from time to time in this regard.
An Indian company issuing ADSs must comply with certain reporting requirements specified by the Reserve Bank of India. An Indian company may issue ADSs if it is eligible to issue shares to persons resident outside India under the foreign direct investment scheme, and shall not exceed the limit on foreign holding of such eligible securities under the extant Foreign Exchange Management Act, 1999 and the rules made thereunder, as amended from time to time. Similarly, an Indian company which is not eligible to raise funds from the Indian capital markets, including a company which has been restricted from accessing the securities market by the Securities and Exchange Board of India, will not be eligible to issue ADSs. As per the Depository Receipts Scheme, 2014, if the issue or purchase of permissible securities underlying the depository receipts does not require approval under the Foreign Exchange Management Act, 1999, no Government of India approval will be required for issuance, purchase or holding of such depository receipts.
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For disposal of ADSs, investors may need to seek specific approval from Government of India on a case-by-case basis. However, overseas corporate bodies as defined under applicable rules, which are not eligible to invest in India and entities prohibited to buy, sell or deal in securities by the Securities and Exchange Board of India are not eligible to subscribe to ADSs issued by Indian companies. Notwithstanding the foregoing, if any investor were to withdraw its equity shares from the ADS program, its investment would be subject to the general restrictions on foreign ownership noted above and may be subject to the portfolio investment restrictions. Secondary purchases of securities of a banking company in India by foreign direct investors or investments by non-resident Indians, and foreign portfolio investors above the ownership levels set forth above require the Indian government’s approval on a case-by-case basis. It is unclear whether similar case-by-case approvals of ownership of equity shares withdrawn from the depositary facility by non-resident Indians, overseas corporate bodies and foreign institutional investors would be required.
Furthermore, if an investor withdraws equity shares from the ADS program and its direct or indirect holding in a private Indian bank is equal to or exceeds 25.0% of its total equity, or when such holding is or exceeds 25.0% of the total equity and thereafter such investor acquires additional 5.0% equity within any financial year, such investor may be required to make a public offer for acquiring shares of the remaining shareholders under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations 2011, as amended from time to time. For more details on the Reserve Bank of India guidelines relating to acquisition by purchase or otherwise of shares of a private bank, see “Supervision and Regulation—Ownership Restrictions”.
Depository Receipts Scheme, 2014
An eligible person may now, issue or transfer eligible securities to a foreign depository for the purpose of issuance of depository receipts in terms of Depository Receipts Scheme, 2014, as amended from time to time. However, depository receipts issued under the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 shall be deemed to have been issued under the corresponding provisions of the Depository Receipts Scheme, 2014.
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Under Indian law, a company pays dividends upon a recommendation by its Board of Directors and approval by a majority of the shareholders at the annual general meeting of shareholders held within six months from the end of each fiscal year. The shareholders have the right to decrease but not increase the dividend amount recommended by the Board of Directors. Dividends may be paid out of the company’s profits for the fiscal year for which the dividend is declared or out of undistributed profits of prior fiscal years, after excluding amount representing unrealized gains, notional gains or revaluation of assets and any change in carrying amount of an asset or of a liability on measurement of the asset or the liability at fair value. Dividends can also be paid by a company in the interim period, termed “interim dividend” which does not require the approval of the shareholders unless it is combined with the final dividend being recommended by the Board of Directors. The Reserve Bank of India has stipulated that banks may declare and pay dividend out of the profits from the relevant accounting period, without prior approval of the Reserve Bank of India if they satisfy the minimum prudential requirements and subject to the prudential cap on dividend payout ratio prescribed in the guidelines issued in this regard by the Reserve Bank of India. See also “Supervision and Regulation—Restrictions on Payment of Dividends”. Equity shares issued by us are pari passu in all respects including dividend entitlement.
We have paid dividends consistently every year from fiscal 1996, the second year of our operations, other than for fiscal 2020, as the Board of Directors did not recommend any dividend in view of the Reserve Bank of India circular ‘Declaration of dividends by banks (Revised)’ dated April 17, 2020, directing banks not to make any dividend payouts from the profits pertaining to fiscal 2020, with the intent that banks conserve capital to retain their capacity to support the economy and absorb losses in an environment of heightened uncertainty caused by Covid-19.
The following table sets forth, for the periods indicated, the dividend per equity share and the total amount of dividends paid out on the equity shares during the fiscal year by ICICI Bank, each exclusive of dividend tax. This may be different from the dividend declared for the year.
| Dividend per equity share | Total amount of dividends paid | |||||||
| (in Rs.) | (Rs. in billion) | |||||||
| Dividend paid during the fiscal year | ||||||||
| 2018 | 2.50 | 14.6 | ||||||
| 2019 | 1.50 | 9.7 | ||||||
| 2020 | 1.00 | 6.4 | ||||||
| 2021 | Nil | Nil | ||||||
| 2022 | 2.00 | 13.9 | ||||||
From fiscal 2021, dividend income is taxable in the hands of shareholders and the Companies are not liable to pay dividend distribution tax on distributed profits.
For fiscal 2022, the Board of Directors has proposed a dividend, excluding dividend tax, of Rs. 5.00 per equity share, which will be paid after approval by the shareholders in the forthcoming annual general meeting.
Future dividends will depend upon our revenues, cash flow, financial
condition, the regulations of the Reserve Bank of India and other factors. Owners of ADSs will be entitled to receive dividends payable
in respect of the equity shares represented by such ADSs. The equity shares represented by ADSs rank pari passu with existing equity shares.
At present, we have equity shares issued in India and equity shares represented by ADSs.
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Indian Tax
The following discussion of material Indian tax consequences to investors in ADSs and equity shares who are not resident in India, regardless of whether such investors are of Indian origin or not (each, a “non-resident investor”), is based on the provisions of the Indian Income-tax Act, 1961 (the Income Tax Act), including the special tax regime for ADSs contained in section 115AC of the Income Tax Act, which has been extended to cover additional ADSs that an investor may acquire in a merger or restructuring of the company, and certain regulations implementing the section 115AC regime. The Income-tax Act is amended every year by the Finance Act of the relevant year. Some or all of the tax consequences described herein may be amended or modified by future amendments to the Income-tax Act. This summary is not intended to constitute a complete analysis of the tax consequences under Indian law of the acquisition, ownership and sale of ADSs and equity shares by non-resident investors. Holders should, therefore, consult their own tax advisers regarding the tax consequences of such acquisition, ownership and sale, including the tax consequences under Indian law, the law of the jurisdiction of their residence, any tax treaty between India and their country of residence, and in particular the application of the regulations implementing the section 115AC regime.
Residence
For the purposes of the Income-tax Act, an individual is a resident of India during any fiscal year if such individual:
(a) is in India in that year for 182 days or more or
(b) is in India for a period or periods aggregating 365 days or more during the four years preceding that fiscal year and periods aggregating 60 days or more in that fiscal year.
The period of 60 days is replaced with 182 days (where an individual is having income in India other than foreign source less than Rs. 1.5 million)/ replaced with 120 days (where an individual is having income in India other than foreign source more than Rs. 1.5 million) in the case of:
| · | an Indian citizen or person of Indian origin who, being resident outside India, comes on a visit to India during the fiscal year, or |
| · | an Indian citizen who leaves India for purposes of employment or |
| · | as a member of the crew of an Indian ship during the fiscal year. |
A company is resident in India in any fiscal year if it is an Indian company or its place of effective management in that year is in India. A firm or other association of persons is resident in India except where the control and the management of its affairs are situated wholly outside India.
Taxation of Distributions
As per Finance Act, 2020, Dividend Distribution Tax is being abolished and dividends paid are subject to tax in India in the hands of recipient. Hence, as per provision of the income tax laws, dividend received in respect of ADS will be taxable at the rate of 10% and payer of the dividend would be required to deduct tax at the rate of 10%.
Taxation on Exchange of ADSs
The receipt of equity shares upon the surrender of ADSs by a non-resident investor would not give rise to a taxable event for Indian tax purposes.
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Taxation on Sale of ADSs or Equity Shares
Any transfer of ADSs outside India by a non-resident investor to another non-resident investor will not give rise to Indian capital gains tax in the hands of the transferor. Gains on the transfer of ADSs by Foreign Institutional Investors to an Indian resident will be subject to capital gains tax.
Subject to any relief under any relevant double taxation treaty, gain arising from the sale of an equity share will generally give rise to liability for Indian income tax in the hands of the transferor and tax will be required to be withheld at source. Gains will either be taxable as capital gains or as business income, depending upon the nature of holding. Where the equity share has been held for more than 12 months (measured from the date on which the request for redemption of the ADS was made), the resulting long-term capital gains will be taxable as per the provision of the Income Tax Act, at the rate of 10% (plus the applicable surcharge and education cess) under the provision of the Income Tax Act, if the total long-term capital gain exceeds Rs. 0.1 million and the shares are traded on a recognized stock exchange and the securities transaction tax, described below, is paid on such sale and purchase. For computing capital gains relating to the acquisition made before February 1, 2018, the cost of acquisition shall be higher of actual cost of acquisition or lower of price of equity shares quoted on stock exchange on January 31, 2018 (if no trading then immediately preceding day) or sale price. Further, an additional requirement for payment of securities transaction tax on conversion of ADSs to equity shares has been relaxed subject to certain conditions. If the equity share has been held for 12 months or less, the resulting short-term capital gains will be taxable at a tax rate of 15% (plus the applicable surcharge and education cess). This rate of tax is applicable provided the gains are treated as capital gains and provided the shares are sold on recognized Indian stock exchanges and are subject to securities transaction tax. In other cases, the rate of tax applicable under the provisions of the Income-tax Act varies, subject to a maximum rate of 40% (plus the applicable surcharge and education cess). The actual rate depends on a number of factors, including without limitation the nature of the non-resident investor.
The above rate may be reduced under the provisions of the double taxation treaty entered into by the Government of India with the country of residence of the non-resident investors. The double taxation treaty between the United States and India (the “Treaty”) does not provide U.S. residents with any relief from Indian tax on capital gains i.e. it will be taxable as per the local laws of India.
Tax on long-term and short-term capital gains, if payable, as discussed above, upon a sale of equity shares,
| (a) | To be deducted at source by the person responsible for paying the non-resident, in accordance with the relevant provisions of the Income Tax Act. As per the provisions of the Income Tax Act, any income by way of capital gains payable to non-residents may be subject to withholding of tax at the rate under the Income Tax Act or the double taxation treaty, whichever is more beneficial to the assessee, unless a lower withholding tax certificate is obtained from the tax authorities. |
| (b) | To get the benefit of the applicable double taxation treaty, the non-resident investor must furnish a certificate of his or her residence in a country outside India and such other documents as may be prescribed under the Act such as valid Permanent Account Number issued by the Indian Income Tax authorities or tax identification number issued by the Income Tax authorities country of tax residence along with certain other details such as name, e-mail ID, contact number, address etc. |
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Where Permanent Account Number is submitted, it should be linked to Aadhaar (applicable in case of individuals) and investor should have filed his income tax returns in India in past one year, otherwise tax will be deducted at the higher rate which may go upto 20% or more.
| (c) | The non-resident will be entitled to a certificate evidencing such tax deduction in accordance with the provisions of the Income Tax Act |
| (d) | However, as per of the Income Tax Act, no deduction of tax shall be made from capital gain arising from transfer of securities, payable to a Foreign Institutional Investor. |
For purposes of determining the amount of capital gains arising on a sale of an equity share for Indian tax purposes, the cost of acquisition of an equity share received upon the surrender of an ADS will be the price of the share prevailing on the BSE Limited or the National Stock Exchange of India Limited on the date a request for such redemption was made. The holding period of an equity share received upon the surrender of an ADS will commence on the date on which request for such redemption of the ADS was made.
A sale/purchase of equity shares entered into on a recognized stock exchange in India, whether settled by actual delivery or transfer, will be subject to the securities transaction tax in the hands of purchaser and seller at the rate of 0.1% on the value of the transaction at the time of sale. However, when settlement is done other than by actual delivery or transfer, it will be subject to the securities transaction tax in the hands of seller at the rate of 0.025% on the value of the transaction at the time of sale.
Rights
Distributions to non-resident investors of additional ADSs or equity shares or rights to subscribe for equity shares made with respect to ADSs or equity shares are not subject to Indian income tax in the hands of the non-resident investor.
In case of capital gains derived from the sale of rights outside India by a non-resident investor that is not entitled to exemption under a tax treaty, to another non-resident investor, the sale may be deemed by the Indian tax authorities to be situated within India (as our situs is in India), in which case, any gains realized on the sale of the rights will be subject to Indian capital gains taxation, in the manner discussed above under “—Taxation on Sale of ADSs or Equity Shares”.
Bonus
The holding period in case of bonus shares will commence from the date of allotment of such bonus shares. The cost of acquisition of bonus shares acquired before January 31, 2018 will be the fair market value of the bonus shares as on January 31, 2018 but shall not exceed the sales price.
General Anti Avoidance Rule
The provisions for General Anti Avoidance of Tax are effective from April 1, 2017. The powers to invoke provisions under General Anti Avoidance of Tax are bestowed upon the Indian Income Tax Authorities if they allege that the primary motive of a particular transaction or arrangement is to obtain a tax advantage. If provisions under General Anti Avoidance of Tax are invoked by tax authorities, then a tax benefit or benefit under the tax treaty may be denied.
Stamp Duty
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Pursuant to an amendment to the Indian Stamp Act, 1899 effective July 1, 2020, stamp duty is payable on any issue/ transfer of equity shares in non-physical form. Our equity shares are compulsorily delivered in non-physical form.
Upon the issuance of the equity shares underlying ADSs, we, are required to pay a stamp duty of 0.005% of the total market value of the equity shares issued. A transfer of ADSs is not subject to stamp duty under Indian law. However, transfer of equity shares (on delivery basis) by a non-resident investor is subject to stamp duty at the rate of 0.015% of the market value of the equity shares on the trade date. Such stamp duty is payable, (i) by the buyer in case the transfer of equity shares is through a stock exchange and (ii) by the seller in case the transfer of equity shares is other than through a stock exchange or is through a depository or is other than through a depository.
Other Taxes
At present, there are no taxes on wealth, gifts or inheritance which apply to the ADSs or underlying equity shares.
Goods and Services Tax
Goods and Services Tax is a single comprehensive tax levied on the manufacture, sale and consumption of goods and services at a national level. It is applicable from July 1, 2017 on all transactions of goods and services on which various indirect taxes levied by the Centre and States is submersed except goods and services outside the purview of Goods and Services Tax and transactions below the threshold limit. Brokerage fees paid to stockbrokers in connection with the sale or purchase of shares which are listed on any recognized stock exchange in India are subject to Goods and Services Tax at a rate of 18%. The stockbroker is responsible for collecting the Goods and Services Tax and paying it to the relevant authority. Sale of the securities including ADS and equity shares is outside the purview of Goods and Services Tax.
United States Federal Income Tax
The following is a description of material U.S. federal income tax consequences to the U.S. Holders described below of owning and disposing of ADSs or equity shares, but it does not purport to be a comprehensive description of all tax considerations that may be relevant to your decision to own ADSs or equity shares. This discussion applies to you only if you are a U.S. Holder that owns ADSs or equity shares as capital assets for U.S. federal income tax purposes.
This discussion does not discuss all of the tax consequences that may be relevant to you in light of your particular circumstances, including alternative minimum tax consequences, tax consequences of the “Medicare contribution tax” on “net investment income” and tax consequences that may be applicable to you if you are a person subject to special rules, such as:
| · | an insurance company; |
| · | a tax-exempt entity; |
| · | a dealer or trader in securities who uses a mark-to-market method of tax accounting; |
| · | one of certain financial institutions; |
| · | a person who owns ADSs or equity shares as part of an integrated investment (including a straddle or conversion transaction); |
| · | a person whose functional currency is not the U.S. dollar; |
| · | a person who acquired or received ADSs or equity shares pursuant to the exercise of any employee stock option or otherwise as compensation; |
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| · | a person holding ADSs or equity shares in connection with a trade or business conducted outside of the United States; |
| · | a person who owns, directly, indirectly or constructively, 10.0% or more of our stock, by vote or value; or |
| · | a partnership or other entity classified as a partnership for U.S. federal income tax purposes. |
If an entity that is classified as a partnership for U.S. federal income tax purposes owns ADSs or equity shares, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships owning ADSs or equity shares and partners in such partnerships should consult their tax advisers as to the particular U.S. federal income tax consequences of owning and disposing of ADSs or equity shares.
This discussion is based on the tax laws of the United States including the Internal Revenue Code of 1986, as amended, (the “Code”), proposed and final Treasury regulations, revenue rulings, judicial decisions and the income tax treaty between the United States and India, or the “Treaty”, all as of the date hereof, which may change, possibly with retroactive effect.
You are a “U.S. Holder” if, for U.S. federal income tax purposes, you are a beneficial owner of ADSs or equity shares and:
| · | a citizen or individual resident of the United States; |
| · | a corporation, or other entity taxable as a corporation, created or organized under the laws of the United States, any state therein or the District of Columbia; or |
| · | an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source. |
Treasury regulations that apply to taxable years beginning on or after December 28, 2021, or the “Foreign Tax Credit Regulations” may in some circumstances prohibit a U.S. person from claiming a foreign tax credit with respect to certain non-U.S. taxes that are not creditable under applicable income tax treaties. Accordingly, U.S. investors that are not eligible for Treaty benefits should consult their tax advisers regarding the creditability or deductibility of any Indian taxes imposed on them. The discussions below regarding the creditability or deductibility of Indian taxes do not apply to investors in this situation.
In general, if you own ADSs you will be treated as the owner of the underlying equity shares represented by those ADSs for U.S. federal income tax purposes. Accordingly, you will not recognize gain or loss upon an exchange of ADSs for the underlying equity shares represented by those ADSs.
Please consult your tax adviser with regard to the application of U.S. federal income tax laws to ADSs or equity shares in your particular circumstances, including the passive foreign investment company (“PFIC”) rules described below, as well as any tax consequences arising under the laws of any state, local or other taxing jurisdiction.
Taxation of Dividends
Distributions you receive on ADSs or equity shares, other than certain pro rata distributions of equity shares or rights to acquire equity shares to all holders of equity shares (including holders of ADSs), will generally constitute foreign-source dividend income for U.S. federal income tax purposes. Subject to the PFIC rules described below, the amount of the dividend you will be required to include in income will be based on the U.S. dollar value of the rupees received, calculated by reference to the exchange rate in effect on the date the payment is received by the depositary (in the case of ADSs) or by you (in the case of equity shares) regardless of whether the payment is converted into U.S. dollars on the date of receipt. If the dividend is converted into U.S. dollars on the date of receipt, you should not be required to recognize
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foreign currency gain or loss in respect of the dividend income. You may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt. If you realize gain or loss on a sale or other disposition of rupees, it will constitute U.S. source ordinary income or loss. The amount of the dividend will not be eligible for the dividends-received deduction generally available to U.S. corporations under the Code. Subject to applicable limitations and the PFIC discussion below, if you are a non-corporate U.S. Holder, dividends paid to you may be taxable at the favorable rates applicable to long-term capital gains. If you are a non-corporate U.S. Holder, you should consult your tax adviser to determine whether you are subject to any special rules that limit your ability to be taxed at these favorable rates.
Indian income taxes withheld from cash dividends on the Company shares or ADSs generally will be creditable against a U.S. Holder’s U.S. federal income tax liability, subject to applicable limitations that vary depending upon your circumstances. The rules governing foreign tax credits are complex, and you should consult your own tax adviser regarding the availability of foreign tax credits in your particular circumstances. Instead of claiming a credit, you may, at your election, deduct such Indian taxes in computing your income, subject to generally applicable limitations under U.S. federal income tax law.
Taxation of Capital Gains
You will recognize gain or loss for U.S. federal income tax purposes on the sale or exchange of ADSs or equity shares. The gain or loss will generally be U.S. source capital gain or loss, and subject to the PFIC rules discussed below will be long-term capital gain or loss if you have owned such ADSs or equity shares for more than one year. You should consult your tax adviser about the treatment of capital gains, which may be taxed at lower rates than ordinary income for non-corporate taxpayers, and capital losses, the deductibility of which may be limited. The amount of the gain or loss will equal the difference between your tax basis in the ADSs or equity shares disposed of and the amount realized on the disposition, in each case as determined in U.S. dollars.
Under certain circumstances as described under “—Indian Tax—Taxation on sale of ADSs or Equity Shares,” you may be subject to Indian tax upon the disposition of equity shares. Under the Code, any gain or loss on the sale or exchange of ADSs or equity shares will generally be U.S. source. However, although the application of the Treaty in this respect is subject to uncertainty, it is possible that under the Treaty your gains from dispositions of equity shares may be treated as foreign source. In that case, you may be able to claim foreign tax credit in respect of any Indian income tax on this gain. Even if Indian income taxes on disposition gains are creditable under the Treaty, the Foreign Tax Credit Regulations generally preclude you from claiming a foreign tax credit with respect to these taxes if you do not elect to apply the benefits of the Treaty. However, in that case it is possible that any Indian taxes on disposition gains may either be deductible or reduce the amount realized on the disposition. The rules governing foreign tax credits and deductibility of foreign taxes are complex. You should consult your tax adviser with respect to your ability to credit any Indian income taxes on dispositions against your U.S. federal income tax liability, including the uncertainty as to whether Indian taxes on dispositions are generally creditable under the Treaty, the requirement to report Treaty-based return positions and the creditability or deductibility of the Indian tax on disposition gains in your particular circumstances (including any applicable limitations).
Passive Foreign Investment Company Rules
In general, a foreign corporation is a PFIC for any taxable year in which (i) 75.0% or more of its gross income consists of passive income (such as dividends, interest, rents, royalties and investment gains) or (ii) 50.0% or more of the average value of its assets (generally determined on a quarterly basis) consists of assets that produce, or are held for the production of, passive income. There are certain exceptions for active business income, including exceptions for certain income earned by foreign active
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banks and insurance companies. Based upon certain proposed Treasury regulations (the “Active Banks Proposed Regulations”), which were proposed to be effective for taxable years beginning after December 31, 1994, and under current guidance can be relied upon, we do not believe we were a PFIC for our taxable year that ended March 31, 2021. Because there can be no assurance that the Active Banks Proposed Regulations will be finalized in their current form (and the manner of their application is not entirely clear), because the rules applicable to active insurance companies are subject to change (including under certain proposed Treasury regulations), and because the composition of our income and assets will vary over time and our PFIC status for any taxable year will depend, in large part, on the extent to which our income and assets will be considered active under the exceptions for active banks or insurance companies, there can be no assurance that we will not be a PFIC for any taxable year.
If we were a PFIC for any taxable year during which you owned ADSs or equity shares, you may be subject to adverse tax consequences. Generally, gain recognized upon a disposition (including, under certain circumstances, a pledge) of ADSs or equity shares by you would be allocated ratably over your holding period for such ADSs or equity shares. The amounts allocated to the taxable year of disposition and to years before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for that taxable year for individuals or corporations, as appropriate, and an interest charge would be imposed on the tax attributable to the allocated amounts. Further, to the extent that distributions received by you on your ADSs or equity shares during a taxable year exceed 125% of the average of the annual distributions on such ADSs or equity shares received during the preceding three taxable years or your holding period, whichever is shorter, the excess distributions would be subject to taxation in the same manner as gain, as described above in this paragraph.
If we were a PFIC for any year during which you owned ADSs or equity shares, we generally would continue to be treated as a PFIC with respect to such ADSs or equity shares for all succeeding years during which you owned the ADSs or equity shares, even if we ceased to meet the threshold requirements for PFIC status.
Alternatively, if we were a PFIC and if ADSs or equity shares were “regularly traded” on a “qualified exchange,” you could make a mark-to-market election that would result in tax treatment different from the general tax treatment for PFICs described above. ADSs or equity shares would be treated as “regularly traded” in any calendar year in which more than a de minimis quantity of ADSs or equity shares, as the case may be, were traded on a qualified exchange on at least 15 days during each calendar quarter. The New York Stock Exchange, on which our ADSs are listed, is a qualified exchange for this purpose. A foreign exchange is a “qualified exchange” if it is regulated by a governmental authority in the jurisdiction in which the exchange is located and with respect to which certain other requirements are met.
If you make the mark-to-market election (assuming the election is available), you generally will recognize as ordinary income any excess of the fair market value of ADSs or equity shares at the end of each taxable year over their adjusted tax basis, and will recognize an ordinary loss in respect of any excess of the adjusted tax basis of ADSs or equity shares over their fair market value at the end of the taxable year (but only to the extent of the net amount of income previously included as a result of the mark-to-market election). If you make the election, your tax basis in ADSs or equity shares will be adjusted to reflect these income or loss amounts. Any gain recognized on the sale or other disposition of ADSs or equity shares in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as ordinary loss (but only to the extent of the net amount of income previously included as a result of the mark-to-market election) and any excess loss will be a capital loss.
In addition, if we were a PFIC or, with respect to you, were treated as a PFIC for the taxable year in which we paid a dividend or for the prior taxable year, the favorable tax rates with respect to dividends paid to certain non-corporate U.S. Holders, described above under “—United States Federal Income Tax—Taxation of Dividends”, would not apply.
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If we are a PFIC for any taxable year during which you owned our ADSs or equity shares, you will generally be required to file IRS Form 8621 with your annual U.S. federal income tax returns, subject to certain exceptions.
You should consult your tax adviser regarding whether we are or were a PFIC and the potential application of the PFIC rules.
Information Reporting and Backup Withholding
Payments of dividends and sales proceeds that are made within the United
States or through certain U.S.-related financial intermediaries generally are subject to information reporting and to backup withholding,
unless (i) you are an exempt recipient or (ii) in the case of backup withholding, you provide a correct taxpayer identification number
and certify that no loss of exemption from backup withholding has occurred. The amount of any backup withholding from a payment to you
will be allowed as a credit against your U.S. federal income tax liability and may entitle you to a refund, provided that the required
information is timely furnished to the Internal Revenue Service.
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Presentation of Financial Information
Pursuant to the issuance and listing of our securities in the United States under registration statements filed with the United States Securities Exchange Commission, we file annual reports on Form 20-F, which must include financial statements prepared under generally accepted accounting principles in the United States (U.S. GAAP) or financial statements prepared according to a comprehensive body of accounting principles with a reconciliation of net income and stockholders’ equity to U.S. GAAP. When we first listed our securities in the United States, Indian GAAP was not considered a comprehensive body of accounting principles under the United States securities laws and regulations. However, pursuant to a significant expansion of Indian accounting standards, Indian GAAP constitutes a comprehensive body of accounting principles and since fiscal 2006, we have included in the annual report consolidated financial statements prepared according to Indian GAAP, which varies in certain respects from U.S. GAAP. For a reconciliation of net income and stockholders’ equity to U.S. GAAP, a description of significant differences between Indian GAAP and U.S. GAAP and certain additional information required under U.S. GAAP, see notes 21 and 22 to our consolidated financial statements herein.
The data for fiscal 2020 through fiscal 2022 have been derived from our consolidated financial statements. The accounting and reporting policies used in the preparation of our financial statements reflect general industry practices and conform with Indian GAAP including the Accounting Standards (AS) issued by Institute of Chartered Accountants of India, guidelines issued by the Reserve Bank of India, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority and the National Housing Bank as applicable to relevant companies. In the case of foreign subsidiaries, Generally Accepted Accounting Principles as applicable to the respective subsidiaries are followed.
Certain subsidiaries of the Bank, namely ICICI Securities Limited, ICICI Securities Primary Dealership Limited, ICICI Prudential Asset Management Company Limited and ICICI Home Finance Limited have adopted Ind AS, revised set of accounting standards issued by The Institute of Chartered Accountants of India (which largely converges the Indian accounting standards with International Financial Reporting Standards). However, for preparation of consolidated financial statements of the Bank, financial statements continued to be as per current Indian GAAP of these entities have been considered. All the numbers reported/considered in this document for these subsidiaries are based on current Indian GAAP.
The consolidated financial statements for fiscal 2020 and fiscal 2021 was audited by Walker Chandiok & Co LLP, Chartered Accountants and for fiscal 2022 by joint auditors MSKA & Associates, Chartered Accountants and KKC & Associates LLP (formerly known as Khimji Kunverji & Co LLP), Chartered Accountants under auditing standards issued by the Institute of Chartered Accountants of India. The consolidated financial statements for fiscal 2020 through fiscal 2022 have also been audited by KPMG Assurance and Consulting Services LLP (formerly known as KPMG), an independent registered public accounting firm in India, in accordance with the auditing standards of the United States Public Company Accounting Oversight Board. Our published Indian GAAP consolidated financial statements and disclosures relating to U.S. GAAP net income reconciliation and stockholders’ equity reconciliation as required by U.S. Securities and Exchange Commission and applicable GAAP, audited by KPMG Assurance and Consulting Services LLP (formerly known as KPMG), are set forth at the end of this annual report.
Under U.S. GAAP, the consolidation of ICICI’s majority ownership interest in ICICI Prudential Life Insurance Company Limited, had been accounted for by the equity method, because of substantive participative rights retained by the minority shareholders. Under Indian GAAP, ICICI Prudential Life Insurance Company Limited is consolidated on line-by-line basis.
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In accordance with the scheme of arrangement between ICICI Lombard General Insurance Company Limited and Bharti AXA General Insurance Company Limited (Bharti AXA), as approved by Insurance Regulatory and Development Authority of India with effect from September 8, 2021, assets and liabilities of Bharti AXA's general insurance business vested with ICICI Lombard General Insurance Company Limited on September 8, 2021 with effect from the Appointed Date of April 1, 2020. ICICI Lombard General Insurance Company Limited issued two fully paid up equity shares to the shareholders of Bharti AXA for every 115 fully paid up equity shares. Subsequent to issuance of equity shares to Bharti AXA shareholders, the Bank’s shareholding in ICICI Lombard General Insurance Company Limited reduced to below 50.0%. Accordingly, the Bank has accounted its investment in ICICI Lombard General Insurance Company Limited as an equity affiliate under Accounting Standard – 23 – “Accounting for Investments in Associates” in consolidated financial statements with effect from April 1, 2021 under Indian GAAP. Under U.S. GAAP, ICICI Lombard General Insurance Company Limited was consolidated on line-by-line basis until September 7, 2021, and was accounted as an affiliate with effect from September 8, 2021, the date of loss of control.
Although we have translated in this annual report certain rupee amounts into dollars for convenience, this does not mean that the rupee amounts referred to could have been, or could be, converted into dollars at any particular rate, the rates stated earlier in this annual report, or at all. Except in the section on “Market Price Information”, all translations from rupees to U.S. dollars are based on the exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board at year-end fiscal 2022. The Federal Reserve Bank of New York certifies this rate for customs purposes in a weekly version of the H.10 release. The exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board at year- end fiscal 2022 was Rs. 75.87 per US$ 1.00.
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Memorandum and Articles of Association
Objects and Purposes
Pursuant to Clause III.A.1 of ICICI Bank’s Memorandum of Association, ICICI Bank’s main objective is to, among other things, carry on the business of banking in any part of India or outside India.
Provisions Relating to Directors
Certain provisions of our Articles of Association relating to directors are set forth as follows::
| · | Article 128 of the Articles of Association provides that no director shall be required to hold any qualification shares of the Company. |
| · | Article 135 of the Articles of Association provides that no director of ICICI Bank shall, as a director, take any part in the discussion of or vote on any contract or arrangement if such director is directly or indirectly concerned or interested in such contract or arrangement. |
| · | Article 137 of the Articles of Association provides that at every Annual General Meeting of the Company, one third of such directors for the time being as are liable to retire by rotation or if their number is neither three nor a multiple of three, then the number nearest to one-third, shall retire from office. The Debenture Directors, the Government Directors and the other Non-Rotational Directors shall not be subject to retirement under the Articles of Association. |
| · | Article 138 of the Articles of Association provides that the directors to retire by rotation at every Annual General Meeting shall be those who have been longest in office since their last appointment, but as between persons who became Directors on the same day, those who are to retire shall (unless they otherwise agree among themselves) be determined by lot. There is no provision under the Articles of Association requiring the mandatory retirement of directors at a specified age. Pursuant to the Reserve Bank of India guidelines, a person is eligible for appointment as non-executive director, if he or she is between 35 and 75 years of age. After attaining the age of 75 years, no person can continue in this position. Further, pursuant to the Reserve Bank of India guidelines, no person can continue as Managing Director and Chief Executive Officer or wholetime director beyond the age of 70 years. Within the overall limit of 70 years, individual Bank's Boards are free to prescribe a lower retirement age for the wholetime directors, including the Managing Director and Chief Executive Officer. |
| · | Directors have no powers to vote in absence of a quorum. |
| · | Article 79 of the Articles of Association provides that the directors may by a resolution passed at a meeting of the Board of Directors, borrow moneys and raise and secure the payment of amounts in a manner and upon such terms and conditions in all respects as they think fit and in particular by the issue of bonds, perpetual or redeemable debentures or debenture stock, or any mortgage or charge or other security on the undertaking or the whole or any part of the property of ICICI Bank (both present and future) including our uncalled capital. |
Amendment to Rights of Holders of Equity Shares
Any change to the existing rights of the equity holders can be made only by amending the Articles of Association which would require a special resolution of the shareholders, passed by not less than three times the number of votes cast against the resolution.
General Meetings of Shareholders
We are required to convene our annual general meeting within a period of five months from the date of closing of the financial year. The Board may convene an extraordinary general meeting when necessary or at the request of a shareholder or shareholders holding at least 10% of our paid up capital carrying voting rights. A general meeting of a company may be called by giving not less than clear 21 days notice in the manner prescribed under the applicable laws/ regulations.
Change in Control Provisions
Article 56 of the Articles of Association provides that the Board of Directors may at its discretion decline to register or acknowledge any transfer of any securities in respect of securities upon which we have a lien or while any money in respect of the securities desired to be transferred on any of them remain unpaid. Moreover, the Board of Directors may refuse to register the transfer of any securities if the total nominal value of any securities intended to be transferred by any person would, together with the total nominal value of any securities held in ICICI Bank, exceed 1% of the paid-up equity share capital of ICICI Bank or if the Board of Directors is satisfied that as a result of such transfer, it would result in the change in the Board of Directors or change in the controlling interest of ICICI Bank and that such change would be prejudicial to the interests of ICICI Bank. However, under the Indian Companies Act, the enforceability of such transfer restrictions is unclear.
Recent Amendments to Memorandum and Articles of Association
In view of the changes in the regulatory provisions, including enactment of the Companies Act, 2013, the repeal of the provisions of the Companies Act, 1956, as amended, and amendments to the Banking Regulation Act, 1949 and the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended upto April 2019, the existing Articles of Association of the Bank required alterations, replacement or deletions. Hence, it was considered necessary to wholly replace
315
the existing Articles of Association with revised Articles of Association. The Board of Director at its meeting held on May 6, 2019 approved the alterations to Memorandum of Association and the proposed revised Articles of Association of the Bank, subject to the approval of the Shareholders and such regulatory approvals as may be necessary or required. The Shareholders at the annual general meeting held on August 9, 2019:
(a) approved the special resolution for alterations to Memorandum of Association of the Bank aligning it with the Companies Act, 2013 and rules made thereunder and
(b) approved the special resolution for adoption of revised Articles of Association of the Bank aligning it with the regulatory provisions including the Companies Act, 2013, amendments to the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015.
The Reserve Bank of India through its letter dated August 23, 2019 received on August 28, 2019 by the Bank duly noted the amendments to Memorandum of Association and adoption of revised Articles of Association of the Bank with due reference to the applicable provisions under the Banking Regulation Act.
For a description of our equity shares and American Depositary Shares, see Exhibit 2.6 to this annual report.
Documents on Display
The documents concerning us which are referred to herein may be inspected at the Securities and Exchange Commission (“SEC”). You may read and copy any document filed or furnished by us at the SEC’s public reference rooms in Washington D.C., New York and Chicago, Illinois or obtain them by mail upon payment of prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information. The SEC also maintains a website at www.sec.gov, which contains, in electronic form, each of the reports and other information that we have filed electronically with the SEC. Information about ICICI Bank is also available on the web at www.icicibank.com.
316
* Paper filing
317
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on our behalf.
| For ICICI BANK LIMITED | ||
| By: | /s/ Anindya Banerjee | |
| Name: Mr. Anindya Banerjee | ||
| Title: Group Chief Financial Officer | ||
Place: Mumbai
Date: July 29, 2022
318
ICICI Bank Limited and subsidiaries
Consolidated Financial Statements
For the year ended March 31, 2021
and March 31, 2022 together
with Auditors’ Report
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
ICICI Bank Limited:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of ICICI Bank Limited (the ‘Bank’) and subsidiaries (the ‘Company’) as of March 31, 2022 and 2021, the related consolidated profit and loss accounts and consolidated cash flow statements for each of the years in the three-year period ended March 31, 2022, and the related notes and financial statement schedules 1 to 18 (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended March 31, 2022, in conformity with generally accepted accounting principles in India.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (‘PCAOB’), the Company’s internal control over financial reporting as of March 31, 2022 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated July 29, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Differences from U.S. Generally Accepted Accounting Principles
Accounting principles generally accepted in India vary in certain significant respects from U.S. generally accepted accounting principles. Information relating to the nature and effect of such differences is presented in Note 21 of Schedule 18B to the consolidated financial statements.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
F-2
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Allowance for Credit Losses
As discussed in Note B(7) to the consolidated financial statements, the Company’s allowance for credit losses under generally accepted accounting principles in India (Indian GAAP) was Rs 272,025.4 million as at 31 March 2022 (the March 31, 2022 Indian GAAP ACL). As discussed in Note 21 to the consolidated financial statements, the Company’s allowance for credit losses included in the reconciliation of stockholders’ equity from Indian GAAP to U.S. GAAP as of March 31, 2022 was Rs. 23,295.9 million, which included allowance for credit losses on loans evaluated on a collective basis (the March 31, 2022 collective ACL) and allowance for credit losses on loans evaluated on an individual basis (the March 31, 2022 individual ACL). The March 31, 2022 Indian GAAP ACL, the March 31, 2022 collective ACL and the March 31, 2022 individual ACL are collectively referred to as ‘total ACL’.
The March 31, 2022 Indian GAAP ACL for impaired commercial loans (non-performing loans or NPLs) includes ACL on commercial loans identified as NPL through a review of select accounts by evaluation of additional information (other than that relating to the payment record). Measurement of the Company’s March 31, 2022 Indian GAAP ACL for non-performing commercial loans requires an estimation of the values of collateral held by the Company and the period for which the account remained NPL.
The March 31, 2022 collective ACL includes the measure of expected credit losses on a collective (pooled) basis for those loans that share similar risk characteristics. The Company estimated the March 31, 2022 collective ACL using a current expected credit losses methodology which is based on relevant information about historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the loan balances. The quantitative calculation of expected credit losses is the product of multiplying the Company’s estimates of probability of default (PD), loss given default (LGD), and individual loan level exposure at default (EAD). For the quantitative calculation, the Company uses models to develop the PD and LGD, which are derived from internal historical default and loss experience, that incorporate the relevant macro-economic scenario over reasonable and supportable forecast periods. The term structure for subsequent periods is built using single year reversion to the long run historical information. All such periods are established for each portfolio segment. The Company estimates the EAD using a model which estimates prepayments over the life of the loans. In order to capture the unique risks of the loan portfolio within the PD, LGD, and EAD models, the Company segments the portfolio into pools, incorporating certain criteria including, but not limited to customer type, risk rating and delinquency status for commercial loans and product type, delinquency status, credit scores and months on book for non-commercial loans. The Company has developed internal models to assign credit risk ratings to borrowers, which are used for the segmentation of commercial loans. The model output for the collective ACL is adjusted by increasing the probability of default estimates to take into consideration model imprecision not yet reflected in the calculation. Judgment is applied in making this adjustment, including taking into account uncertainties associated with the economic conditions, product or portfolio, as well as other relevant internal and external factors affecting the credit quality of the portfolio.
F-3
The March 31, 2022 individual ACL includes the measure of expected credit losses on an individual basis for those commercial loans that do not share similar risk characteristics with other financial assets in the pools on account of credit deterioration, based on the ability of the borrower to repay the contractual amounts due to the Company, including considerations of both quantitative and qualitative criteria such as the account conduct, future prospects, repayment history and financial performance. The Company estimated the March 31, 2022 individual ACL using either the present value of the expected future cash flows, or in the case of a collateral dependent loan, using the net realizable value of the collateral, net of cost to sell, if any, determined individually for each such loan.
We identified the assessment of total ACL as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment of total ACL due to significant measurement uncertainty. Identification of NPLs for the March 31, 2022 Indian GAAP ACL involved evaluation of additional information (other than that relating to the payment record), which required complex auditor judgment. The measurement of the March 31, 2022 Indian GAAP ACL for NPLs required an estimation of the values of collateral held by the Company. Additionally, the assessment of the March 31, 2022 collective ACL (referred to as ‘Collective ACL’) encompassed the evaluation of the Collective ACL methodology, including the methods and models used to estimate the PD, LGD, and EAD and their significant assumptions. Such significant assumptions included portfolio segmentation, the relevant macro-economic scenario, the reasonable and supportable forecast periods, the historical observation period, and credit risk ratings for commercial loans and prepayment estimates. The assessment also included the evaluation of the qualitative factors and their significant assumptions, including selection of relevant macroeconomic variables and consideration of uncertainties due to result of the COVID-19 pandemic and geopolitical uncertainties. The assessment also included an evaluation of the conceptual soundness and performance of the PD, LGD, commercial loan credit risk rating and EAD models. The March 31, 2022 individual ACL (referred to as ‘individual ACL’) required significant auditor judgment to identify the loans that do not share similar risk characteristics with other financial assets in the pools on account of credit deterioration based on the ability of the borrower to repay the contractual amounts due to the Company, including considerations of both quantitative and qualitative criteria such as the account conduct, future prospects, repayment history and financial performance, and to estimate the recovery on such loans based on either the present value of the expected future cash flows, or in the case of a collateral dependent loan, the net realizable value of the collateral, net of cost to sell, if any, determined individually for each such loan.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to Company’s measurement of the total ACL estimates, including controls over the:
| - | evaluation of additional information (other than that relating to the payment record) required for identification of NPL through a review of select commercial loan accounts |
| - | estimation of the values of collateral considered for measurement of the March 31, 2022 Indian GAAP ACL for NPLs |
| - | review of the Collective ACL methodology |
| - | review of the PD, LGD, commercial loan credit risk rating and EAD models |
| - | identification and determination of the significant assumptions used in the PD, LGD, commercial loan credit risk rating and EAD models |
| - | determination of the key assumptions and inputs used to estimate the quantitative and qualitative calculation of the Collective ACL, including selection of relevant macroeconomic variables and consideration of uncertainties due to result of the COVID-19 pandemic and geopolitical uncertainties |
| - | validation of the PD, LGD, commercial loan credit risk rating and EAD models for the Collective ACL |
| - | identification of the commercial loans that do not share similar risk characteristics with other financial assets in the pools on account of credit deterioration based on the ability of the borrower to repay the contractual amounts due to the Company, including considerations of both quantitative and qualitative criteria such as the account conduct, future prospects, repayment history and financial performance |
F-4
| - | estimation of recovery on individually assessed loans based on either the present value of expected future cash flows, or in the case of a collateral dependent loan, the net realizable value of the collateral, net of cost to sell. |
For the March 31, 2022 Indian GAAP ACL, we tested the identification of NPLs using additional information (other than that relating to the payment record) for a selection of commercial loans by evaluating financial performance of the borrower and the other applicable qualitative criteria. We tested the value of collateral considered for the measurement of the March 31, 2022 Indian GAAP ACL by comparing it to external appraisals. We evaluated the Company’s development of the Collective ACL estimates by testing certain sources of data, factors, and assumptions that the Company used and considered the relevance and reliability of such data, factors, and assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in:
| - | evaluating the Collective ACL methodology for compliance with U.S. generally accepted accounting principles |
| - | evaluating judgments made by the Company relative to the development and performance monitoring testing of the PD, LGD, and EAD models by comparing them to relevant Company |
| - | specific metrics and trends and the applicable industry and regulatory practices |
| - | assessing the conceptual soundness and performance testing of the PD, LGD, commercial loan credit risk rating and EAD models by inspecting the model documentation to determine whether the models are suitable for their intended use |
| - | evaluating the methodology used to develop and incorporate the relevant macro-economic scenario over the reasonable and supportable forecast periods and underlying assumptions by comparing it to the Company’s business environment and relevant industry practices |
| - | assessing the macro-economic variables through benchmarking to publicly available forecasts, where available |
| - | evaluating the length of the historical observation period and reasonable and supportable forecast periods to evaluate the length of each period by comparing them to specific portfolio risk characteristics and trends |
| - | determining whether the loan portfolio is segmented by similar risk characteristics by comparing to the Company’s business environment and relevant industry practices |
| - | testing the methodology used for estimation of individual credit risk ratings for commercial loans by performing quantitative validation of credit rating models used to assign the credit risk ratings |
| - | evaluating the methodology used for estimating the prepayments within the EAD models over the life of the loans |
| - | evaluating the methodology used to develop the qualitative factors, including consideration of uncertainties due to result of the COVID-19 pandemic and geopolitical uncertainties and the effect of those factors on the Collective ACL compared with relevant credit risk factors and consistency with credit trends and identified limitations of the underlying quantitative calculations. |
We performed credit reviews for a selection of commercial loans to test the identification of the loans that do not share similar risk characteristics on account of credit deterioration, based on the ability of the borrower to repay the contractual amounts due to the Company, including considerations of both quantitative and qualitative criteria such as the account conduct, future prospects, repayment history and financial performance. For a selection of individually assessed commercial loans, we tested the measurement of the March 31, 2022 individual ACL by comparing the value of collateral to external appraisals or tested the projections of future cash flows by comparing them to historic performance and assessing them against current economic conditions.
Liabilities in respect to life insurance policies and amortization of deferred acquisition cost
F-5
As given in the consolidated financial statements, liabilities for life insurance policies in force is included in the total liabilities for policies in force of Rs. 2,288,272.0 million. As discussed in Note 22(h)(i) to the consolidated financial statements, the significant difference between Indian GAAP and US GAAP in case of the life insurance affiliate includes the net income reconciling item on account of difference in policyholders’ liabilities and unallocated policyholders’ surplus, net of amortization of deferred acquisition cost Rs. 1,479.4 million.
The liabilities in respect of life insurance policies in force under Indian GAAP are estimated in accordance with accepted actuarial practice, requirements of Insurance Act, 1938, as amended from time to time, regulations notified by the Insurance Regulatory and Development Authority of India (IRDAI) and relevant Guidance Notes / Actuarial Practice Standards of the Institute of Actuaries of India. The actuarial liability for non-linked policies, both participating and non-participating, is calculated by the Company using the gross premium method, that involves assumptions for interest, mortality, morbidity, expenses and inflation, and in the case of participating policies, future bonuses together with allowance for taxation and allocation of future profits to shareholders. These assumptions are determined as prudent estimates updated at the date of valuation, including allowances for possible adverse deviations.
Policyholders’ liabilities for non-linked policies under U.S. GAAP are valued using the Net Premium Method as prescribed under U.S. GAAP. These liabilities consist of two parts, namely, policy reserves (comprising benefit reserve and maintenance expense reserve) and deferred profit liability. These liabilities are established based on actuarial assumptions at the time the policies are issued, which are intended to estimate the experience for the period the policy benefits are payable. Significant adverse changes in experience on such contracts may require the establishment of premium deficiency reserves, which are based on current assumptions. In addition, acquisition costs for non-linked policies under U.S. GAAP which are deferred, are amortized in proportion to premium revenue recognition. The determination of the reserves and the amortization of the deferred acquisition costs considers assumptions that include discount rate, mortality, morbidity, policy lapse and investment returns and these are on a locked in basis. Further, the discount rates used for non-linked products represent best estimates with a provision for adverse deviation. The assumptions change at every financial year end only for the new business sold during the year. The Company applies considerable judgment in evaluating actual experience to determine whether a change in assumptions for new policies is warranted under US GAAP.
Policyholders’ liabilities for linked policies under U.S. GAAP consist of two parts, namely, benefit reserves and unearned revenue reserve. In addition, acquisition costs for linked policies under U.S. GAAP which are deferred, are amortized in proportion to estimated gross profits (EGPs). The EGPs consist of margins available from mortality and contract administration, investment earnings spreads, surrender charges and other expected assessments and credits. The Company applies considerable judgment in evaluating emerging actual experience for assumptions used in the determination of reserves and the amortization of deferred acquisition costs, that include discount rate, mortality, morbidity, policy lapse, expenses and investment returns. These assumptions represent best estimates and may change at every financial year end.
We identified the assessment of liabilities for life insurance policies in force under Indian GAAP and determination of policyholders’ liabilities and amortization of deferred acquisition cost under US GAAP to be a critical audit matter since it involves a high degree of audit effort, including subjective and complex auditor judgment in evaluating management’s estimate, and use of actuarial professionals with specialized skill and knowledge to assist in performing procedures and evaluating the estimate of such liabilities. Specifically, there is significant judgement in determination of assumptions for all policies in force under Indian GAAP. In case of non-linked policies under US GAAP, there is significant judgement in evaluating the assumptions used for determination of the reserves and the amortization of the deferred acquisition cost for new business sold during the year and whether a change in assumptions is warranted. In case of linked policies under US GAAP, there is significant judgement in evaluating the assumptions used for determination of the reserves and the amortization of the deferred acquisition cost for all policies in force.
F-6
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to Company’s measurement of liabilities for life insurance policies in force under Indian GAAP and policyholders’ liabilities and amortization of deferred acquisition cost under US GAAP, including controls over the valuation process and underlying data which included assessment and approval of the methods and assumptions adopted over such measurements as well as appropriate access and change management controls over the actuarial models. We involved actuarial professionals with specialized skills and knowledge who assisted in:
| - | assessing the methodology for selecting assumptions by comparing the methodology used against industry standard actuarial practice |
| - | assessing the methodology for calculating the liabilities and amortization of deferred acquisition cost by reference to the requirements of the industry standard actuarial practice and assessing the impact of current year changes in methodology on the calculation of policyholder liabilities and amortization of deferred acquisition cost. |
| - | evaluating the analysis of the movements in liabilities and deferred acquisition cost during the year, including consideration of whether the movements were in line with the methodology and assumptions adopted |
| - | evaluating judgments applied by management in setting assumptions, including evaluating the results of experience studies used as the basis for setting those assumptions |
| - | independently re-calculating the liabilities and deferred acquisition cost for a selection of individual policies for select products to assess whether the selected model calibration had been appropriately implemented |
| - | evaluating the appropriateness of the methodology and assumptions used in the Company’s annual premium deficiency tests and assessed the reasonableness of results. |
We have served as the Company’s auditor since 1999.
/s/ KPMG Assurance and Consulting Services LLP
Mumbai, Maharashtra, India
July 29, 2022
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Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
ICICI Bank Limited:
Opinion on Internal Control Over Financial Reporting
We have audited ICICI Bank Limited and subsidiaries’ (the ‘Company’) internal control over financial reporting as of March 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (the ‘PCAOB’), the consolidated balance sheets of the Company as of March 31, 2022 and 2021, the related consolidated profit and loss accounts and cash flows for each of the years in the three-year period ended March 31, 2022, and the related notes and financial statement schedules 1 to 18B (collectively, the ‘consolidated financial statements’), and our report dated July 29, 2022 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Mangement’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the
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risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG Assurance and Consulting Services LLP
Mumbai, Maharashtra, India
July 29, 2022
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ICICI Bank Limited and subsidiaries
(Rs. in thousands)
| At | ||||||
Schedule |
March 31, 2022 |
March 31, 2021 | ||||
| CAPITAL AND LIABILITIES | ||||||
| Capital | 1 | 13,899,662 | 13,834,104 | |||
| Employees stock options outstanding | 2,664,141 | 31,010 | ||||
| Reserves and surplus | 2 | 1,803,961,070 | 1,562,009,891 | |||
| Minority interest | 2A | 59,808,935 | 95,883,393 | |||
| Deposits | 3 | 10,913,657,932 | 9,599,400,180 | |||
| Borrowings | 4 | 1,616,026,828 | 1,438,999,393 | |||
| Liabilities on policies in force | 2,288,271,963 | 2,031,800,413 | ||||
| Other liabilities and provisions | 5 | 828,083,306 | 996,164,062 | |||
| TOTAL CAPITAL AND LIABILITIES | 17,526,373,837 | 15,738,122,446 | ||||
| ASSETS | ||||||
| Cash and balances with Reserve Bank of India | 6 | 602,287,069 | 463,022,049 | |||
| Balances with banks and money at call and short notice | 7 | 1,228,972,763 | 1,012,683,253 | |||
| Investments | 8 | 5,670,977,180 | 5,365,786,165 | |||
| Advances | 9 | 9,203,081,390 | 7,918,013,918 | |||
| Fixed assets | 10 | 106,054,107 | 108,092,581 | |||
| Other assets | 11 | 713,988,010 | 869,447,777 | |||
| Goodwill on consolidation | 1,013,318 | 1,076,703 | ||||
| TOTAL ASSETS | 17,526,373,837 | 15,738,122,446 | ||||
| Contingent liabilities | 12 | 45,523,411,167 | 30,213,442,288 | |||
| Bills for collection | 752,325,958 | 548,463,817 | ||||
| Significant accounting policies and notes to accounts | 17 & 18 | |||||
The Schedules referred to above form an integral part of the Consolidated Balance Sheet.
F-10
ICICI Bank Limited and subsidiaries
Consolidated profit and loss account
(Rs. in thousands, except per share data)
Year ended | ||||||||
| Schedule | March 31, 2022 |
March 31, 2021 |
March 31, 2020 | |||||
| I. INCOME | ||||||||
| Interest earned | 13 | 954,068,654 | 891,626,638 | 848,357,730 | ||||
| Other income | 14 | 621,294,514 | 720,295,282 | 647,751,069 | ||||
| TOTAL INCOME | 1,575,363,168 | 1,611,921,920 | 1,496,108,799 | |||||
| II. EXPENDITURE | ||||||||
| Interest expended | 15 | 411,666,711 | 426,590,874 | 446,655,222 | ||||
| Operating expenses | 16 | 731,517,275 | 762,716,696 | 715,178,988 | ||||
Provisions and contingencies (refer note 18.6) |
174,340,856 | 220,417,554 | 223,772,141 | |||||
| TOTAL EXPENDITURE | 1,317,524,842 | 1,409,725,124 | 1,385,606,351 | |||||
| III. PROFIT/(LOSS) | ||||||||
| Net profit for the year (before share in profit of associates and minority interest) | 257,838,326 | 202,196,796 | 110,502,448 | |||||
| Add: Share of profit in associates | 7,544,279 | 1,442,857 | 1,752,232 | |||||
| Net profit for the year before minority interest | 265,382,605 | 203,639,653 | 112,254,680 | |||||
| Less: Minority interest | 14,281,645 | 19,796,467 | 16,591,602 | |||||
| Net profit after minority interest | 251,100,960 | 183,843,186 | 95,663,078 | |||||
| Profit brought forward | 385,155,990 | 267,999,958 | 220,201,086 | |||||
| TOTAL PROFIT/(LOSS) | 636,256,950 | 451,843,144 | 315,864,164 | |||||
| IV. APPROPRIATIONS/TRANSFERS | ||||||||
| Transfer to Statutory Reserve | 58,349,000 | 40,482,000 | 19,828,000 | |||||
| Transfer to/(from) Reserve Fund | -- | (77,638) | 3,670 | |||||
| Transfer to Capital Reserve | 15,742,037 | 1,302,300 | 3,954,400 | |||||
| Transfer to Capital Redemption Reserve | -- | -- | -- | |||||
| Transfer to/(from) Investment Reserve Account | -- | -- | -- | |||||
| Transfer to/(from) Investment Fluctuation Reserve | 3,828,798 | (2,495,799) | 6,690,000 | |||||
| Transfer to Special Reserve | 15,328,500 | 10,943,500 | 7,966,300 | |||||
| Transfer to/(from) Revenue and other reserves | 657,420 | 16,532,790 | 686,312 | |||||
| Dividend paid during the year | 13,852,335 | -- | 6,453,078 | |||||
| Corporate dividend tax paid during the year | -- | -- | 2,282,446 | |||||
| Balance carried over to balance sheet | 528,498,860 | 385,155,990 | 267,999,958 | |||||
| TOTAL | 636,256,950 | 451,843,143 | 315,864,164 | |||||
| Significant accounting policies and notes to accounts | 17 & 18 | |||||||
| Earnings per share (refer note 18.1) | ||||||||
| Basic (Rs.) | 36.21 | 27.26 | 14.81 | |||||
| Diluted (Rs.) | 35.44 | 26.83 | 14.55 | |||||
| Face value per share (Rs.) | 2.00 | 2.00 | 2.00 | |||||
The Schedules referred to above form an integral part of the Consolidated Profit and Loss Account.
F-11
ICICI Bank Limited and subsidiaries
Consolidated cash flow statement
(Rs. in thousands)
Year ended | ||||||
March 31, 2022 |
March 31, 2021 |
March 31, 2020 | ||||
| Cash flow from/(used in) operating activities | ||||||
| Profit before taxes | 335,675,367 | 240,486,799 | 169,294,471 | |||
| Adjustments for: | ||||||
| Depreciation and amortisation | 14,794,572 | 14,713,701 | 13,696,381 | |||
| Net (appreciation)/depreciation on investments1 | 18,320,870 | (22,476,697) | 21,809,159 | |||
| Provision in respect of non-performing and other assets | 63,775,215 | 110,315,149 | 89,627,398 | |||
| General provision for standard assets | 4,065,438 | 1,569,050 | 7,189,929 | |||
| Provision for contingencies & others (including Covid-19 related provision) | 16,513,472 | 53,839,684 | 35,186,906 | |||
| (Profit)/loss on sale of fixed assets | (56,635) | 63,424 | (1,450) | |||
| Employees stock options expense | 2,669,253 | 77,611 | 114,130 | |||
| (i) | 455,757,552 | 398,588,721 | 336,916,924 | |||
| Adjustments for: | ||||||
| (Increase)/decrease in investments | (166,685,392) | 90,478,662 | (315,313,149) | |||
| (Increase)/decrease in advances | (1,349,047,011) | (968,932,842) | (692,434,146) | |||
| Increase/(decrease) in deposits | 1,314,257,752 | 1,591,555,570 | 1,194,675,249 | |||
| (Increase)/decrease in other assets | 46,655,269 | 4,276,368 | 24,560,834 | |||
| Increase/(decrease) in other liabilities and provisions | 329,993,864 | 302,522,352 | 271,160,685 | |||
| (ii) | 175,174,482 | 1,019,900,110 | 482,649,473 | |||
| Refund/(payment) of direct taxes (iii) | (49,817,733) | (38,335,863) | (23,918,931) | |||
| Net cash flow from/(used in) operating activities((i)+(ii)+(iii)) (A) | 581,114,301 | 1,380,152,968 | 795,647,466 | |||
| Cash flow from/(used in) investing activities | ||||||
| Purchase of fixed assets | (18,599,746) | (16,882,058) | (18,734,522) | |||
| Proceeds from sale of fixed assets | 1,174,397 | 121,649 | 255,374 | |||
| (Purchase)/sale of held to maturity securities | (375,789,070) | (613,108,700) | (404,605,131) | |||
| Net cash flow from/(used in) investing activities (B) | (393,214,419) | (629,869,109) | (423,084,279) | |||
| Cash flow from/(used in) financing activities | ||||||
| Proceeds from issue of share capital (including ESOPs) | 7,979,764 | 154,600,321 | 5,493,213 | |||
| Proceeds from long-term borrowings | 356,976,668 | 294,215,131 | 366,114,451 | |||
| Repayment of long-term borrowings | (346,030,278) | (527,734,115) | (520,006,249) | |||
| Net proceeds/(repayment) of short-term borrowings | 169,436,188 | (467,749,038) | 187,184,210 | |||
| Dividend and dividend tax paid | (13,852,335) | -- | (8,863,792) | |||
| Net cash flow from/(used in) financing activities (C) | 174,510,007 | (546,667,701) | 29,921,833 | |||
| Effect of exchange fluctuation on translation reserve (D) | (1,268,443) | (6,440,073) | 2,135,244 | |||
F-12
ICICI Bank Limited and subsidiaries
Consolidated cash flow statement (Continued)
(Rs. in thousands)
| Year ended | ||||||
March 31, 2022 |
March 31, 2021 |
March 31, 2020 | ||||
Net increase/(decrease) in cash and cash equivalents (A) + (B) + (C) + (D) |
361,141,446 | 197,176,085 | 404,620,264 | |||
Cash and cash equivalents at beginning of the year |
1,475,705,302 | 1,278,529,217 | 873,908,953 | |||
Less: Reduction due to discontinuation of ICICI Lombard General Insurance Company Limited from consolidation during the year |
(5,586,916) | |||||
| Cash and cash equivalents at end of the year | 1,831,259,832 | 1,475,705,302 | 1,278,529,217 | |||
| 1. | For the year ended March 31, 2021, includes gain on sale of a part of equity investment in ICICI Lombard General Insurance Company Limited, ICICI Prudential Life Insurance Company Limited and ICICI Securities Limited. |
| 2. | Cash and cash equivalents include cash in hand, balances with RBI, balances with other banks and money at call and short notice. |
F-13
ICICI Bank Limited and subsidiaries
Schedules forming part of the consolidated balance sheet
SCHEDULE 1 - CAPITAL
(Rs. in thousands)
| March 31, 2022 | March 31, 2021 | |||
| Authorised capital | ||||
| 12,500,000,000 equity shares of Rs. 2 each (March 31, 2021: 12,500,000,000 equity shares of Rs. 2 each) | 25,000,000 | 25,000,000 | ||
Equity share capital
Issued, subscribed and paid-up capital
|
||||
| 6,915,992,387 equity shares of Rs. 2 each (March 31, 2021: 6,472,765,203 equity shares) | 13,831,985 | 12,945,530 | ||
| Add: 32,778,988 equity shares of Rs. 2 each (March 31, 2021: 443,227,184 equity shares) issued during the period1 | 65,558 | 886,455 | ||
| 13,897,543 | 13,831,985 | |||
| Add: Forfeited equity shares2 | 2,119 | 2,119 | ||
| TOTAL CAPITAL | 13,899,662 | 13,834,104 | ||
| 1. | Represents equity shares issued pursuant to exercise of employee stock options. (March 31, 2021: 418,994,413 equity shares issued under Qualified Institutions Placement (QIP) and 24,232,771 equity shares issued pursuant to exercise of employee stock options. |
| 2. | On account of forfeiture of 266,089 equity shares of Rs. 10 each. |
F-14
ICICI Bank Limited and subsidiaries
Schedules forming part of the consolidated balance sheet (Continued)
SCHEDULE 2 - RESERVES AND SURPLUS
(Rs. in thousands)
| At | ||||
| March 31, 2022 | March 31, 2021 | |||
| I. Statutory reserve Opening balance | 297,687,519 | 257,205,519 | ||
| Additions during the year | 58,349,000 | 40,482,000 | ||
| Deductions during the year | -- | -- | ||
| Closing balance | 356,036,519 | 297,687,519 | ||
| II. Special reserve Opening balance | 118,649,500 | 107,706,000 | ||
| Additions during the year | 15,328,500 | 10,943,500 | ||
| Deductions during the year | -- | -- | ||
| Closing balance | 133,978,000 | 118,649,500 | ||
| III. Securities premium Opening balance | 489,694,731 | 335,899,406 | ||
| Additions during the year1 | 7,950,327 | 154,497,014 | ||
| Deductions during the year2 | -- | (701,689) | ||
| Closing balance | 497,645,058 | 489,694,731 | ||
| IV. Investment reserve account Opening balance | -- | -- | ||
| Additions during the year | -- | -- | ||
| Deductions during the year | -- | -- | ||
| Closing balance | -- | --- | ||
| V. Investment fluctuation reserve3 Opening balance | 16,886,201 | 19,382,000 | ||
| Additions during the year | 3,828,798 | -- | ||
| Deductions during the year | -- | (2,495,799) | ||
| Closing balance | 20,714,999 | 16,886,201 | ||
| VI. Unrealised investment reserve4 Opening balance | (56,658) | (270,042) | ||
| Additions during the year | -- | 243,797 | ||
| Deductions during the year | (301,983) | (30,413) | ||
| Closing balance | (358,641) | (56,658) | ||
| VII. Capital reserve Opening balance | 134,042,316 | 132,740,016 | ||
| Additions during the year5,6 | 15,742,037 | 1,302,300 | ||
| Deductions during the year | -- | -- | ||
| Closing balance7 | 149,784,353 | 134,042,316 | ||
| VIII. Capital redemption reserve Opening balance | 3,500,000 | 3,500,000 | ||
| Additions during the year | -- | -- | ||
| Deductions during the year | -- | -- | ||
| Closing balance | 3,500,000 | 3,500,000 | ||
F-15
ICICI Bank Limited and subsidiaries
Schedules forming part of the consolidated balance sheet (Continued)
(Rs. in thousands)
| At | ||||
| March 31, 2022 | March 31, 2021 | |||
| IX. Foreign currency translation reserve Opening balance | 13,699,874 | 20,139,947 | ||
| Additions during the year | 599,449 | 607,130 | ||
| Deductions during the year | (1,867,892) | (7,047,203) | ||
| Closing balance | 12,431,431 | 13,699,874 | ||
| X. Revaluation reserve (refer note 18.13) Opening balance | 31,252,824 | 31,433,597 | ||
| Additions during the year8 | 1,742,847 | 499,560 | ||
| Deductions during the year9 | (710,696) | (680,333) | ||
| Closing balance | 32,284,975 | 31,252,824 | ||
| XI. Reserve fund Opening balance | -- | 77,638 | ||
| Additions during the year10 | -- | -- | ||
| Deductions during the year10 | -- | (77,638) | ||
| Closing balance | -- | -- | ||
| XII. Revenue and other reserves Opening balance | 71,497,594 | 40,804,026 | ||
| Additions during the year11,12 | 20,297,813 | 30,834,944 | ||
| Deductions during the year12 | (2,839,545) | (141,376) | ||
| Closing balance13,14 | 88,955,862 | 71,497,594 | ||
| XIII. Balance in profit and loss account6, 10 | 528,498,860 | 385,155,990 | ||
| Deductions during the year15 | (19,510,346) | -- | ||
| Balance in profit and loss account | 508,988,514 | 385,155,990 | ||
| TOTAL RESERVES AND SURPLUS | 1,803,961,070 | 1,562,009,891 | ||
| 1. | Includes Rs. 7,923.3 million (year ended March 31, 2021: Rs. 5,257.4 million) on exercise of employee stock options. At March 31, 2021, includes Rs. 149,162.0 million on account of equity shares issued under QIP. |
| 2. | Represents amount utilised towards direct expenses relating to the issuance of equity shares under QIP. |
| 3. | Represents amount transferred by the Bank to Investment Fluctuation Reserve (IFR) on net profit on sale of AFS and HFT investments during the period. The amount not less than the lower of net profit on sale of AFS and HFT category investments during the period or net profit for the period less mandatory appropriations is required to be transferred to IFR, until the amount of IFR is at least 2% of the HFT and AFS portfolio. |
| 4. | Represents unrealised profit/(loss) pertaining to the investments of venture capital funds. |
| 5. | Includes appropriations made by the Bank for profit on sale of investments in held-to-maturity category, net of taxes and transfer to Statutory Reserve and profit on sale of land and buildings, net of taxes and transfer to Statutory Reserve. |
| 6. | The Bank had shifted certain securities from held-to-maturity category to available-for-sale category on May 3, 2017. RBI through its order dated May 3, 2021 has directed the Bank to appropriate the net profit made on sale of these investments during FY2018 to Capital Reserve. Accordingly, an amount of Rs. 15,091.1 million was transferred by the Bank from Balance in Profit and Loss account to Capital Reserve during FY2022. |
| 7. | Includes capital reserve on consolidation amounting to Rs. 79.1 million (March 31, 2021: Rs. 79.1 million). |
| 8. | Represents gain on revaluation of premises carried out by the Bank and ICICI Home Finance Company Limited. |
| 9. | Represents amount transferred from Revaluation Reserve to General Reserve on account of incremental depreciation charge on revaluation, revaluation surplus on premises sold or loss on revaluation on account of certain assets which were held for sale. |
| 10. | At March 31, 2021 balance in reserve fund created by Sri Lanka branch was transferred to balance in profit and loss account due to its closure. |
| 11. | Includes Rs. 1,543.1 million towards reduction in fair value change account (March 31, 2021: addition amounting to Rs. 5,754.2 million) of ICICI Lombard General Insurance Company Limited. |
| 12. | Includes ₹ 2,471.4 million towards reduction in fair value change account (March 31, 2021: addition amounting to ₹ 4,808.7 million) of ICICI Prudential Life Insurance Company Limited. |
| 13. | Includes unrealised profit/(loss), net of tax, of Rs. 206.4 million (March 31, 2021: Rs. 347.1 million) pertaining to the investments in the available-for-sale category of ICICI Bank UK PLC. |
| 14. | Includes reduction of Rs. 133.1 million in debenture redemption reserve (March 31, 2021: Rs. 143.8 million) of ICICI Lombard General Insurance Company Limited. |
| 15. | Represents reduction due to discontinuation of ICICI Lombard General Insurance Company from consolidation during the year. |
F-16
ICICI Bank Limited and subsidiaries
Schedules forming part of the consolidated balance sheet (Continued)
SCHEDULE 2A - MINORITY INTEREST
(Rs. in thousands)
| At | ||||
| March 31, 2022 | March 31, 2021 | |||
| Opening minority interest | 95,883,393 | 67,947,696 | ||
| Subsequent increase/(decrease) during the year1 | (36,074,458) | 27,935,697 | ||
| CLOSING MINORITY INTEREST | 59,808,935 | 95,883,393 | ||
| 1. | At March 31, 2022, includes deduction of minority interest relating to ICICI Lombard General Insurance Company Limited amounting to Rs. 39,052.5 million, subsequent to ICICI Lombard General Insurance Company Limited being accounted as an associate. |
SCHEDULE 3 - DEPOSITS
(Rs. in thousands)
| At | ||||
| March 31, 2022 | March 31, 2021 | |||
| A. I. Demand deposits | ||||
| i) From banks | 79,321,836 | 114,515,967 | ||
| ii) From others | 1,554,865,124 | 1,278,323,752 | ||
| II. Savings bank deposits | 3,670,305,566 | 3,039,179,239 | ||
| III. Term deposits | ||||
| i) From banks | 71,532,495 | 96,198,935 | ||
| ii) From others | 5,537,632,911 | 5,071,182,287 | ||
| TOTAL DEPOSITS | 10,913,657,932 | 9,599,400,180 | ||
| B. I. Deposits of branches in India | 10,527,203,264 | 9,223,157,524 | ||
| II. Deposits of branches/subsidiaries outside India | 386,454,668 | 376,242,656 | ||
| TOTAL DEPOSITS | 10,913,657,932 | 9,599,400,180 | ||
SCHEDULE 4 - BORROWINGS
(Rs. in thousands)
| At | ||||
March 31, 2022 |
March 31, 2021 | |||
| I. Borrowings In India | ||||
| i) Reserve Bank of India1 | -- | 1,000,000 | ||
| ii) Other banks | 50,892,853 | 48,045,578 | ||
| iii) Other institutions and agencies | ||||
| a) Government of India | -- | -- | ||
| b) Financial institutions2 | 323,264,820 | 378,775,309 | ||
| iv) Borrowings in the form of | ||||
| a) Deposits | 31,004,597 | 35,194,448 | ||
| b) Commercial paper | 90,353,072 | 42,187,893 | ||
| c) Bonds and debentures (excluding subordinated debt) | 430,564,188 | 229,521,286 | ||
| v) Application money-bonds | -- | -- | ||
| vi) Capital instruments | ||||
a)
Innovative Perpetual Debt Instruments (IPDI) |
66,950,000 | 101,200,000 | ||
| b) Hybrid debt capital instruments issued as bonds/debentures (qualifying as Tier 2 capital) | -- | -- | ||
F-17
ICICI Bank Limited and subsidiaries
Schedules forming part of the consolidated balance sheet (Continued)
| c)
Unsecured redeemable debentures/bonds (subordinated debt included in Tier 2 capital) |
93,504,927 | 92,707,554 | ||
| TOTAL BORROWINGS IN INDIA | 1,086,534,457 | 928,632,068 | ||
| II. Borrowings outside India | ||||
| i) Capital instruments | ||||
Unsecured redeemable debentures/bonds (subordinated debt included in Tier 2 capital) |
5,529,406 | 5,564,832 | ||
| ii) Bonds and notes | 181,504,693 | 186,163,655 | ||
| iii) Other borrowings | 342,458,272 | 318,638,838 | ||
| TOTAL BORROWINGS OUTSIDE INDIA | 529,492,371 | 510,367,325 | ||
| TOTAL BORROWINGS | 1,616,026,828 | 1,438,999,393 | ||
1. Represents borrowings made by the Bank under Liquidity Adjustment Facility (LAF). 2. Includes borrowings made by the Bank under repo and refinance. 3. Secured borrowings in I and II above amount to Rs. 232,515.3 million (March 31, 2021: Rs. 231,664.8 million) other than the borrowings under collateralised borrowing and lending obligation, market repurchase transactions (including tri-party repo) with banks and financial institutions and transactions under liquidity adjustment facility and marginal standing facility. |
SCHEDULE 5 - OTHER LIABILITIES AND PROVISIONS
(Rs. in thousands)
| At | |||||
| March 31, 2022 | March 31, 2021 | ||||
| I. | Bills payable | 130,686,122 | 128,480,835 | ||
| II. | Inter-office adjustments (net) | 4,418,106 | 3,262,618 | ||
| III | Interest accrued | 27,524,211 | 24,830,180 | ||
| IV | Sundry creditors | 206,506,321 | 368,178,007 | ||
| V. | General provision for standard assets | 44,586,271 | 40,042,593 | ||
| VI | Others (including provisions)1,2 | 414,362,275 | 431,369,829 | ||
| TOTAL OTHER LIABILITIES AND PROVISIONS | 828,083,306 | 996,164,062 | |||
| 1. | Includes contingency provision of the Bank amounting to Rs. 74,500.0 million (March 31, 2021: Rs. 74,750.0 million), including Covid-19 related provision of the Bank amounting to Rs. 64,250.0 million (March 31, 2021: Rs. 74,750.0 million). |
| 2. | Includes specific provision for standard loans made by the Bank. |
SCHEDULE 6 - CASH AND BALANCES WITH RESERVE BANK OF INDIA
(Rs. in thousands)
| At | |||||
| March 31, 2022 | March 31, 2021 | ||||
| I. | Cash in hand (including foreign currency notes) | 72,274,785 | 71,416,989 | ||
| II. | Balances with Reserve Bank of India in current accounts | 530,012,284 | 391,605,060 | ||
| TOTAL CASH AND BALANCES WITH RESERVE BANK OF INDIA | 602,287,069 | 463,022,049 | |||
F-18
ICICI Bank Limited and subsidiaries
Schedules forming part of the consolidated balance sheet (Continued)
SCHEDULE 7 - BALANCES WITH BANKS AND MONEY AT CALL AND SHORT NOTICE
(Rs. in thousands)
| At | ||||
| March 31, 2022 | March 31, 2021 | |||
| I. In India | ||||
| i) Balances with banks | ||||
| a) in current accounts | 2,150,158 | 2,921,504 | ||
| b) in other deposit accounts | 58,739,519 | 41,875,163 | ||
| ii) Money at call and short notice | ||||
| a) with banks1 | 494,020,000 | 352,190,000 | ||
| b) with other institutions2 | 58,284,515 | 38,968,857 | ||
| TOTAL | 613,194,192 | 435,955,524 | ||
| II. Outside India | ||||
| i) in current accounts | 332,048,410 | 318,835,630 | ||
| ii) in other deposit accounts | 179,630,804 | 199,063,472 | ||
| iii) Money at call and short notice | 104,099,357 | 58,828,627 | ||
| TOTAL | 615,778,571 | 576,727,729 | ||
| TOTAL BALANCES WITH BANKS AND MONEY AT CALL AND SHORT NOTICE | 1,228,972,763 | 1,012,683,253 | ||
| 1. | Includes lending by the Bank under Liquidity Adjustment Facility (LAF). |
| 2. | Includes lending by the Bank under reverse repo. |
SCHEDULE 8 - INVESTMENTS
(Rs. in thousands)
| At | ||||
| March 31, 2022 | March 31, 2021 | |||
| I. Investments in India [net of provisions] | ||||
| i) Government securities | 3,255,021,732 | 2,847,433,181 | ||
| ii) Other approved securities | -- | -- | ||
| iii) Shares (includes equity and preference shares) | 131,221,761 | 170,963,971 | ||
| iv) Debentures and bonds (including commercial paper and certificate of deposits) | 415,992,085 | 564,663,020 | ||
| v) Assets held to cover linked liabilities of life insurance business | 1,508,663,020 | 1,385,491,431 | ||
| vi) Cost of equity investment in associates1,2 | 20,040,640 | 6,725,850 | ||
| vii) Others (mutual fund units, pass through certificates, security receipts, and other related investments)3 | 134,270,515 | 141,960,832 | ||
| TOTAL INVESTMENTS IN INDIA | 5,465,209,753 | 5,117,238,285 | ||
| II. Investments outside India [net of provisions] | ||||
| i) Government securities | 152,078,246 | 193,166,090 | ||
| ii) Others (equity shares, bonds and certificate of deposits) | 53,689,181 | 55,381,790 | ||
| TOTAL INVESTMENTS OUTSIDE INDIA | 205,767,427 | 248,547,880 | ||
| TOTAL INVESTMENTS | 5,670,977,180 | 5,365,786,165 | ||
| A. Investments in India | ||||
| Gross value of investments4 | 5,486,621,394 | 5,126,563,887 | ||
| Less: Aggregate of provision/depreciation/(appreciation) | 21,411,641 | 9,325,602 | ||
| Net investments | 5,465,209,753 | 5,117,238,285 | ||
F-19
ICICI Bank Limited and subsidiaries
Schedules forming part of the consolidated balance sheet (Continued)
| B. Investments outside India | ||||
| Gross value of investments | 208,954,192 | 249,941,929 | ||
| Less: Aggregate of provision/depreciation/(appreciation) | 3,186,765 | 1,394,049 | ||
| Net investments | 205,767,427 | 248,547,880 | ||
| TOTAL INVESTMENTS | 5,670,977,180 | 5,365,786,165 | ||
| 1. | Includes goodwill on consolidation of associates amounting to Rs. 221.9 million (March 31, 2021: Rs. 163.1 million). |
| 2. | At March 31, 2022 includes cost of investment pertaining to ICICI Lombard General Insurance Company Limited subsequent to ICICI Lombard General Insurance Company Limited being accounted as an associate. |
| 3. | Includes share in networth of associates as per equity method as prescribed by AS 23. |
| 4. | Includes net appreciation amounting to Rs. 244,271.4 million (March 31, 2021: net depreciation amounting to Rs. 219,153.1 million) on investments held to cover linked liabilities of life insurance business. |
SCHEDULE 9 - ADVANCES (net of provisions)
(Rs. in thousands)
| At | ||||
| March 31, 2022 | March 31, 2021 | |||
| A. i) Bills purchased and discounted1 | 482,956,949 | 342,046,090 | ||
| ii) Cash credits, overdrafts and loans repayable on demand | 2,342,314,744 | 1,877,224,405 | ||
| iii) Term loans | 6,377,809,697 | 5,698,743,423 | ||
| TOTAL ADVANCES | 9,203,081,390 | 7,918,013,918 | ||
| B. i) Secured by tangible assets (includes advances against book debts)2 | 6,701,716,660 | 5,823,869,908 | ||
| ii) Covered by bank/government guarantees | 185,673,079 | 112,777,379 | ||
| iii) Unsecured | 2,315,691,651 | 1,981,366,631 | ||
| TOTAL ADVANCES | 9,203,081,390 | 7,918,013,918 | ||
| C. I. Advances in India | ||||
| i) Priority sector | 2,491,680,887 | 2,031,797,475 | ||
| ii) Public sector | 483,782,406 | 451,897,529 | ||
| iii) Banks | 432,346 | 264,743 | ||
| iv) Others | 5,417,164,764 | 4,646,071,474 | ||
| TOTAL ADVANCES IN INDIA | 8,393,060,403 | 7,130,031,221 | ||
| II. Advances outside India | ||||
| i) Due from banks | 7,165,905 | 9,923,766 | ||
| ii) Due from others | ||||
| a) Bills purchased and discounted | 175,464,049 | 78,351,968 | ||
| b) Syndicated and term loans | 235,061,192 | 347,539,208 | ||
| c) Others | 392,329,841 | 352,167,755 | ||
| TOTAL ADVANCES OUTSIDE INDIA | 810,020,987 | 787,982,697 | ||
| TOTAL ADVANCES | 9,203,081,390 | 7,918,013,918 | ||
| 1. | Net of bills re-discounted amounting to Nil (March 31, 2021: Nil). |
| 2. | Includes advances against book debts amounting to Rs. 703,802.0 million (March 31, 2021: Rs. 632,355.0 million). |
F-20
ICICI Bank Limited and subsidiaries
Schedules forming part of the consolidated balance sheet (Continued)
SCHEDULE 10 - FIXED ASSETS
(Rs. in thousands)
| At | ||||
| March 31, 2022 | March 31, 2021 | |||
I. Premises Gross block |
||||
| At cost at March 31 of preceding year | 95,782,081 | 94,289,893 | ||
| Additions during the year1 | 3,334,955 | 1,891,104 | ||
| Deductions during the year3 | (4,771,209) | (398,916) | ||
| Closing balance | 94,345,827 | 95,782,081 | ||
| Depreciation | ||||
| At March 31of preceding year | 21,854,971 | 19,790,481 | ||
| Charge during the year2 | 2,375,067 | 2,347,909 | ||
| Deductions during the year3 | (716,027) | (283,419) | ||
| Total depreciation | 23,514,011 | 21,854,971 | ||
| Net block | 70,831,816 | 73,927,110 | ||
II. Other fixed assets (including furniture and fixtures) Gross block |
||||
| At cost at March 31 of preceding year | 97,137,491 | 85,814,990 | ||
| Additions during the year | 15,252,194 | 15,086,502 | ||
| Deductions during the year4 | (13,604,745) | (3,764,001) | ||
| Closing balance | 98,784,940 | 97,137,491 | ||
| Depreciation | ||||
| At March 31 of preceding year | 66,259,069 | 58,967,593 | ||
| Charge during the year | 10,737,093 | 10,918,958 | ||
| Deductions during the year4 | (10,178,853) | (3,627,482) | ||
| Total depreciation | 66,817,309 | 66,259,069 | ||
| Net block4 | 31,967,631 | 30,878,422 | ||
III. Lease assets Gross block |
||||
| At cost at March 31 of preceding year | 17,735,221 | 17,054,049 | ||
| Additions during the year | 155,525 | 681,172 | ||
| Deductions during the year | -- | -- | ||
| Closing balance5 | 17,890,746 | 17,735,221 | ||
| Depreciation | ||||
| At March 31 of preceding year | 14,448,172 | 14,314,282 | ||
| Charge during the year | 187,914 | 133,890 | ||
| Deductions during the year | -- | -- | ||
| Total depreciation, accumulated lease adjustment and provisions | 14,636,086 | 14,448,172 | ||
| Net block | 3,254,660 | 3,287,049 | ||
| TOTAL FIXED ASSETS | 106,054,107 | 108,092,581 | ||
| 1. | Includes revaluation gain amounting to Rs. 1,742.8 million (March 31, 2021: Rs. 499.6 million) on account of revaluation carried out by the Bank and its housing finance subsidiary. |
| 2. | Includes depreciation charge on account of revaluation of Rs. 703.1 million for the year ended March 31, 2022 (year ended March 31, 2021: Rs. 680.3 million). |
| 3. | At March 31, 2022, includes premises cost amounting to Rs. 4,100.2 million and accumulated depreciation amounting to Rs. 273.8 million pertaining to ICICI Lombard General Insurance Company Limited subsequent to ICICI Lombard General Insurance Company Limited being accounted as an associate. |
| 4. | At March 31, 2022, includes other fixed assets cost amounting to Rs. 9,341.4 million and accumulated depreciation amounting to Rs. 5,996.3 million pertaining to ICICI Lombard General Insurance Company Limited subsequent to ICICI Lombard General Insurance Company Limited being accounted as an associate. |
| 5. | Includes assets taken on lease by the Bank amounting to Rs. 1,176.1 million (March 31, 2021: Rs. 1,020.6 million). |
| 6. | Capital work-in-progress for premises amounting to Rs. 484.3 million (At March 31, 2021: Rs. 809.7 million) and Capital work-in-progress for other fixed assets amounting to Rs. 3,976.6 million (At March 31, 2021: Rs. 2,616.4 million) has been included under 'Advances for capital assets' in Schedule 11 - Other Assets at March 31, 2022. |
F-21
ICICI Bank Limited and subsidiaries
Schedules forming part of the consolidated balance sheet (Continued)
SCHEDULE 11 – OTHER ASSETS
(Rs. in thousands)
| At | ||||
| March 31, 2022 | March 31, 2021 | |||
| I. Inter-office adjustments (net) | -- | -- | ||
| II. Interest accrued | 108,389,915 | 110,626,009 | ||
| III. Tax paid in advance/tax deducted at source (net) | 26,241,723 | 50,249,503 | ||
| IV. Stationery and stamps | 337,907 | 178,896 | ||
| V. Non-banking assets acquired in satisfaction of claims1,2 | -- | -- | ||
| VI. Advance for capital assets | 4,460,876 | 3,426,107 | ||
| VII. Deposits | 40,100,556 | 28,023,381 | ||
| VIII. Deferred tax asset (net) (refer note 18.9) | 79,484,847 | 93,350,216 | ||
| IX. Deposits in Rural Infrastructure and Development Fund | 264,194,161 | 311,777,207 | ||
| X. Others | 190,778,025 | 271,816,458 | ||
| TOTAL OTHER ASSETS | 713,988,010 | 869,447,777 | ||
| 1. | During the year ended March 31, 2022, the Bank has not acquired any assets (year ended March 31, 2021: Nil) in satisfaction of claims under debt-asset swap transactions. Assets amounting to Rs. 563.6 million were sold by the Bank during the year ended March 31, 2022 (year ended March 31, 2021: Rs. 942.4 million). |
| 2. | Net of provision held by the Bank amounting to Rs. 29,011.8 million (March 31, 2021: Rs. 29,575.4 million). |
SCHEDULE 12 - CONTINGENT LIABILITIES
(Rs. in thousands)
| At | ||||
| March 31, 2022 | March 31, 2021 | |||
| I. Claims against the Group not acknowledged as debts | 89,527,688 | 88,166,723 | ||
| II. Liability for partly paid investments | 7,009,157 | 10,625,388 | ||
| III. Liability on account of outstanding forward exchange contracts1 | 10,757,369,659 | 8,303,455,988 | ||
| IV. Guarantees given on behalf of constituents | ||||
| a) In India | 877,490,076 | 811,429,157 | ||
| b) Outside India | 158,594,796 | 182,653,703 | ||
| V. Acceptances, endorsements and other obligations | 458,778,736 | 321,874,588 | ||
| VI. Currency swaps1 | 502,108,785 | 485,717,363 | ||
| VII. Interest rate swaps, currency options and interest rate futures1 | 32,634,035,960 | 19,976,356,000 | ||
| VIII. Other items for which the Group is contingently liable | 38,496,310 | 33,163,378 | ||
| TOTAL CONTINGENT LIABILITES | 45,523,411,167 | 30,213,442,288 | ||
1. Represents notional amount.
F-22
ICICI Bank Limited and subsidiaries
Schedules forming part of the consolidated profit and loss account
SCHEDULE 13 - INTEREST EARNED
(Rs. in thousands)
| Year ended | |||||||
March 31, 2022 |
March 31, 2021 |
March 31, 2020 | |||||
| I. Interest/discount on advances/bills | 668,865,377 | 602,616,872 | 609,283,070 | ||||
| II. Income on investments (including dividend) | 219,906,420 | 232,642,538 | 209,712,041 | ||||
| III . Interest on balances with Reserve Bank of India and other inter-bank funds | 18,195,960 | 18,817,238 | 9,074,114 | ||||
| IV. Others1,2 | 47,100,897 | 37,549,990 | 20,288,505 | ||||
| TOTAL INTEREST EARNED | 954,068,654 | 891,626,638 | 848,357,730 | ||||
| 1. | Includes interest on income tax refunds amounting to Rs. 2,434.3 million (March 31, 2021: Rs. 2,569.7 million, March 31, 2020: Rs. 2,998.6 million). |
| 2. | Includes interest and amortisation of premium on non-trading interest rate swaps and foreign currency swaps. |
SCHEDULE 14 - OTHER INCOME
(Rs. in thousands)
| Year ended | ||||||
March 31, 2022 |
March 31, 2021 |
March 31, 2020 | ||||
| I. Commission, exchange and brokerage | 172,883,870 | 140,230,546 | 140,385,169 | |||
| II. Profit/(loss) on sale of investments (net)1 | 23,145,295 | 81,257,186 | 36,883,852 | |||
| III. Profit/(loss) on revaluation of investments (net) | 1,981,586 | (1,433,237) | (4,507,654) | |||
| IV. Profit/(loss) on sale of land, buildings and other assets (net)2 | 56,635 | (63,424) | 1,450 | |||
| V. Profit/(loss) on exchange/derivative transactions (net) | 29,933,143 | 19,721,169 | 16,898,500 | |||
| VI. Premium and other operating income from insurance business | 389,595,741 | 479,230,586 | 455,011,126 | |||
| VII. Miscellaneous income (including lease income) | 3,698,244 | 1,352,456 | 3,078,627 | |||
| TOTAL OTHER INCOME | 621,294,514 | 720,295,282 | 647,751,069 | |||
| 1. | For the year ended March 31, 2021 includes gain on sale of a part of equity investment in ICICI Lombard General Insurance Company Limited, ICICI Prudential Life Insurance Company Limited and ICICI Securities Limited. |
| 2. | Includes profit/(loss) on sale of assets given on lease. |
SCHEDULE 15 - INTEREST EXPENDED
(Rs. in thousands)
| Year ended | ||||||
March 31, 2022 |
March 31, 2021 |
March 31, 2020 | ||||
| I. Interest on deposits | 336,132,833 | 337,196,585 | 332,242,790 | |||
| II. Interest on Reserve Bank of India/inter-bank borrowings | 4,402,009 | 12,001,131 | 21,664,948 | |||
| III. Others (including interest on borrowings of erstwhile ICICI Limited) | 71,131,869 | 77,393,158 | 92,747,484 | |||
| TOTAL INTEREST EXPENDED | 411,666,711 | 426,590,874 | 446,655,222 | |||
F-23
ICICI Bank Limited and subsidiaries
Schedules forming part of the consolidated profit and loss account (Continued)
SCHEDULE 16 - OPERATING EXPENSES
(Rs. in thousands)
| Year ended | ||||||
March 31, 2022 |
March 31, 2021 |
March 31, 2020 | ||||
| I. Payments to and provisions for employees1 | 123,416,025 | 110,509,051 | 111,567,453 | |||
| II. Rent, taxes and lighting2 | 14,085,917 | 13,829,516 | 15,505,773 | |||
| III. Printing and stationery | 2,232,877 | 2,067,614 | 2,659,297 | |||
| IV. Advertisement and publicity | 23,313,796 | 29,981,392 | 27,773,081 | |||
| V. Depreciation on property | 13,112,160 | 13,266,867 | 11,697,938 | |||
| VI. Depreciation (including lease equalisation) on leased assets | 187,914 | 133,877 | 14,238 | |||
| VII. Directors' fees, allowances and expenses | 123,496 | 125,453 | 128,167 | |||
| VIII. Auditors' fees and expenses | 219,598 | 295,992 | 286,115 | |||
| IX. Law charges | 1,707,140 | 2,076,875 | 1,881,787 | |||
| X. Postages, courier, telephones, etc. | 7,092,062 | 5,884,269 | 6,079,798 | |||
| XI. Repairs and maintenance | 26,994,748 | 21,785,244 | 20,160,035 | |||
| XII. Insurance | 13,025,817 | 9,893,192 | 7,172,033 | |||
| XIII. Direct marketing agency expenses | 25,697,664 | 18,938,669 | 19,656,229 | |||
| XIV. Claims and benefits paid pertaining to insurance business | 59,037,802 | 98,926,518 | 88,931,563 | |||
| XV. Other expenses pertaining to insurance business3 | 339,724,982 | 371,586,730 | 336,654,949 | |||
| XVI. Other expenditure4 | 81,545,277 | 63,415,437 | 65,010,532 | |||
| TOTAL OPERATING EXPENSES | 731,517,275 | 762,716,696 | 715,178,988 | |||
| 1. | For the year ended March 31, 2022, includes impact of Rs. 2,642.2 million for the Bank due to change in accounting policy from intrinsic value method to fair value method for all stock options granted after March 31, 2021 under the Bank's Employee Stock Option Scheme. |
| 2. | Includes lease expense amounting to Rs. 11,389.0 million (March 31, 2021: Rs. 11,087.3 million, March 31, 2020: Rs. 12,286.1 million) |
| 3. | Includes commission expenses and reserves for actuarial liabilities (including the investible portion of the premium on the unit-linked policies). |
| 4. | Includes expenses on purchase of Priority Sector Lending Certificates (PSLC) for the Bank amounting to Rs. 13,206.1 million (March 31, 2021: Rs. 7,813.8 million, March 31, 2020: Rs. 4,555.6 million) |
F-24
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
SCHEDULE 17
Significant accounting policies
Overview
ICICI Bank Limited, together with its subsidiaries, joint ventures and associates (collectively, the Group), is a diversified financial services group providing a wide range of banking and financial services including commercial banking, retail banking, project and corporate finance, working capital finance, insurance, venture capital and private equity, investment banking, broking and treasury products and services.
ICICI Bank Limited (the Bank), incorporated in Vadodara, India is a publicly held banking company governed by the Banking Regulation Act, 1949.
Principles of consolidation
The consolidated financial statements include the financials of ICICI Bank, its subsidiaries, associates and joint ventures.
Entities, in which the Bank holds, directly or indirectly, through subsidiaries and other consolidating entities, more than 50.00% of the voting rights or where it exercises control, over the composition of board of directors/governing body, are fully consolidated on a line-by-line basis in accordance with the provisions of AS 21 on ‘Consolidated Financial Statements’. Investments in entities where the Bank has the ability to exercise significant influence are accounted for under the equity method of accounting and the pro-rata share of their profit/(loss) is included in the consolidated profit and loss account. Assets, liabilities, income and expenditure of jointly controlled entities are consolidated using the proportionate consolidation method. Under this method, the Bank’s share of each of the assets, liabilities, income and expenses of the jointly controlled entity is reported in separate line items in the consolidated financial statements. The Bank does not consolidate entities where the significant influence/control is intended to be temporary or entities which operate under severe long-term restrictions that impair their ability to transfer funds to parent/investing entity or where the objective of control is not to obtain economic benefit from their activities. All significant inter-company accounts and transactions are eliminated on consolidation.
Basis of preparation
The accounting and reporting policies of the Group used in the preparation of the consolidated financial statements conform to Generally Accepted Accounting Principles in India (Indian GAAP), the guidelines issued by the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI), National Housing Bank (NHB) from time to time and the Accounting Standards notified under Section 133 of the Companies Act, 2013 read together with Rule 7 of the Companies (Accounts) Rules, 2014, as applicable to relevant companies and practices generally prevalent in the banking industry in India. In the case of the foreign subsidiaries, Generally Accepted Accounting Principles as applicable to the respective foreign subsidiaries are followed. The Group follows the accrual method of accounting except where otherwise stated, and the historical cost convention. In case the accounting policies followed by a subsidiary or joint venture are different from those followed by the Bank, the same have been disclosed in the respective accounting policy. Further, in case of ICICI Lombard General Insurance Company Limited (ICICI General), the accounting policies disclosed are for comparative previous period, till March 31, 2021 as the same was accounted as subsidiary in the consolidated financial statements. From April 1, 2021, ICICI General ceased to be a subsidiary and became associate of the Bank and accordingly has been accounted as per the equity method as prescribed by AS 23 on Accounting for investments in Associates in Consolidated Financial Statements.
F-25
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
The preparation of consolidated financial statements requires management to make estimates and assumptions that are considered in the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the consolidated financial statements and the reported income and expenses during the reporting period. Management believes that the estimates used in the preparation of the consolidated financial statements are prudent and reasonable. Actual results could differ from these estimates. The impact of any revision in these estimates is recognised prospectively from the period of change.
The consolidated financial statements include the results of the following entities in addition to the Bank.
| Sr. no. | Name of the entity | Country of incorporation | Nature of relationship | Nature of business | Ownership interest |
| 1. | ICICI Bank UK PLC | United Kingdom | Subsidiary | Banking | 100.00% |
| 2. | ICICI Bank Canada | Canada | Subsidiary | Banking | 100.00% |
| 3. | ICICI Securities Limited | India | Subsidiary | Securities broking and merchant banking |
74.89% |
| 4. | ICICI Securities Holdings Inc.1 | USA | Subsidiary | Holding company | 100.00% |
| 5. | ICICI Securities Inc.1 | USA | Subsidiary | Securities broking | 100.00% |
| 6. | ICICI Securities Primary Dealership Limited | India | Subsidiary | Securities investment, trading and underwriting | 100.00% |
| 7. | ICICI Venture Funds Management Company Limited | India | Subsidiary | Private equity/venture capital fund management | 100.00% |
| 8. | ICICI Home Finance Company Limited | India | Subsidiary | Housing finance | 100.00% |
| 9. | ICICI Trusteeship Services Limited | India | Subsidiary | Trusteeship services | 100.00% |
| 10. | ICICI Investment Management Company Limited | India | Subsidiary | Asset management and Investment advisory |
100.00% |
| 11. | ICICI International Limited | Mauritius | Subsidiary | Asset management | 100.00% |
| 12. | ICICI Prudential Pension Funds Management Company Limited2 | India | Subsidiary | Pension fund management and Points of Presence | 100.00% |
F-26
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
| Sr. no. | Name of the entity | Country of incorporation | Nature of relationship | Nature of business | Ownership interest |
| 13. | ICICI Prudential Life Insurance Company Limited | India | Subsidiary | Life insurance | 51.32% |
| 14. | ICICI Prudential Asset Management Company Limited | India | Subsidiary | Asset management | 51.00% |
| 15. | ICICI Prudential Trust Limited | India | Subsidiary | Trusteeship services | 50.80% |
| 16. | ICICI Strategic Investments Fund | India | Consolidated as per AS 21 | Venture capital fund | 100.00% |
| 17. | ICICI Lombard General Insurance Company Limited3,4 | India | Associate | General insurance | 48.04%
|
| 18. | I-Process Services (India) Private Limited3 | India | Associate | Services related to back end operations | 19.00% |
| 19. | NIIT Institute of Finance Banking and Insurance Training Limited3 | India | Associate | Education and training in banking, finance and insurance |
18.79% |
| 20. | ICICI Merchant Services Private Limited3 | India | Associate | Merchant acquiring and servicing | 19.01% |
| 21. | India Infradebt Limited3 | India | Associate | Infrastructure finance | 42.33% |
| 22. | India Advantage Fund-III3 | India | Associate | Venture capital fund | 24.10% |
| 23. | India Advantage Fund-IV3 | India | Associate | Venture capital fund | 47.14% |
| 24. | Arteria Technologies Private Limited3 | India | Associate | Software company | 19.98% |
| 1. | ICICI Securities Holding Inc. is a wholly owned subsidiary of ICICI Securities Limited. ICICI Securities Inc. is a wholly owned subsidiary of ICICI Securities Holding Inc. |
| 2. | ICICI Prudential Pension Funds Management Company Limited is a wholly owned subsidiary of ICICI Prudential Life Insurance Company Limited. |
| 3. | These entities have been accounted as per the equity method as prescribed by AS 23 on ‘Accounting for Investments in Associates in Consolidated Financial Statements’. |
| 4. | From April 1, 2021, ICICI General ceased to be a subsidiary and became an associate of the Bank. |
Comm Trade Services Limited has not been consolidated under AS 21, since the investment is temporary in nature. Falcon Tyres Limited, in which the Bank holds 26.39% equity shares has not been accounted as per equity method under AS 23, since the investment is temporary in nature.
F-27
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
SIGNIFICANT ACCOUNTING POLICIES
| 1. | Translation of foreign currency items |
The consolidated financial statements of the Group are reported in Indian rupees (Rs.), the national currency of India. Foreign currency income and expenditure items of domestic operations are translated at the exchange rates prevailing on the date of the transaction. Income and expenditure items of integral foreign operations (representative offices) are translated at daily closing rates, and income and expenditure items of non-integral foreign operations (foreign branches, offshore banking units, foreign subsidiaries) are translated at quarterly average closing rates.
Monetary foreign currency assets and liabilities of domestic and integral foreign operations are translated at closing exchange rates notified by Foreign Exchange Dealers’ Association of India
(FEDAI) relevant to the balance sheet date and the resulting gains/losses are recognised in the profit and loss account.
Both monetary and non-monetary foreign currency assets and liabilities of non-integral foreign operations are translated at relevant closing exchange rates notified by FEDAI at the balance sheet date and the resulting gains/losses from exchange differences are accumulated in the foreign currency translation reserve until the disposal of the net investment in the non-integral foreign operations. Pursuant to RBI guideline, the Bank does not recognise the cumulative/proportionate amount of such exchange differences as income or expenses, which relate to repatriation of accumulated retained earnings from overseas operations, in the profit and loss account.
Contingent liabilities on account of guarantees, endorsements and other obligations denominated in foreign currencies are disclosed at the closing exchange rates notified by FEDAI relevant to the balance sheet date.
| 2. | Revenue recognition |
| a) | Interest income is recognised in the profit and loss account as it accrues, including for cases where moratorium has been extended for payments of principal and/or interest as per RBI guideline dated March 27, 2020, except in the case of non-performing assets (NPAs) where it is recognised upon realisation, as per the income recognition and asset classification norms of RBI/NHB/other applicable guidelines. |
| b) | Income on discounted instruments is recognised over the tenure of the instrument. |
| c) | Dividend income is accounted on an accrual basis when the right to receive the dividend is established. |
| d) | Loan processing fee is accounted for upfront when it becomes due except in the case of foreign banking subsidiaries, where it is amortised over the period of the loan. |
| e) | Project appraisal/structuring fee is accounted for on the completion of the agreed service. |
| f) | Arranger fee is accounted for as income when a significant portion of the arrangement is completed and right to receive is established. |
| g) | Commission received on guarantees and letters of credit issued is amortised on a straight-line basis over the period of the guarantee/letters of credit. |
F-28
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
| h) | Fund management and portfolio management fees are recognised on an accrual basis. |
| i) | The annual/renewal fee on credit cards, debit cards and prepaid cards are amortised on a straight line basis over one year. |
| j) | All other fees are accounted for as and when they become due where the Group is reasonably certain of ultimate collection. |
| k) | Fees paid/received for priority sector lending certificates (PSLC) is amortised on straight- line basis over the period of the certificate. |
| l) | Income from securities brokerage activities is recognised as income on the trade date of the transaction. Brokerage income in relation to public or other issuances of securities is recognised based on mobilisation and terms of agreement with the client. |
| m) | Life insurance premium for non-linked policies is recognised as income when due from policyholders. For unit linked business, premium is recognised when the associated units are created. Premium on lapsed policies is recognised as income when such policies are reinstated. Top-up premiums paid by unit linked policyholders’ are considered as single premium and recognised as income when the associated units are created. Income from unit linked policies, which includes fund management charges, policy administration charges, mortality charges and other charges, if any, are recovered from the linked funds in accordance with the terms and conditions of the policy and are recognised when due. |
| n) | In case of general insurance business, premium including reinsurance accepted (net of Goods & Services Tax) other than for long-term (with term more than one year) motor insurance policies for new cars and new two wheelers sold on or after September 1, 2018 is recorded on receipt of complete information, for the policy period at the commencement of risk. For crop insurance, the premium is accounted based on management estimates that are progressively actualised on receipt of information. For installment cases, premium is recorded on installment due dates. Reinstatement premium is recorded as and when such premiums are recovered. Premium earned including reinstatement premium and re-insurance accepted is recognised as income over the period of risk or the contract period based on 1/365 method, whichever is appropriate on a gross basis other than installment premiums received for group health policies, wherein the installment premiums are recognised over the balance policy period. Any subsequent revisions to premium as and when they occur are recognised over the remaining period of risk or contract period, as applicable. |
In case of long-term motor insurance policies for new cars and new two wheelers sold on or after September 1, 2018, premium received (net of Goods & Services Tax) for third party liability coverage is recognised equally over the policy period at the commencement of risk on 1/n basis where ‘n’ denotes the term of the policy in years and premium received for own damage coverage is recognised in accordance with movement of Insured Declared Value (IDV) over the period of risk, on receipt of complete information. Reinstatement premium is recorded as and when such premiums are recovered. Premium allocated for the year is recognised as income earned based on 1/365 method, on a gross basis. Reinstatement premium is allocated on the same basis as the original premium over the balance term of the policy. Any subsequent revisions to premium as and when they occur are recognised on the same basis as the original premium over the balance term of the policy. Adjustments to premium income arising on cancellation of policies are recognised in the period in which the policies are cancelled. Adjustments to premium income for corrections to area covered under crop insurance are recognised in the period in which the information is confirmed by the concerned government/nodal agency. Commission on reinsurance ceded is recognised as income in the period of ceding the risk. Profit commission under reinsurance
F-29
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
treaties, wherever applicable, is recognised as income in the year of final determination of profits as confirmed by reinsurers and combined with commission on reinsurance ceded. Sliding scale commission under reinsurance treaties, wherever applicable, is determined at every balance sheet date as per terms of the respective treaties. Any reduction in the previously accrued commission is recognized immediately and any additional accrual is recognised on confirmation from reinsurers. Such commission is combined with commission on reinsurance ceded.
| o) | In case of life insurance business, reinsurance premium ceded/accepted is accounted in accordance with the terms of the relevant treaties/arrangements with the reinsurer/insurer. Profit commission on reinsurance ceded is netted off against premium ceded on reinsurance. |
| p) | In case of general insurance business, insurance premium on ceding of the risk other than for long -term motor insurance policies for new cars and new two wheelers sold on or after September 1, 2018 is recognised simultaneously along with the insurance premium in accordance with reinsurance arrangements with the reinsurers. In case of long-term motor insurance policies for new cars and new two wheelers sold on or after September 1, 2018, reinsurance premium is recognised on the insurance premium allocated for the year simultaneously along with the recognition of the insurance premium in accordance with the reinsurance arrangements with the reinsurers. Any subsequent revision to premium ceded is recognised in the period of such revision. Adjustment to reinsurance premium arising on cancellation of policies is recognised in the period in which the policies are cancelled. Adjustments to reinsurance premium for corrections to area covered under crop insurance are recognised simultaneously along with related premium income. |
| q) | In the case of general insurance business, premium deficiency is recognised when the sum of expected claim costs and related expenses and maintenance costs exceed the reserve for unexpired risks and is computed at a segmental revenue account level. The premium deficiency is calculated and duly certified by the Appointed Actuary. |
| 3. | Stock based compensation |
The following entities within the group have granted stock options to their employees:
| · | ICICI Bank Limited |
| · | ICICI Prudential Life Insurance Company Limited |
| · | ICICI Lombard General Insurance Company Limited |
| · | ICICI Securities Limited |
The Employees Stock Option Scheme (the Scheme) of the Bank provides for grant of options on the Bank’s equity shares to wholetime directors and employees of the Bank and its subsidiaries. The options granted vest in a graded manner and may be exercised within a specified period.
Till March 31, 2021, the Bank recognised cost of stock options granted under Employee Stock Option Scheme, using intrinsic value method. Under Intrinsic value method, options cost is measured as the excess, if any, of the fair market price of the underlying stock over the exercise price on the grant date.
Pursuant to RBI clarification dated August 30, 2021, the cost of stock options granted after March 31, 2021 is recognised based on fair value method. The cost of stock options granted up to March 31, 2021 continues to be recognised on intrinsic value method. The Bank uses Black-Scholes model to fair value the options on the grant date and the inputs used in the valuation model include assumptions such as the expected life of the share option, volatility, risk free rate and dividend yield.
The cost of stock options is recognised in the profit and loss account over the vesting period.
F-30
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
ICICI Prudential Life Insurance Company, ICICI Lombard General Insurance Company and ICICI Securities Limited have also formulated similar stock option schemes for their employees for grant of equity shares of their respective companies. The intrinsic value method is followed by them to account for their stock-based employee compensation plans. Compensation cost is measured as the excess, if any, of the fair market price of the underlying stock over the exercise price on the grant date and amortised over the vesting period. The fair market price is the closing price on the stock exchange with the highest trading volume of the underlying shares of the Bank, ICICI Prudential Life Insurance Company, ICICI Lombard General Insurance Company Limited and ICICI Securities Limited, immediately prior to the grant date.
The banking subsidiaries namely, ICICI Bank UK and ICICI Bank Canada, account for the cost of the options granted to employees by ICICI Bank using the fair value method as followed by the Bank.
| 4. | Income taxes |
Income tax expense is the aggregate amount of current tax and deferred tax expense incurred by the Group. The current tax expense and deferred tax expense is determined in accordance with the provisions of the Income Tax Act, 1961 and as per Accounting Standard 22 - Accounting for Taxes on Income respectively. Deferred tax adjustments comprise changes in the deferred tax assets or liabilities during the year and change in tax rate.
Deferred tax assets and liabilities are recognised by considering the impact of timing differences between taxable income and accounting income for the current year, and carry forward losses. Deferred tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. The impact of changes in the deferred tax assets and liabilities is recognised in the profit and loss account.
Deferred tax assets are recognised and re-assessed at each reporting date, based upon the management’s judgement as to whether their realisation is considered as reasonably certain. However, in case of domestic companies, where there is unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognised only if there is virtual certainty of realisation of such assets.
In the consolidated financial statements, deferred tax assets and liabilities are computed at an individual entity level and aggregated for consolidated reporting.
Minimum Alternate Tax (MAT) credit is recognised as an asset to the extent there is convincing evidence that the Group will pay normal income tax during specified period, i.e., the period for which MAT credit is allowed to be carried forward as per prevailing provisions of the Income Tax Act 1961. In accordance with the recommendation contained in the guidance note issued by ICAI, MAT credit is to be recognised as an asset in the year in which it becomes eligible for set off against normal income tax. The Group reviews MAT credit entitlements at each balance sheet date and writes down the carrying amount to the extent there is no longer convincing evidence to the effect that the Group will pay normal income tax during the specified period.
F-31
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
| 5. | Claims and benefits paid |
In the case of general insurance business, claims incurred comprise claims paid, estimated liability for outstanding claims made following a loss occurrence reported and estimated liability for claims incurred but not reported (IBNR) and claims incurred but not enough reported (IBNER). Further, claims incurred also include specific claim settlement costs such as survey/legal fees and other directly attributable costs. Claims (net of amounts receivable from re-insurers/co-insurers) are recognised on the date of intimation based on internal management estimates or on estimates from surveyors/insured in the respective revenue account. Estimated liability for outstanding claims at the balance sheet date is recorded net of claims recoverable from/payable to co-insurers/re-insurers and salvage to the extent there is certainty of realisation and includes provision for solatium fund. Salvaged stock is recognised at estimated net realisable value based on independent valuer’s report. Estimated liability for outstanding claim is determined by the management on the basis of ultimate amounts likely to be paid on each claim based on the past experience and in cases where claim payment period exceeds four years based on actuarial valuation. These estimates are progressively revalidated on availability of further information. Claims IBNR represent that amount of claims that may have been incurred during the accounting period but have not been reported or claimed. The claims IBNR provision also includes provision, if any, required for claims that have been incurred but are not enough reported (IBNER). The provision for claims IBNR/claims IBNER is based on an actuarial estimate duly certified by the Appointed/Panel Actuary of the entity. The actuarial estimate is derived in accordance with relevant IRDAI regulations and Guidance Note GN 21 issued by the Institute of Actuaries of India.
In the case of life insurance business, benefits paid comprise policy benefits and claim settlement costs, if any. Death and rider claims are accounted for on receipt of intimation. Survival and maturity benefits are accounted when due. Withdrawals and surrenders under non linked policies are accounted on the receipt of intimation. Claim settlement cost, legal and other fees should also form part of claim cost wherever applicable. Reinsurance claims receivable are accounted for in the period in which the claim is intimated. Repudiated claims and other claims disputed before the judicial authorities are provided for on prudent basis as considered appropriate by the management.
| 6. | Liability for life policies in force |
In the case of life insurance business, the liabilities for life policies in force are calculated in accordance with accepted actuarial practice, requirements of Insurance Act, 1938 (amended by Insurance Laws (Amendment) Act, 2015) and regulations notified by the Insurance Regulatory and Development Authority of India and Actuarial Practice Standards of the Institute of Actuaries of India.
| 7. | Reserve for unexpired risk |
Reserve for unexpired risk is recognised net of re-insurance ceded and represents premium written that is attributable to, and is to be allocated to succeeding accounting periods. For fire, marine, cargo and miscellaneous business it is calculated on a daily pro-rata basis, except in the case of marine hull business which is computed at 100.00% of net premium written on all unexpired policies at balance sheet date.
| 8. | Actuarial method and valuation |
In the case of life insurance business, the actuarial liability on both participating and non-participating policies is calculated using the gross premium method, using assumptions for interest, mortality, morbidity, expense and inflation, and in the case of participating policies, future bonuses together with allowance for taxation and allocation of profits to shareholders. These assumptions are determined as prudent estimates at the date of valuation with allowances for adverse deviations.
F-32
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
The liability for the unexpired portion of the risk for the non-unit liabilities of linked business and attached riders is the higher of liability calculated using discounted cash flows and unearned premium reserves.
The unit liability in respect of linked business has been taken as the value of the units standing to the credit of policyholders, using the Net Asset Value (NAV) prevailing at the valuation date.
An unexpired risk reserve and a reserve in respect of claims incurred but not reported are created, for one year renewable group term insurance.
The interest rates used for valuing the liabilities are in the range of 3.67% to 6.30% per annum (previous year –3.13% to 5.56% per annum).
Mortality rates used are based on the published “Indian Assured Lives Mortality (2012-2014) Ult.” mortality table for assurances and LIC 96-98 table for annuities, adjusted to reflect expected experience while morbidity rates used are based on CIBT 93 table, adjusted for expected experience, or on risk rates supplied by reinsurers.
Expenses are provided for at current levels, in respect of renewal expenses, with no allowance for future improvements but with an allowance for any expected worsening. Per policy renewal expenses for regular premium policies are assumed to inflate at 4.59% per annum (previous year – 4.22%).
| 9. | Acquisition costs for insurance business |
Acquisition costs are those costs that vary with and are primarily related to the acquisition of insurance contracts and are expensed in the period in which they are incurred except for commission on long term motor insurance policies for new cars and new two wheelers sold on or after September 1, 2018. In case of long term motor insurance policies for new cars and new two wheelers sold on or after September 1, 2018 commission is expensed at the applicable rates on the premium allocated for the year.
| 10. | Employee benefits |
Gratuity
The Group pays gratuity, a defined benefit plan, to employees who retire or resign after a minimum prescribed period of continuous service and in case of employees at overseas locations as per the rules in force in the respective countries. The Group makes contribution to recognised trusts which administer the funds on their own account or through insurance companies.
Actuarial valuation of the gratuity liability is determined by an independent actuary appointed by the Group. Actuarial valuation of gratuity liability is determined based on certain assumptions regarding rate of interest, salary growth, mortality and staff attrition as per the projected unit credit method. The actuarial gains or losses arising during the year are recognised in the profit and loss account.
Superannuation Fund and National Pension Scheme
The Bank has a superannuation fund, a defined contribution plan, which is administered by trustees and insurance companies. The Bank contributes 15.0% of the total annual basic salary for certain employees to superannuation funds. ICICI Prudential Life Insurance Company, ICICI Prudential Asset Management Company, and ICICI Venture Funds Management Company have accrued for superannuation liability based on a percentage of basic salary payable to eligible employees for the period of service.
F-33
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
The Group contributes upto 10.0% of the total basic salary of certain employees to National Pension Scheme (NPS), a defined contribution plan, which is managed and administered by pension fund management companies. The employees are given an option to receive the amount in cash in lieu of such contributions along with their monthly salary during their employment.
The amounts so contributed/paid by the Group to the superannuation fund and NPS or to employees during the year are recognised in the profit and loss account. The Group has no liability towards future benefits under superannuation fund and national pension scheme other than its annual contribution.
Pension
The Bank provides for pension, a defined benefit plan covering eligible employees of erstwhile Bank of Madura, erstwhile Sangli Bank and erstwhile Bank of Rajasthan. The Bank makes contribution to a trust which administers the funds on its own account or through insurance companies. The plan provides for pension payment including dearness relief on a monthly basis to these employees on their retirement based on the respective employee’s years of service with the Bank and applicable salary.
Actuarial valuation of the pension liability is determined by an independent actuary appointed by the Bank. Actuarial valuation of pension liability is calculated based on certain assumptions regarding rate of interest, salary growth, mortality and staff attrition as per the projected unit credit method.
The actuarial gains or losses arising during the year are recognised in the profit and loss account.
Employees covered by the pension plan are not eligible for employer’s contribution under the provident fund plan.
Provident fund
The Group is statutorily required to maintain a provident fund, a defined benefit plan, as a part of retirement benefits to its employees. Each employee contributes a certain percentage of his or her basic salary and the Group contributes an equal amount for eligible employees. The Group makes contribution as required by The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 to Employees’ Pension Scheme administered by the Regional Provident Fund Commissioner and the balance contributions are transferred to funds administered by trustees. The funds are invested according to the rules prescribed by the Government of India. The Group recognises such contribution as an expense in the year in which it is incurred.
Interest payable on provident fund should not be lower than the statutory rate of interest declared by the Central Government under the Employees Provident Funds and Miscellaneous Provisions Act, 1952. Actuarial valuation for the interest obligation on the provident fund balances is determined by an actuary appointed by the Group.
The actuarial gains or losses arising during the year are recognised in the profit and loss account.
The overseas branches of the Bank and its eligible employees contribute a certain percentage of their salary towards respective government schemes as per local regulatory guidelines. The contribution made by the overseas branches is recognised in profit and loss account at the time of contribution.
F-34
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
(Continued)
Compensated absences
The Group provides for compensated absences based on actuarial valuation conducted by an independent actuary.
| 11. | Provisions, contingent liabilities and contingent assets |
The Group estimates the probability of any loss that might be incurred on outcome of contingencies on the basis of information available upto the date on which the consolidated financial statements are prepared. A provision is recognised when an enterprise has a present obligation as a result of a past event and it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are determined based on management estimates of amounts required to settle the obligation at the balance sheet date, supplemented by experience of similar transactions. These are reviewed at each balance sheet date and adjusted to reflect the current management estimates. In cases where the available information indicates that the loss on the contingency is reasonably possible but the amount of loss cannot be reasonably estimated, a disclosure to this effect is made in the consolidated financial statements. In case of remote possibility, neither provision nor disclosure is made in the consolidated financial statements. The Group does not account for or disclose contingent assets, if any.
The Bank estimates the probability of redemption of customer loyalty reward points using an actuarial method by employing an independent actuary and accordingly makes provision for these reward points. Actuarial valuation is determined based on certain assumptions regarding mortality rate, discount rate, cancellation rate and redemption rate.
| 12. | Cash and cash equivalents |
Cash and cash equivalents include cash in hand, balances with RBI, balances with other banks and money at call and short notice.
| 13. | Investments |
| i) | Investments of the Bank are accounted for in accordance with the extant RBI guidelines on investment classification and valuation. |
| a. | The Bank follows trade date method of accounting for purchase and sale of investments, except for government of India and state government securities where settlement date method of accounting is followed in accordance with RBI guidelines. |
| b. | All investments are classified into ‘Held to Maturity’ (HTM), ‘Available for Sale’ (AFS) and ‘Held for Trading’ (HFT) on the date of purchase as per the extant RBI guidelines on investment classification and valuation. Reclassifications, if any, in any category are accounted for as per the RBI guidelines. Under each classification, the investments are further categorised as (a) government securities, (b) other approved securities, (c) shares, (d) bonds and debentures and (e) others. |
| c. | Investments that are held principally for resale within 90 days from the date of purchase are classified as HFT securities. Investments which the Bank intends to hold till maturity are classified as HTM securities. Investments which are not classified in either of the above categories are classified under AFS securities. |
| d. | Costs including brokerage and commission pertaining to investments paid at the time of acquisition and broken period interest (the amount of interest from the previous interest payment date till the date of purchase of instruments) on debt instruments are charged to the profit and loss account. |
F-35
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
| e. | Securities are valued scrip-wise. Depreciation/appreciation on securities, other than those acquired by way of conversion of outstanding loans, is aggregated for each category. Net appreciation in each category under each investment classification, if any, being unrealised, is ignored, while net depreciation is provided for. The depreciation on securities acquired by way of conversion of outstanding loans is fully provided for. Non-performing investments are identified based on the RBI guidelines. |
| f. | HTM securities are carried at their acquisition cost or at amortised cost, if acquired at a premium over the face value. Any premium over the face value of fixed rate and floating rate securities acquired is amortised over the remaining period to maturity on a constant yield basis and straight line basis respectively. |
| g. | AFS and HFT securities are valued periodically as per RBI guidelines. Any premium over the face value of fixed rate and floating rate investments in government securities, classified as AFS, is amortised over the remaining period to maturity on constant yield basis and straight line basis respectively. Quoted investments are valued based on the closing quotes on the recognised stock exchanges or prices declared by Primary Dealers Association of India (PDAI) jointly with Fixed Income Money Market and Derivatives Association (FIMMDA)/Financial Benchmark India Private Limited (FBIL), periodically. |
| h. | The market/fair value of unquoted government securities which are in the nature of Statutory Liquidity Ratio (SLR) securities included in the ‘AFS’ and ‘HFT’ categories is as per the rates published by FBIL. The valuation of other unquoted fixed income securities, including Pass Through Certificates, wherever linked to the Yield-to-Maturity (YTM) rates, is computed with a mark-up (reflecting associated credit risk) over the YTM rates for government securities published by FIMMDA. The sovereign foreign securities and non-INR India linked bonds are valued on the basis of prices published by the sovereign regulator or counterparty quotes. |
| i. | Treasury bills, commercial papers and certificate of deposits being discounted instruments, are valued at carrying cost. |
| j. | The units of mutual funds are valued at the latest repurchase price/net asset value declared by the mutual fund. Unquoted equity shares are valued at the break-up value, if the latest balance sheet is available, or at Rs.1, as per RBI guidelines. |
| k. | At the end of each reporting period, security receipts issued by the asset reconstruction companies are valued in accordance with the guidelines applicable to such instruments, prescribed by RBI from time to time. Accordingly, in cases where the cash flows from security receipts issued by the asset reconstruction companies are limited to the actual realisation of the financial assets assigned to the instruments in the concerned scheme, the Bank reckons the net asset value obtained from the asset reconstruction company from time to time, for valuation of such investments at each reporting period end. The Bank makes additional provisions on the security receipts based on the remaining period to end. The security receipts which are outstanding and not redeemed as at the end of the resolution period are treated as loss assets and are fully provided for. |
| l. | Gain/loss on sale of investments is recognised in the profit and loss account. Cost of investments is computed based on the First-In-First-Out (FIFO) method. The profit from sale of investment under HTM category, net of taxes and transfer to statutory reserve is transferred to “Capital Reserve” in accordance with the RBI Guidelines. |
F-36
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
| m. | The Bank undertakes short sale transactions in dated central government securities in accordance with RBI guidelines. The short positions are categorised under HFT category and are marked-to-market. The mark-to-market loss is charged to profit and loss account and gain, if any, is ignored as per RBI guidelines. |
| n. | Market repurchase, reverse repurchase and transactions with RBI under Liquidity Adjustment Facility (LAF) are accounted for as borrowing and lending transactions in accordance with the extant RBI guidelines. |
| ii) | The Bank’s consolidating venture capital fund carries investments at fair values, with unrealised gains and temporary losses on investments recognised as components of investors’ equity and accounted for in the unrealised investment reserve account. The realised gains and losses on investments and units in mutual funds and unrealised gains or losses on revaluation of units in mutual funds are accounted for in the profit and loss account. Provisions are made in respect of accrued income considered doubtful. Such provisions as well as any subsequent recoveries are recorded through the profit and loss account. Subscription to/purchase of investments are accounted at the cost of acquisition inclusive of brokerage, commission and stamp duty. |
| iii) | The Bank’s primary dealership and securities broking subsidiaries classify the securities held with the intention of holding for short-term and trading as stock-in-trade which are valued at lower of cost or market value. The securities classified by primary dealership subsidiary as held-to-maturity, as permitted by RBI, are carried at amortised cost. Appropriate provision is made for other than temporary diminution in the value of investments. Commission earned in respect of securities acquired upon devolvement is reduced from the cost of acquisition. |
| iv) | The Bank’s housing finance subsidiary classifies its investments as current investments and long-term investments. Investments that are readily realisable and intended to be held for not more than a year are classified as current investments, which are carried at the lower of cost and net realisable value. All other investments are classified as long-term investments, which are carried at their acquisition cost or at amortised cost, if acquired at a premium over the face value. Any premium over the face value of the securities acquired is amortised over the remaining period to maturity on a constant yield basis. However, a provision for diminution in value is made to recognise any other than temporary decline in the value of such long-term investments. |
| v) | The Bank’s overseas banking subsidiaries account for unrealised gain/loss, net of tax, on investment in ‘AFS’/‘Fair Value Through Other Comprehensive Income’ (FVOCI) category directly in their reserves. Further unrealised gain/loss on investment in ‘HFT’/‘Fair Value Through Profit and Loss’ (FVTPL) category is accounted directly in the profit and loss account. Investments in ‘HTM’/‘amortised cost’ category are carried at amortised cost. |
| vi) | In the case of life and general insurance businesses, investments are made in accordance with the Insurance Act, 1938 (amended by the Insurance Laws (Amendment) Act, 2015), the IRDA (Investment) Regulations, 2016, and various other circulars/notifications issued by the IRDAI in this context from time to time. |
In the case of life insurance business, valuation of investments (other than linked business) is done on the following basis:
F-37
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
| a. | All debt securities and redeemable preference shares are considered as ‘held to maturity’ and accordingly stated at historical cost, subject to amortisation of premium or accretion of discount over the period of maturity/holding on a constant yield basis. |
| b. | Listed equity shares and equity exchange traded funds (ETF) are stated at fair value being the last quoted closing price on the National Stock Exchange (NSE) (or BSE, in case the investments are not listed on NSE). |
| c. | Mutual fund units are valued based on the previous day’s net asset value. |
Unrealised gains/losses arising due to changes in the fair value of listed equity shares and mutual fund units are taken to ‘Revenue and other reserves’ and ‘Liabilities on policies in force’ in the balance sheet for Shareholders’ fund and Policyholders’ fund respectively for life insurance business.
In the case of general insurance business, valuation of investments is done on the following basis:
| a. | All debt securities including government securities and non-convertible preference shares are considered as ‘held to maturity’ and accordingly stated at amortised cost determined after amortisation of premium or accretion of discount on a constant yield basis over the holding/maturity period. |
| b. | Listed equities and convertible preference shares at the balance sheet date are stated at fair value, being the last quoted closing price on the NSE and in case these are not listed on NSE, then based on the last quoted closing price on the BSE. |
| c. | Mutual fund investments (other than venture capital fund) are stated at fair value, being the closing net asset value at balance sheet date. |
| d. | Investments other than mentioned above are valued at cost. |
Unrealised gains/losses arising due to changes in the fair value of listed equity shares, convertible preference shares and mutual fund units are taken to ‘Revenue and other reserves’ in the balance sheet for general insurance business.
Insurance subsidiaries assess at each balance sheet date whether there is any indication that any investment may be impaired. If any such indication exists, the carrying value of such investment is reduced to its recoverable amount and the impairment loss is recognised in the revenue(s)/profit and loss account. The previously impaired loss is also reversed on disposal/realisation of securities and results thereon are recognised.
The total proportion of investments for which subsidiaries have applied accounting policies different from the Bank as mentioned above, is approximately 19.93% of the total investments at March 31, 2022.
| 14. | Provisions/write-offs on loans and other credit facilities |
| i) | Loans and other credit facilities of the Bank are accounted for in accordance with the extant RBI guidelines as given below: |
F-38
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
The Bank classifies its loans and investments, including at overseas branches and overdues arising from crystallised derivative contracts, into performing and NPAs in accordance with RBI guidelines. Loans and advances held at the overseas branches that are identified as impaired as per host country regulations but which are standard as per the extant RBI guidelines, are classified as NPAs to the extent of amount outstanding in the respective host country. In accordance with the RBI circular dated April 17, 2020, the moratorium granted to certain borrowers is excluded from the determination of number of days past-due/out-of-order status for the purpose of asset classification. Further, NPAs are classified into sub-standard, doubtful and loss assets based on the criteria stipulated by RBI. Interest on non-performing advances is transferred to an interest suspense account and not recognised in profit and loss account until received.
The Bank considers an account as restructured, where for economic or legal reasons relating to the borrower’s financial difficulty, the Bank grants concessions to the borrower, that the Bank would not otherwise consider. The moratorium granted to the borrowers based on RBI guidelines is not accounted as restructuring of loan. The RBI guidelines on ‘Resolution Framework for COVID-19-related Stress’ provide a prudential framework for resolution plan of certain loans. The borrowers where resolution plan was implemented under these guidelines are classified as standard restructured.
In the case of corporate loans and advances, provisions are made for sub-standard and doubtful assets at rates prescribed by RBI. Loss assets and the unsecured portion of doubtful assets are fully provided. For impaired loans and advances held in overseas branches, which are performing as per RBI guidelines, provisions are made as per the host country regulations. For loans and advances held in overseas branches, which are NPAs both as per RBI guidelines and host country guidelines, provisions are made at the higher of the provisions required under RBI regulations and host country regulations. Provisions on homogeneous non-performing retail loans and advances, subject to minimum provisioning requirements of RBI, are made on the basis of the ageing of the loan. The specific provisions on non-performing retail loans and advances held by the Bank are higher than the minimum regulatory requirements.
In respect of non-retail loans reported as fraud to RBI, the entire amount is provided for over a period not exceeding four quarters starting from the quarter in which fraud has been detected. In respect of non-retail loans where there has been delay in reporting the fraud to the RBI or which are classified as loss accounts, the entire amount is provided immediately. In case of fraud in retail accounts, the entire amount is provided immediately. In respect of borrowers classified as non-cooperative borrowers or willful defaulters, the Bank makes accelerated provisions as per RBI guidelines.
The Bank holds specific provisions against non-performing loans and advances, and against certain performing loans and advances in accordance with RBI directions, including RBI direction for provision on accounts referred to the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code, 2016.
The Bank makes provision on restructured loans subject to minimum requirements as per RBI guidelines. Provision due to diminution in the fair value of restructured/rescheduled loans and advances is made in accordance with the applicable RBI guidelines.
Non-performing and restructured loans are upgraded to standard as per the extant RBI guidelines or host country regulations, as applicable.
F-39
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
In terms of RBI guideline, the NPAs are written-off in accordance with the Bank’s policy. Amounts recovered against bad debts written-off are recognised in the profit and loss account.
The Bank maintains general provision on performing loans and advances in accordance with the RBI guidelines, including provisions on loans to borrowers having unhedged foreign currency exposure, provisions on loans to specific borrowers in specific stressed sector, provision on exposures to step-down subsidiaries of Indian companies and provision on incremental exposure to borrowers identified as per RBI’s large exposure framework. For performing loans and advances in overseas branches, the general provision is made at higher of aggregate provision required as per host country regulations and RBI requirement.
In addition to the provisions required to be held according to the asset classification status, provisions are held for individual country exposures including indirect country risk (other than for home country exposure). The countries are categorised into seven risk categories namely insignificant, low, moderately low, moderate, moderately high, high and very high, and provisioning is made on exposures exceeding 180 days on a graded scale ranging from 0.25% to 25%. For exposures with contractual maturity of less than 180 days, provision is required to be held at 25% of the rates applicable to exposures exceeding 180 days. The indirect exposure is reckoned at 50% of the exposure. If the country exposure (net) of the Bank in respect of each country does not exceed 1% of the total funded assets, no provision is required on such country exposure.
The Bank makes additional provisions as per RBI guidelines for the cases where viable resolution plan has not been implemented within the timelines prescribed by the RBI from the date of default. These additional provisions are written-back on satisfying the conditions for reversal as per RBI guidelines.
The Bank, on prudent basis, has made Covid-19 related provision on certain borrowers, including those who had taken moratorium at any time during FY2021 under the extant RBI guidelines. This provision is included as contingency provision in the books. The Bank also makes additional contingency provision on certain standard assets. The contingency provision is included in ‘Other Liabilities and Provisions’.
The Bank has Board approved policy for making floating provision, which is in addition to the specific and general provisions made by the Bank. The floating provision is utilised, with the approval of Board and RBI, in case of contingencies which do not arise in the normal course of business and are exceptional and non-recurring in nature and for making specific provision for impaired loans as per the requirement of extant RBI guidelines or any regulatory guidance/instructions. The floating provision is netted-off from advances.
Depreciation/provision on non-performing investments is made based on the RBI guidelines.
| ii) | In the case of the Bank’s housing finance subsidiary, loans and other credit facilities are classified as per the Master Directions – Non Banking Financial Company – Housing Finance Companies (Reserve Bank) Directions, 2021 issued by Reserve Bank of India (‘Master Direction’). Further, NPAs are classified into sub-standard, doubtful and loss assets based on criteria stipulated in the Master Direction. Additional provisions are made against specific non-performing assets over and above what is stated above, if in the opinion of management, increased provisions are necessary. General provision on restructured loans is made as per RBI guidelines. |
F-40
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
| iii) | In the case of the Bank’s UK subsidiary, loans are stated net of allowance for credit losses. Loans are classified as impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition on the loan (a loss event) and that loss event (or events) has an impact on the estimated future cash flows of the loans that can be reliably estimated. An allowance for impairment losses is maintained at a level that management considers adequate to absorb identified credit related losses as well as losses that have occurred but have not yet been identified. |
| iv) | The Bank’s Canadian subsidiary measures impairment loss on all financial assets using expected credit loss (ECL) model based on a three-stage approach. The ECL for financial assets that are not credit-impaired and for which there is no significant increase in credit risk since origination, is computed using 12-month probability of default (PD), and represents the lifetime cash shortfalls that will result if a default occurs in next 12 months. The ECL for financial assets, that are not credit-impaired but have experienced a significant increase in credit risk since origination, is computed using a life time PD, and represents lifetime cash shortfalls that will result if a default occurs during the expected life of financial assets. A financial asset is considered credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. The allowance for credit losses for impaired financial assets is computed based on individual assessment of expected cash flows from such assets. |
The total proportion of loans for which subsidiaries have applied accounting policies different from the Bank as mentioned above, is approximately 6.71% of the total loans at March 31, 2022.
| 15. | Transfer and servicing of assets |
The Bank transfers commercial and consumer loans through securitisation transactions. The transferred loans are de-recognised and gains/losses are accounted for, only if the Bank surrenders the rights to benefits specified in the underlying securitised loan contract. Recourse and servicing obligations are accounted for net of provisions.
In accordance with the RBI guidelines for securitisation of standard assets, with effect from February 1, 2006, the profit/premium arising from securitisation is amortised over the life of the securities issued or to be issued by the special purpose vehicle to which the assets are sold. With effect from May 7, 2012, the RBI guidelines require the profit/premium arising from securitisation to be amortised based on the method prescribed in the guidelines. As per the RBI guidelines issued on September 24, 2021, gain realised at the time of securitisation of loans is accounted through profit and loss account on completion of transaction. The Bank accounts for any loss arising from securitisation immediately at the time of sale.
The unrealised gains, associated with expected future margin income is recognised in profit and loss account on receipt of cash, after absorbing losses, if any.
Net income arising from sale of loan assets through direct assignment with recourse obligation is amortised over the life of underlying assets sold and net income from sale of loan assets through direct assignment, without any recourse obligation, is recognised at the time of sale. Net loss arising on account of direct assignment of loan assets is recognised at the time of sale. As per the RBI guidelines issued on September 24, 2021, any loss or realised gain from sale of loan assets through direct assignment is accounted through profit and loss account on completion of transaction.
F-41
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
The acquired loans is carried at acquisition cost. In case premium is paid on a loan acquired, premium is amortised over the loan tenure.
In accordance with RBI guidelines, in case of non-performing loans sold to Asset Reconstruction Companies (ARCs), the Bank reverses the excess provision in profit and loss account in the year in which amounts are received. Any shortfall of sale value over the net book value on sale of such assets is recognised by the Bank in the year in which the loan is sold.
The Canadian subsidiary has entered into securitisation arrangements in respect of its originated and purchased mortgages. ICICI Bank Canada either retains substantially all the risk and rewards or retains control over these mortgages, hence these arrangements do not qualify for de-recognition accounting under their local accounting standards. It continues to recognise the mortgages securitised as “Loans and Advances” and the amounts received through securitisation are recognised as “Other borrowings”.
| 16. | Fixed assets |
Fixed assets, other than premises of the Bank and its housing finance subsidiary are carried at cost less accumulated depreciation and impairment, if any. In case of the Bank and its housing finance subsidiary, premises are carried at revalued amount, being fair value at the date of revaluation less accumulated depreciation. Cost includes freight, duties, taxes and incidental expenses related to the acquisition and installation of the asset. Depreciation is charged over the estimated useful life of fixed assets on a straight-line basis. The useful life of the groups of fixed assets for domestic group companies is based on past experience and expectation of usage, which for some categories of fixed assets, is different from the useful life as prescribed in Schedule II to the Companies Act, 2013.
Assets purchased/sold during the year are depreciated on a pro-rata basis for the actual number of days the asset has been capitalised.
In case of the Bank, assets individually costing up to Rs. 5,000/- are depreciated fully in the year of acquisition. Further, profit on sale of premises by the Bank is appropriated to capital reserve, net of transfer to Statutory Reserve and taxes, in accordance with RBI guidelines.
In case of revalued/impaired assets, depreciation is provided over the remaining useful life of the assets with reference to revised asset values. In case of premises, which are carried at revalued amounts, the depreciation on the excess of revalued amount over historical cost is transferred from Revaluation Reserve to General Reserve annually.
Non-banking assets
Non-banking assets (NBAs) acquired in satisfaction of claims are valued at the market value on a distress sale basis or value of loan, whichever is lower. Further, the Bank creates provision on these assets as per the extant RBI guidelines or specific RBI directions.
| 17. | Foreign exchange and derivative contracts |
The forward exchange contracts that are not intended for trading and are entered into to establish the amount of reporting currency required or available at the settlement date of a transaction are effectively valued at closing spot rate. The premium or discount arising on inception of such forward exchange contracts is amortised over the life of the contract as interest income/expense. All other outstanding forward exchange contracts are revalued based on the exchange rates notified by FEDAI for specified maturities and at interpolated rates for contracts of interim maturities. The contracts of longer maturities where exchange rates are not notified by FEDAI are revalued based on the forward exchange rates implied by the swap curves in respective currencies. The resultant gains or losses are recognised in the profit and loss account.
F-42
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
The swap contracts entered to hedge on-balance sheet assets and liabilities are structured such that they bear an opposite and offsetting impact with the underlying on-balance sheet items. The impact of such derivative instruments is correlated with the movement of underlying assets and liabilities and accounted pursuant to the principles of hedge accounting. The Group identifies the hedged item (asset or liability) at the inception of the transaction itself. Hedge effectiveness is ascertained at the time of the inception of the hedge and periodically thereafter. Based on RBI circular issued on June 26, 2019, the accounting of hedge relationships established after June 26, 2019 is in accordance with the Guidance note on Accounting for Derivative Contracts issued by ICAI. The swaps under hedge relationships established prior to that date are accounted for on an accrual basis and are not marked to market unless their underlying transaction is marked-to-market. Gains or losses arising from hedge ineffectiveness, if any, are recognised in the profit and loss Account except in the case of the Bank’s overseas banking subsidiaries. Gains or losses arising from hedge ineffectiveness, if any, are recognised in the Profit and Loss Account.
In overseas subsidiaries, in case of fair value hedge, the hedging transactions and the hedged items (for the risks being hedged) are measured at fair value with changes recognised in the profit and loss account and in case of cash flow hedges, changes in the fair value of effective portion of the cash flow hedge are taken to ‘Revenue and other reserves’ and ineffective portion, if any, are recognised in the profit and loss account.
The derivative contracts entered into for trading purposes are marked to market and the resulting gain or loss is accounted for in the profit and loss account. Pursuant to RBI guidelines, any receivables under derivative contracts which remain overdue for more than 90 days and mark-to-market gains on other derivative contracts with the same counter-parties are reversed through the profit and loss account.
| 18. | Impairment of assets |
The immovable fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An asset is treated as impaired when its carrying amount exceeds its recoverable amount. The impairment is recognised by debiting the profit and loss account and is measured as the amount by which the carrying amount of the impaired assets exceeds their recoverable value. The Bank and its housing finance subsidiary follows revaluation model of accounting for its premises and the recoverable amount of the revalued assets is considered to be close to its revalued amount. Accordingly, separate assessment for impairment of premises is not required.
For assets other than premises, the Group assesses at each balance sheet date whether there is any indication that an asset may be impaired. Impairment loss, if any, is provided in the profit and loss account to the extent the carrying amount of assets exceeds their estimated recoverable amount.
| 19. | Lease transactions |
Lease payments including cost escalations for assets taken on operating lease are recognised as an expense in the profit and loss account over the lease term on straight line basis. The leases of property, plant and equipment, where substantially all of the risks and rewards of ownership are transferred to the Bank are classified as finance lease. Minimum lease payments under finance lease are apportioned between the finance costs and outstanding liability.
F-43
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
| 20. | Earnings per share |
Basic earnings per share is calculated by dividing the net profit or loss after tax for the year attributable to equity shareholders by the weighted average number of equity shares outstanding for the year.
Diluted earnings per share reflect the potential dilution that could occur if contracts to issue equity shares were exercised or converted during the year. Diluted earnings per equity share is computed using the weighted average number of equity shares and dilutive potential equity shares issued by the group outstanding during the year, except where the results are anti-dilutive.
| 21. | Bullion transaction |
The Bank deals in bullion business on a consignment basis. The bullion is priced to the customers based on the price quoted by the supplier. The difference between price recovered from customers and cost of bullion is accounted for as commission at the time of sales to the customers. The Bank also deals in bullion on a borrowing and lending basis and the interest expense/income is accounted on accrual basis.
| 22. | Share issue expenses |
Share issue expenses are deducted from Share Premium Account in terms of Section 52 of the Companies Act, 2013.
F-44
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
(Continued)
SCHEDULE 18: NOTES FORMING PART OF THE ACCOUNTS
A. The following additional disclosures have been made taking into account the requirements of Accounting Standards (ASs) and Reserve Bank of India (RBI) guidelines in this regard.
1. Earnings per share
Basic and diluted earnings per equity share are computed in accordance with AS 20 - Earnings per share. Basic earnings per equity share is computed by dividing net profit/(loss) after tax attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. Diluted earnings per equity share is computed using the weighted average number of equity shares and weighted average number of dilutive potential equity shares outstanding during the year.
The following table sets forth, for the periods indicated, the computation of earnings per share.
Rs. in million, except per share data
Year ended March 31, 2022 |
Year ended March 31, 2021 | |
| Net profit/(loss) attributable to equity share holders | 251,101.0 | 183,843.2 |
| Nominal value per share (Rs.) | 2.00 | 2.00 |
| Basic earnings per share (Rs.) | 36.21 | 27.26 |
| Effect of potential equity shares (Rs.) | (0.77) | (0.43) |
| Diluted earnings per share (Rs.)1 | 35.44 | 26.83 |
| Reconciliation between weighted shares used in computation of basic and diluted earnings per share | ||
| Basic weighted average number of equity shares outstanding | 6,933,652,636 | 6,743,363,854 |
| Add: Effect of potential equity shares | 142,291,212 | 98,497,002 |
| Diluted weighted average number of equity shares outstanding | 7,075,943,848 | 6,841,860,856 |
1.The dilutive
impact is due to options granted to employees by the Group.
F-45
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
(Continued)
2. Related party transactions
The Group has transactions with its related parties comprising associates/other related entities and key management personnel and relatives of key management personnel.
I. Related parties
Associates/other related entities
| Sr. no. | Name of the entity | Nature of relationship |
| 1. | ICICI Lombard General Insurance Company Limited1 | Associate |
| 2. | Arteria Technologies Private Limited | Associate |
| 3. | India Advantage Fund-III | Associate |
| 4. | India Advantage Fund-IV | Associate |
| 5. | India Infradebt Limited | Associate |
| 6. | ICICI Merchant Services Private Limited | Associate |
| 7. | I-Process Services (India) Private Limited | Associate |
| 8. | NIIT Institute of Finance, Banking and Insurance Training Limited | Associate |
| 9. | Comm Trade Services Limited | Other related entity |
| 10. | ICICI Foundation for Inclusive Growth | Other related entity |
| 11. | Cheryl Advisory Private Limited | Other related entity |
| 1. | From April 1, 2021, ICICI Lombard General Insurance Company Limited ceased to be a subsidiary and became an associate of the Bank. |
Key management personnel
| Sr. no. | Name of the Key management personnel | Relatives of the Key management personnel |
| 1. | Mr. Sandeep Bakhshi
|
· Ms. Mona Bakhshi · Mr. Shivam Bakhshi · Ms. Esha Bakhshi · Ms. Minal Bakhshi · Mr. Ashwin Pradhan · Mr. Ritwik Thakurta · Mr. Sameer Bakhshi · Ms. Radhika Bakhshi |
| 2. | Ms. Vishakha Mulye | · Mr. Vivek Mulye · Ms. Vriddhi Mulye · Mr. Vighnesh Mulye · Dr. Gauresh Palekar · Dr. Nivedita Palekar · Ms. Shalaka Gadekar |
| 3. | Mr. Anup Bagchi | · Ms. Mitul Bagchi · Mr. Aditya Bagchi · Mr. Shishir Bagchi · Mr. Arun Bagchi · Late Mr. Animesh Bagchi |
| 4. | Mr. Sandeep Batra (w.e.f. December 23, 2020) |
· Mr. Pranav Batra · Ms. Arushi Batra · Mr. Vivek Batra · Ms. Veena Batra (w.e.f. December 23, 2020) |
F-46
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
II. Transactions with related parties
The following table sets forth, for the periods indicated, the significant transactions between the Group and its related parties.
Rs. in million
| Particulars | Year ended March 31, 2022 |
Year ended March 31, 2021 |
| Interest income | 516.9 | 729.1 |
| Associates/others | 510.9 | 719.9 |
| Key management personnel | 6.0 | 9.2 |
| Fee, commission and other income | 1,212.7 | 119.8 |
| Associates/others | 1,211.0 | 118.9 |
| Key management personnel | 1.2 | 0.6 |
| Relatives of key management personnel | 0.5 | 0.3 |
| Commission income on guarantees issued | 2.9 | 0.2 |
| Associates/others | 2.9 | 0.2 |
| Income from custodial services | 0.1 | 0.1 |
| Associates/others | 0.1 | 0.1 |
| Insurance premium received | 75.8 | 54.1 |
| Associates/others | 67.1 | 16.1 |
| Key management personnel | 3.5 | 32.6 |
| Relatives of key management personnel | 5.2 | 5.4 |
| Insurance claims received | 146.6 | .. |
| Associates/others | 146.6 | .. |
| Gain/(loss) on forex and derivative transactions (net) | 36.6 | .. |
| Associates/others | 36.6 | .. |
| Dividend income | 1,993.3 | 106.5 |
| Associates/others | 1,993.3 | 106.5 |
| Recovery of lease of premises, common corporate and facilities expenses | 353.3 | 51.4 |
| Associates/others | 353.3 | 51.4 |
F-47
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
| Particulars | Year ended March 31, 2022 |
Year ended March 31, 2021 |
| Payment of lease of premises, common corporate and facilities expenses | 0.8 | .. |
| Associates/others | 0.8 | .. |
| Recovery of secondment of employees | 15.9 | 10.6 |
| Associates/others | 15.9 | 10.6 |
| Interest expense | 199.0 | 45.5 |
| Associates/others | 192.2 | 38.4 |
| Key management personnel | 4.8 | 5.6 |
| Relatives of key management personnel | 2.0 | 1.5 |
| Remuneration to wholetime directors2 | 267.6 | 132.3 |
| Key management personnel | 267.6 | 132.3 |
| Reimbursement of expenses to the Group | 83.0 | .. |
| Associates/others | 83.0 | .. |
| Reimbursement of expenses to related parties | 2,239.2 | 798.3 |
| Associates/others | 2,239.2 | 798.3 |
| Insurance premium paid | 3,222.4 | .. |
| Associates/others | 3,222.4 | .. |
| Insurance claims paid | 42.6 | 4.9 |
| Associates/others | 42.1 | 3.9 |
| Key management personnel | 0.5 | 0.4 |
| Relatives of key management personnel | .. | 0.6 |
| Brokerage, fee and other expenses | 12,297.3 | 10,652.5 |
| Associates/others | 12,297.3 | 10,652.5 |
| Donation given | 486.4 | 304.0 |
| Associates/others | 486.4 | 304.0 |
| Dividend paid | 2.5 | 4.4 |
| Key management personnel | 2.5 | 1.4 |
| Relatives of key management personnel | 0.0 | 3.0 |
| Purchase of investments | 1,766.5 | .. |
| Associates/others | 1,766.5 | .. |
| Investments in the securities issued by related parties | 1,000.0
|
4,250.0 |
| Associates/others | 1,000.0 | 4,250.0 |
| Sale of investments | 8,286.9 | .. |
| Associates/others | 8,286.9 | .. |
F-48
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
| Particulars | Year ended March 31, 2022 |
Year ended March 31, 2021 |
| Redemption/buyback of investments | .. | 858.2 |
| Associates/others | .. | 858.2 |
| Purchase of fixed assets | 4.8 | 6.6 |
| Associates/others | 4.8 | 6.6 |
| 1. | 0.0 represents insignificant amount. |
| 2. | Excludes the perquisite value on employee stock options exercised and includes performance bonus paid during the period. |
III. Material transactions with related parties
The following table sets forth, for the periods indicated, the material transactions between the Group and its related parties. A specific related party transaction is disclosed as a material related party transaction wherever it exceeds 10% of all related party transactions in that category.
Rs. in million
| Particulars | Year ended March 31, 2022 |
Year ended March 31, 2021 | |
| Interest income | |||
| 1 | India Infradebt Limited | 505.4 | 715.6 |
| Fee, commission and other income | |||
| 1 | ICICI Lombard General Insurance Company Limited | 1,066.5 | .. |
| 2 | ICICI Merchant Services Private Limited | 109.5 | 97.3 |
| 3 | India Infradebt Limited | 33.9 | 19.9 |
| Commission income on guarantees issued | |||
| 1 | ICICI Merchant Services Private Limited | 2.9 | 0.1 |
| 2 | NIIT Institute of Finance Banking and Insurance Training Limited | 0.0 | 0.1 |
| Income from custodial services | |||
| 1 | India Advantage Fund - III | 0.0 | 0.1 |
| 2 | India Advantage Fund - IV | 0.0 | 0.0 |
| Insurance premium received | |||
| 1 | ICICI Lombard General Insurance Company Limited | 47.9 | .. |
| 2 | ICICI Foundation for Inclusive Growth | 18.6 | 11.8 |
| 3 | Mr. Sandeep Bakhshi | 0.4 | 9.5 |
| 4 | Mr. Anup Bagchi | .. | 20.0 |
| Insurance Claims Received | |||
| 1 | ICICI Lombard General Insurance Company Limited | 146.6 | .. |
| Gain/(loss) on forex and derivative transactions (net) | |||
| 1 | ICICI Lombard General Insurance Company Limited | 36.6 | .. |
| Dividend income | |||
| 1 | ICICI Lombard General Insurance Company Limited | 1,886.8 | .. |
| 2 | India Infradebt Limited | 106.5 | 106.5 |
F-49
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
| Recovery of lease of premises, common corporate and facilities expenses | |||
| 1 | ICICI Lombard General Insurance Company Limited | 314.6 | .. |
| 2 | ICICI Foundation for Inclusive Growth | 38.7 | 51.4 |
| Payment of lease of premises, common corporate and facilities expenses | |||
| 1 | ICICI Lombard General Insurance Company Limited | 0.8 | .. |
| Recovery of secondment of employees | |||
| 1 | I-Process Services (India) Private Limited | 15.9 | 10.6 |
| Interest expense | |||
| 1 | ICICI Lombard General Insurance Company Limited | 163.6 | .. |
| 2 | ICICI Merchant Services Private Limited | 8.3 | 14.5 |
| 3 | Arteria Technologies Private Limited | 7.0 | 5.3 |
| 4 | NIIT Institute of Finance, Banking and Insurance Training Limited | 5.5 | 5.5 |
| 5 | India Infradebt Limited | 0.8 | 10.8 |
| Remuneration to wholetime directors2 | |||
| 1 | Mr. Sandeep Bakhshi3 | 73.7 | 10.14 |
| 2 | Ms. Vishakha Mulye | 63.6 | 54.6 |
| 3 | Mr. Anup Bagchi | 66.3 | 52.9 |
| 4 | Mr. Sandeep Batra3,5 | 64.0 | 14.7 |
| Reimbursement of expenses to the Group | |||
| 1 | ICICI Lombard General Insurance Company Limited | 83.0 | .. |
| Reimbursement of expenses to related parties | |||
| 1 | ICICI Foundation for Inclusive Growth | 2,239.2 | 798.3 |
| Insurance premium paid | |||
| 1 | ICICI Lombard General Insurance Company Limited | 3,222.4 | .. |
| Insurance claims paid | |||
| 1 | ICICI Lombard General Insurance Company Limited | 42.1 | .. |
| 2 | ICICI Foundation for Inclusive Growth | .. | 3.8 |
| 3 | Dr. Gauresh Palekar | .. | 0.6 |
| Brokerage, fee and other expenses | |||
| 1 | I-Process Services (India) Private Limited | 8,450.4 | 6,402.6 |
| 2 | ICICI Merchant Services Private Limited | 3,790.0 | 4,224.5 |
| Donation given | |||
| 1 | ICICI Foundation for Inclusive Growth | 486.4 | 304.0 |
| Dividend paid | |||
| 1 | Mr. Sandeep Bakhshi | 0.4 | 0.2 |
| 2 | Ms. Vishakha Mulye | 1.8 | 1.1 |
| 3 | Mr. Anup Bagchi | 0.1 | 0.0 |
| 4 | Mr. Sandeep Batra | 0.2 | .. |
| 5 | Ms. Esha Bakhshi | 0.0 | 0.7 |
| 6 | Ms. Minal Bakhshi | 0.0 | 0.7 |
| 7 | Mr. Shivam Bakhshi | 0.0 | 1.7 |
| Purchase of investments | |||
| 1 | ICICI Lombard General Insurance Company Limited | 1,766.5 | .. |
F-50
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
| Investments in the securities issued by related parties | |||
| 1 | India Infradebt Limited | 1,000.0 | 4,250.0 |
| Sale of Investments | |||
| 1 | ICICI Lombard General Insurance Company Limited | 6,776.2 | .. |
| 2 | India Infradebt Limited | 1,510.7 | .. |
| Redemption/buyback of investments | |||
| 1 | India Advantage Fund-III | .. | 110.2 |
| 2 | India Advantage Fund-IV | .. | 147.9 |
| 3 | India Infradebt Limited | .. | 600.0 |
| Purchase of fixed assets | |||
| 1 | ICICI Lombard General Insurance Company Limited | 3.1 | .. |
| 2 | Arteria Technologies Private Limited | 1.7 | 6.6 |
| 1. | 0.0 represents insignificant amount. |
| 2. | Excludes the perquisite value on employee stock options exercised, and includes performance bonus paid during the period. |
| 3. | Includes remuneration received from ICICI Prudential Life Insurance Company Limited relating to the period of his service with that company. |
| 4. | Mr. Sandeep Bakhshi, Managing Director & CEO voluntarily relinquished his fixed compensation of basic, supplementary allowances and retirals for the year ended March 31, 2021 and was paid honorarium fee of Rs. 1/- for the year ended March 31, 2021. Includes allowances and perquisites for the year. |
| 5. | Mr. Sandeep Batra was appointed as executive director with effect from December 23, 2020. |
IV. Related party outstanding balances
The following table sets forth, for the periods indicated, the outstanding balances payable to/receivable from related parties.
Rs. in million
| Items | At March 31, 2022 |
At March 31, 2021 |
| Deposits with the Group | 3,591.0 | 2,786.9 |
| Associates/others | 3,424.7 | 2,552.7 |
| Key management personnel | 125.1 | 156.4 |
| Relatives of key management personnel | 41.2 | 77.8 |
| Payables | 3,482.7 | 2,736.3 |
| Associates/others | 3,482.6 | 2,736.2 |
| Key management personnel | 0.0 | 0.1 |
| Relatives of key management personnel | 0.1 | 0.0 |
| Investments of the Group | 24,773.8 | 12,472.1 |
| Associates/others | 24,773.8 | 12,472.1 |
| Investments of related parties in the Group | 2,104.6 | 13.8 |
| Associates/others | 2,100.0 | .. |
| Key management personnel | 2.1 | 6.8 |
| Relatives of key management personnel | 2.5 | 7.0 |
| Advances by the Group | 267.1 | 289.2 |
| Associates/others | 127.7 | 42.8 |
| Key management personnel | 139.1 | 246.2 |
| Relatives of key management personnel | 0.3 | 0.2 |
F-51
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
| Items | At March 31, 2022 |
At March 31, 2021 |
| Receivables | 1,927.9 | 334.6 |
| Associates/others | 1,927.9 | 334.6 |
| Guarantees issued by the Group | 59.0 | 50.7 |
| Associates/others | 59.0 | 50.7 |
| 1. | 0.0 represents insignificant amount. |
| 2. | At March 31, 2022: 19,437,200 (March 31, 2021: 20,047,800) employee stock options of the Bank for key management personnel were outstanding. Excludes stock options granted to key management personnel, which are pending regulatory approvals. |
| 3. | During the year ended March 31, 2022: 1,921,500 (year ended March 31, 2021: 1,188,000), employee stock options with total exercise price of Rs. 394.2 million (year ended March 31, 2021: Rs. 228.8 million) were exercised by the key management personnel. |
| 4. | At March 31, 2022: 536,600 (March 31, 2021: 536,600) employee stock options of ICICI Prudential Life Insurance Company Limited to key management personnel were outstanding. |
V. Related party maximum balances
The following table sets forth, for the periods indicated, the maximum balances payable to/receivable from related parties.
Rs. in million
| Items | Year ended March 31, 2022 |
Year ended March 31, 2021 |
| Deposits with the Group | ||
| Key management personnel | 277.4 | 238.1 |
| Relatives of key management personnel | 176.5 | 114.2 |
| Payables2 | ||
| Key management personnel | 0.1 | 0.1 |
| Relatives of key management personnel | 0.1 | 0.0 |
| Investments of related parties in the Group2 | ||
| Key management personnel | 3.0 | 7.1 |
| Relatives of key management personnel | 2.5 | 8.8 |
| Advances by the Group | ||
| Key management personnel | 269.2 | 246.9 |
| Relatives of key management personnel | 1.9 | 1.3 |
| 1. | 0.0 represents insignificant amount. |
| 2. | Maximum balance is determined based on comparison of the total outstanding balances at each quarter end during the financial year. |
3. Employee Stock Option Scheme (ESOS)
ICICI Bank:
In terms of the ESOS, as amended, the maximum number of options granted to any eligible employee in a financial year shall not exceed 0.05% of the issued equity shares of the Bank at the time of grant of the options and aggregate of all such options granted to the eligible employees shall not exceed 10% of the aggregate number of the issued equity shares of the Bank on the date(s) of the grant of options in line with SEBI Regulations. Under the stock option scheme, eligible employees are entitled to apply for equity shares. In April 2016, exercise period was modified from 10 years from the date of grant or five years from the date of vesting, whichever is later, to 10 years from the date of vesting of options. In June 2017, exercise period was further modified to not exceed 10 years from the date of vesting of options as may be determined by the Board Governance, Remuneration & Nomination Committee to be applicable for future grants. In May 2018, exercise period was further modified to not exceed 5 years from the date of vesting of options as may be determined by the Board Governance, Remuneration & Nomination Committee to be applicable for future grants.
F-52
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
Options granted after March 2014 vest in a graded manner over a three-year period with 30%, 30% and 40% of the grant vesting in each year, commencing from the end of 12 months from the date of grant other than certain options granted in April 2014 which vested to the extent of 50% on April 30, 2017 and the balance on April 30, 2018 and option granted in September 2015 which vested to the extent of 50% on April 30, 2018 and balance 50% vested on April 30, 2019. Options granted in January 2018 vested at the end of four years from the date of grant. Certain options granted in May 2018, vested to the extent of 50% on May 2021 and balance 50% would vest on May 2022.
Options granted prior to March 2014 except mentioned below, vested in a graded manner over a four-year period, with 20%, 20%, 30% and 30% of the grants vesting in each year, commencing from the end of 12 months from the date of grant. Options granted in April 2009 vested in a graded manner over a five-year period with 20%, 20%, 30% and 30% of grant vesting each year, commencing from the end of 24 months from the date of grant. Options granted in September 2011 vested in a graded manner over a five-year period with 15%, 20%, 20% and 45% of grant vesting each year, commencing from the end of 24 months from the date of the grant.
The exercise price of the Bank’s options, except mentioned below, is the last closing price on the stock exchange, which recorded highest trading volume preceding the date of grant of options. In February 2011, the Bank granted 16,692,500 options to eligible employees and whole-time Directors of the Bank and certain of its subsidiaries at an exercise price of Rs 175.82. This exercise price was the average closing price on the stock exchange during the six months ended October 28, 2010. Of these options granted, 50% vested on April 30, 2014 and the balance 50% vested on April 30, 2015.
The weighted average fair value, based on Black-Scholes model, of options granted during the year ended March 31, 2022 was Rs 227.75 (year ended March 31, 2021: Rs 125.44).
The following table sets forth, for the periods indicated, the key assumptions used to estimate the fair value of options granted.
| Particulars | Year ended March 31, 2022 |
Year ended March 31, 2021 |
| Risk-free interest rate | 5.34% to 6.53% | 4.83% to 5.74% |
| Expected term | 3.55 to 5.55 years | 3.45 to 5.45 years |
| Expected volatility | 35.38% to 39.41% | 35.19% to 37.31% |
| Expected dividend yield | 0.18% to 0.30% | 0.26% to 0.30% |
Risk free interest rates over the expected term of the option are based on the government securities yield in effect at the time of the grant. The expected term of an option is estimated based on the vesting term as well as expected exercise behavior of the employees who receive the option. Expected exercise behavior is estimated based on the historical stock option exercise pattern of the Bank. Expected volatility during the estimated expected term of the option is based on historical volatility determined based on observed market prices of the Bank's publicly traded equity shares. Expected dividends during the estimated expected term of the option are based on recent dividend activity.
F-53
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
The following table sets forth, for the periods indicated, the summary of the status of the Bank’s stock option plan.
Rs. except number of options
| Particulars | Stock options outstanding | |||
| Year ended March 31, 2022 | Year ended March 31, 2021 | |||
| Number of options | Weighted average exercise price | Number of options | Weighted average exercise price | |
| Outstanding at the beginning of the year | 246,590,972 | 276.14 | 238,286,573 | 261.89 |
| Add: Granted during the year | 25,550,350 | 570.43 | 33,417,700 | 337.73 |
| Less: Lapsed during the year, net of re-issuance | 2,164,335 | 444.41 | 880,530 | 336.57 |
| Less: Exercised during the year | 32,778,988 | 243.44 | 24,232,771 | 218.81 |
| Outstanding at the end of the year | 237,197,999 | 310.82
|
246,590,972 | 276.14 |
| Options exercisable | 177,170,739 | 264.69 | 177,136,942 | 247.45 |
The following table sets forth, the summary of stock options outstanding at March 31, 2022.
Range of exercise price (Rs. per share) |
Number of shares arising out of options | Weighted average exercise price (Rs. per share) |
Weighted average remaining contractual life (Number of years) |
| 60-199 | 11,245,113 | 160.69 | 2.52 |
| 200-399 | 171,000,375 | 267.10 | 5.30 |
| 400-599 | 54,887,211 | 477.26 | 5.11 |
| 600-799 | 46,300 | 737.63 | 6.63 |
| 800-899 | 19,000 | 810.25 | 6.92 |
The following table sets forth, the summary of stock options outstanding at March 31, 2021.
Range of exercise price (Rs. per share) |
Number of shares arising out of options | Weighted average exercise price (Rs. per share) |
Weighted average remaining contractual life (Number of years) |
| 60-199 | 17,387,907 | 161.44 | 3.12 |
| 200-399 | 196,441,616 | 265.27 | 6.21 |
| 400-599 | 32,761,449 | 402.17 | 5.22 |
The options were exercised regularly throughout the period and weighted average share price as per National Stock Exchange price volume data during the year ended March 31, 2022 was Rs. 703.14 (year ended March 31, 2021: Rs. 437.92).
ICICI Life:
ICICI Prudential Life Insurance Company has formulated ESOS for their employees. There is no compensation cost for the year ended March 31, 2022 based on the intrinsic value of options.
F-54
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
The following table sets forth, for the periods indicated, a summary of the status of the stock option plan of ICICI Prudential Life Insurance Company.
Rs. except number of options
| Particulars | Stock options outstanding | |||
| Year ended March 31, 2022 | Year ended March 31, 2021 | |||
Number of shares |
Weighted average exercise price | Number of shares |
Weighted average exercise price | |
| Outstanding at the beginning of the year | 17,175,700 | 389.25 | 12,361,107 | 383.64 |
| Add: Granted during the year | 5,061,600 | 453.05 | 5,147,200 | 401.07 |
| Less: Forfeited/lapsed during the year | 735,800 | 412.86 | 205,967 | 366.17 |
| Less: Exercised during the year | 1,316,870 | 381.95 | 126,640 | 359.19 |
| Outstanding at the end of the year | 20,184,630 | 404.87 | 17,175,700 | 389.25 |
| Options exercisable | 7,991,235 | 390.40 | 3,298,600 | 393.85 |
The following table sets forth, summary of stock options outstanding of ICICI Prudential Life Insurance Company at March 31, 2022.
Range of exercise price (Rs. per share) |
Number of shares arising out of options | Weighted average exercise price (Rs. per share) |
Weighted average remaining contractual life (number of years) |
| 300-399 | 10,048,090 | 379.99 | 4.2 |
| 400-499 | 10,076,540 | 428.40 | 6.3 |
| 600-699 | 60,000 | 620.05 | 6.8 |
The following table sets forth, summary of stock options outstanding of ICICI Prudential Life Insurance Company at March 31, 2021.
Range of exercise price (Rs. per share) |
Number of shares arising out of options | Weighted average exercise price (Rs. per share) | Weighted average remaining contractual life (number of years) |
| 300-399 | 11,498,800 | 379.84 | 5.1 |
| 400-499 | 5,626,900 | 407.49 | 6.4 |
| 500-599 | 50,000 | 501.90 | 6.9 |
ICICI General:
ICICI Lombard General Insurance Company has formulated ESOS for their employees. There was no compensation cost for the year ended March 31, 2021 based on the intrinsic value of options.
The following table sets forth, for the periods indicated, a summary of the status of the stock option plan of ICICI Lombard General Insurance Company.
F-55
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
Rs. except number of options
| Particulars | Stock options outstanding | |
| Year ended March 31, 2021 | ||
Number of shares |
Weighted average exercise price | |
| Outstanding at the beginning of the year | 4,624,040 | 895.58 |
| Add: Granted during the year | 2,526,300 | 1,235.15 |
| Less: Forfeited/ lapsed during the year | 17,370 | 1,056.89 |
| Less : Exercised during the year | 128,240 | 780.10 |
| Outstanding at the end of the year | 7,004,730 | 1,019.76 |
| Options exercisable | 1,060,000 | 932.19 |
The following table sets forth, summary of stock options outstanding of ICICI Lombard General Insurance Company at March 31, 2021.
| Range of exercise price (Rs. per share) | Number of shares arising out of options | Weighted average exercise price (Rs. per share) |
Weighted average remaining contractual life (number of years) |
| 700 - 799 | 2,272,220 | 715.15 | 2.3 |
| 800 - 1100 | 2,206,210 | 1,086.50 | 3.1 |
| 1100 - 1300 | 2,526,300 | 1,235.15 | 4.1 |
ICICI Securities:
ICICI Securities Limited has formulated ESOS for their employees. There is no compensation cost for the year ended March 31, 2022 based on the intrinsic value of options.
The following table sets forth, for the periods indicated, a summary of the status of the stock option plan of ICICI Securities Limited.
F-56
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
Rs. except number of options
| Particulars | Stock options outstanding | |||
| Year ended March 31, 2022 | Year ended March 31, 2021 | |||
Number of shares |
Weighted average exercise price | Number of shares |
Weighted average exercise price | |
| Outstanding at the beginning of the year | 2,528,350 | 295.92 | 1,329,300 | 226.12 |
| Add: Granted during the year | 953,000 | 426.91 | 1,337,200 | 361.34 |
| Less: Forfeited/ lapsed during the year | 93,000 | 389.72 | 47,350 | 314.58 |
| Less: Exercised during the year | 449,071 | 250.08 | 90,800 | 227.70 |
| Outstanding at the end of the year | 2,939,279 | 342.43 | 2,528,350 | 295.92 |
| Options exercisable | 2,041,139 | 305.12 | 345,250 | 230.58 |
The following table sets forth, summary of stock options outstanding of ICICI Securities Limited at March 31, 2022.
Range of exercise price (Rs. per share) |
Number of shares arising out of options | Weighted average exercise price (Rs. per share) | Weighted average remaining contractual life (number of years) |
| 200-249 | 790,000 | 221.45 | 5.06 |
| 250-299 | 37,730 | 256.55 | 4.55 |
| 300-399 | 1,212,149 | 361.00 | 6.10 |
| 400-449 | 888,900 | 424.60 | 7.06 |
| 450-499 | 4,200 | 468.10 | 6.58 |
| 750-799 | 6,300 | 774.60 | 7.30 |
The following table sets forth, summary of stock options outstanding of ICICI Securities Limited at March 31, 2021.
Range of exercise price (Rs. per share) |
Number of shares arising out of options (number of shares) |
Weighted average exercise price (Rs. per share) | Weighted average remaining contractual life (number of years) |
| 200-249 | 1,062,220 | 221.45 | 6.07 |
| 250-299 | 160,530 | 256.55 | 5.56 |
| 349-399 | 1,301,400 | 361.00 | 7.11 |
| 449-499 | 4,200 | 468.10 | 7.58 |
4. Fixed assets
The following table sets forth, for the periods indicated, the movement in software acquired by the Group, as included in fixed assets.
F-57
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
Rs. in million
| Particulars | At March 31, 2022 | At March 31, 2021 |
| At cost at March 31 of preceding year | 35,196.2 | 28,942.5 |
| Less: Reduction on account of discontinuation of ICICI Lombard General Insurance Company Limited from consolidation | (6,470.5) | .. |
| Adjusted cost at March 31 of preceding year | 28,725.7 | 28,942.5 |
| Additions during the year | 4,658.3 | 7,015.9 |
| Deductions during the year | (373.5) | (762.2) |
| Depreciation to date | (24,086.0) | (25,231.8) |
| Net block | 8,924.5 | 9,964.4 |
5. Assets on lease
| 5.1 | Assets taken under operating lease |
Operating leases primarily comprise office premises which are renewable at the option of the Group.
(i) The following table sets forth, for the periods indicated, the details of liability for premises taken on non-cancellable operating leases.
Rs. in million
| Particulars | At March 31, 2022 | At March 31, 2021 |
| Not later than one year | 681.4 | 696.8 |
| Later than one year and not later than five years | 1,501.9 | 1,274.3 |
| Later than five years | 567.0 | 440.9 |
| Total | 2,750.3 | 2,412.0 |
The terms of renewal are those normally prevalent in similar agreements and there are no undue restrictions in the agreements.
(ii) Total of non-cancellable lease payments recognised in the profit and loss account for the year is Rs. 993.4 million (Year ended March 31, 2021 Rs. 1,198.2 million).
| 5.2 | Assets taken under finance lease |
The following table sets forth, for the periods indicated, the details of assets taken on finance leases.
Rs. in million
| Particulars | At March 31, 2022 |
At March 31, 2021 |
| A.Total Minimum lease payments outstanding | ||
| Not later than one year | 269.2 | 241.2 |
| Later than one year and not later than five years | 792.3 | 806.1 |
| Later than five years | 76.4 | 138.7 |
| Total | 1,137.9 | 1,186.0 |
| B.Interest cost payable | ||
| Not later than one year | 92.5 | 97.4 |
| Later than one year and not later than five years | 146.8 | 186.2 |
| Later than five years | 3.8 | 9.2 |
| Total | 243.1 | 292.8 |
| C.Present value of minimum lease payments payable(A-B) | ||
| Not later than one year | 176.7 | 143.7 |
| Later than one year and not later than five years | 645.5 | 619.9 |
| Later than five years | 72.6 | 129.6 |
| Total | 894.8 | 893.2 |
F-58
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
| 5.3 | Assets given under finance lease |
The following table sets forth, for the periods indicated, the details of finance leases.
Rs. in million
| Particulars | At March 31, 2022 |
At March 31, 2021 |
| Future minimum lease receipts | ||
| Present value of lease receipts | 416.5 | 723.0 |
| Unmatured finance charges | 13.9 | 32.6 |
| Sub total | 430.4 | 755.6 |
| Less: collective provision | (0.5) | (1.2) |
| Total | 429.9 | 754.4 |
| Maturity profile of future minimum lease receipts | ||
| - Not later than one year | 237.8 | 303.3 |
| - Later than one year and not later than five years | 192.6 | 452.3 |
| - Later than five years | .. | .. |
| Total | 430.4 | 755.6 |
| Less: collective provision | (0.5) | (1.2) |
| Total | 429.9 | 754.4 |
Maturity profile of present value of lease rentals
The following table sets forth, for the periods indicated, the details of maturity profile of present value of finance lease receipts.
Rs. in million
| Particulars | At March 31, 2022 | At March 31, 2021 |
| Maturity profile of future present value of finance lease receipts | ||
| - Not later than one year | 229.6 | 286.6 |
| - Later than one year and not later than five years | 186.9 | 436.4 |
| - Later than five years | .. | .. |
| Total | 416.5 | 723.0 |
| Less: collective provision | (0.5) | (1.2) |
| Total | 416.0 | 721.8 |
6. Provisions and contingencies
The following table sets forth, for the periods indicated, the break-up of provisions and contingencies included in the profit and loss account.
F-59
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
Rs. in million
Particulars
|
Year ended March 31, 2022 |
Year ended March 31, 2021 |
| Provision for depreciation of investments | 5,412.3 | (1,950.0) |
| Provision towards non-performing and other assets | 63,775.2 | 110,815.2 |
| Provision towards income tax | ||
| - Current | 74,044.5 | 62,611.8 |
| - Deferred | 10,529.9 | (5,968.1) |
| Other provisions and contingencies1,2,3 | 20,579.0 | 54,908.7 |
| Total provisions and contingencies | 174,340.9 | 220,417.6 |
| 1. | Net of write-back of Covid-19 related provision by the Bank amounting to Rs. 10,500.0 million during the year ended March 31, 2022 (March 31, 2021: net Covid-19 related provision made by the Bank amounting to Rs. 47,500.0 million). |
| 2. | Includes contingency provision made amounting to Rs. 10,250.0 million made by the Bank on a prudent basis during the year ended March 31, 2022. |
| 3. | Includes general provision made towards standard assets, provision on fixed assets acquired under debt-asset swap and non-fund based facilities. |
The Group has assessed its obligations arising in the normal course of business, including pending litigations, proceedings pending with tax authorities and other contracts including derivative and long term contracts. In accordance with the provisions of Accounting Standard - 29 on ‘Provisions, Contingent Liabilities and Contingent Assets’, the Group recognises a provision for material foreseeable losses when it has a present obligation as a result of a past event and it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. In cases where the available information indicates that the loss on the contingency is reasonably possible or the amount of loss cannot be reasonably estimated, a disclosure to this effect is made as contingent liabilities in the financial statements. The Group does not expect the outcome of these proceedings to have a materially adverse effect on its financial results. For insurance contracts booked in its life insurance subsidiary, reliance has been placed on the Appointed Actuary for actuarial valuation of ‘liabilities for policies in force’. The Appointed Actuary has confirmed that the assumptions used in valuation of liabilities for policies in force are in accordance with the guidelines and norms issued by the IRDAI and the Institute of Actuaries of India in concurrence with the IRDAI.
7. Staff retirement benefits
Pension
The following tables set forth, for the periods indicated, movement of the present value of the defined benefit obligation, fair value of plan assets and other details for pension benefits.
Rs. in million
| Particulars | Year ended March 31, 2022 |
Year ended March 31, 2021 |
| Opening obligations | 20,265.6 | 19,914.3 |
| Service cost | 204.6 | 237.2 |
| Interest cost | 1,145.3 | 1,173.9 |
| Actuarial (gain)/loss | (546.5) | 1,256.2 |
| Liabilities extinguished on settlement | (2,289.8) | (2,198.1) |
| Benefits paid | (118.2) | (117.9) |
| Obligations at the end of year | 18,661.0 | 20,265.6 |
| Opening plan assets, at fair value | 21,162.2 | 16,972.1 |
F-60
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
| Particulars | Year ended March 31, 2022 |
Year ended March 31, 2021 |
| Expected return on plan assets | 1,620.7 | 1,350.8 |
| Actuarial gain/(loss) | (331.9) | 521.9 |
| Assets distributed on settlement | (2,544.2) | (2,442.3) |
| Contributions | 54.7 | 4,877.6 |
| Benefits paid | (118.2) | (117.9) |
| Closing plan assets, at fair value | 19,843.3 | 21,162.2 |
| Fair value of plan assets at the end of the year | 19,843.3 | 21,162.2 |
| Present value of the defined benefit obligations at the end of the year | (18,661.0) |
(20,265.6) |
| Amount not recognised as an asset (limit in Para 59(b) of AS 15 on ‘employee benefits’) | (401.9) |
(304.8) |
| Asset/(liability) | 780.4 | 591.8 |
| Cost1 | ||
| Service cost | 204.6 | 237.2 |
| Interest cost | 1,145.3 | 1,173.9 |
| Expected return on plan assets | (1,620.7) | (1,350.8) |
| Actuarial (gain)/loss | (214.6) | 734.3 |
| Curtailments & settlements (gain)/loss | 254.4 | 244.2 |
| Effect of the limit in para 59(b) of AS 15 on ‘employee benefits’ | 97.1 |
304.8 |
| Net cost | (133.9) | 1,343.6 |
| Actual return on plan assets | 1,288.8 | 1,872.7 |
| Expected employer’s contribution next year | 2,000.0 | 2,000.0 |
| Investment details of plan assets | ||
| Government of India securities | 46.69% | 50.15% |
| Corporate bonds | 46.45% | 44.81% |
| Equity securities in listed companies | 6.46% | 5.04% |
| Others | 0.40% | .. |
| Assumptions | ||
| Discount rate | 6.30% | 5.75% |
| Salary escalation rate: | ||
| On Basic pay | 1.50% | 1.50% |
| On Dearness relief | 7.00% | 7.00% |
| Estimated rate of return on plan assets | 7.50% | 7.50% |
1. Included in line item ‘Payments to and provision for employees’ of Schedule 16- Operating expenses.
Estimated rate of return on plan assets is based on the expected average long-term rate of return on investments of the Fund during the estimated term of the obligations.
F-61
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
(Continued)
Experience adjustment
Rs. in million
| Particulars | Year ended March 31, 2022 |
Year ended March 31, 2021 |
Year ended March 31, 2020 |
Year ended March 31, 2019 |
Year ended March 31, 2018 |
| Plan assets | 19,843.3 | 21,162.2 | 16,972.1 | 15,438.8 | 16,303.7 |
| Defined benefit obligations | (18,661.0)
|
(20,265.6) | (19,914.3) | (16,540.3) | (15,391.1) |
| Amount not recognised as an asset (limit in para 59(b) of AS 15 on ‘employee benefits’) | (401.9)
|
(304.8) | .. | .. | (310.1) |
| Surplus/(deficit) | 780.4 | 591.8 | (2,942.2) | (1,101.5) | 602.5 |
| Experience adjustment on plan assets | (331.9)
|
521.9 | 741.1 | (125.9) | (449.6) |
| Experience adjustment on plan liabilities | 809.0
|
613.4 | 2,186.1 | 1,038.6 | 290.1 |
Gratuity
The following table sets forth, for the periods indicated, movement of the present value of the defined benefit obligation, fair value of plan assets and other details for gratuity benefits of the Group.
Rs. in million
| Particulars | Year ended March 31, 2022 |
Year ended March 31, 2021 |
| Opening obligations | 16,954.5 | 15,743.6 |
| Add: Adjustment for exchange fluctuation on opening obligation | 6.0 | (6.5) |
| Less: Reduction on account of discontinuation of ICICI Lombard General Insurance Company Limited from consolidation | (1,037.6) | .. |
| Adjusted opening obligations | 15,923.1 | 15,737.1 |
| Service cost | 1,581.7 | 1,669.2 |
| Interest cost | 1,058.8 | 1,052.8 |
| Actuarial (gain)/loss | (114.1) | (532.3) |
| Past service cost | .. | (3.5) |
| Exchange Difference on foreign plans | .. | .. |
| Obligations transferred from/to other companies | (0.1) | 33.4 |
| Benefits paid | (1,554.3) | (1,002.2) |
| Obligations at the end of the year | 16,895.1 | 16,954.5 |
| Opening plan assets, at fair value | 16,541.6 | 13,636.8 |
| Less: Reduction on account of discontinuation of ICICI Lombard General Insurance Company Limited from consolidation | (1,080.6) | .. |
| Adjusted opening plan assets at fair value | 15,461.0 | .. |
| Expected return on plan assets | 1,116.6 | 1,045.5 |
| Actuarial gain/(loss) | (33.1) | 886.4 |
| Asset distributed on settlement | 1.9 | 4.9 |
F-62
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
| Particulars | Year ended March 31, 2022 |
Year ended March 31, 2021 |
| Contributions | 1,748.2 | 1,942.2 |
| Assets transferred from/to other companies | (2.0) | 28.0 |
| Benefits paid | (1,554.3) | (1,002.2) |
| Closing plan assets, at fair value | 16,738.3 | 16,541.6 |
| Fair value of plan assets at the end of the year | 16,738.3 | 16,541.6 |
| Present value of the defined benefit obligations at the end of the year | (16,895.1) |
(16,954.5) |
| Unrecognised past service cost | .. | .. |
| Amount not recognised as an asset (limit in para 59(b) of AS 15 on ‘employee benefits’) | .. | .. |
| Asset/(liability) | (156.8) | (412.9) |
| Cost for the year1 | ||
| Service cost | 1,581.7 | 1,669.2 |
| Interest cost | 1,058.8 | 1,052.8 |
| Expected return on plan assets | (1,116.6) | (1,045.5) |
| Actuarial (gain)/loss | (81.0) | (1,418.7) |
| Past service cost | .. | (3.5) |
| Exchange fluctuation loss/(gain) | 6.0 | (6.5) |
| Net cost | 1,448.9 | 247.8 |
| Actual return on plan assets | 1,083.4 | 1,931.9 |
| Expected employer’s contribution next year | 1,030.0 | 1,130.1 |
| Investment details of plan assets | ||
| Insurer managed funds | 18.88% | 21.79% |
| Government of India securities | 23.76% | 28.55% |
| Corporate bonds | 38.90% | 35.57% |
| Special Deposit schemes | .. | 1.75% |
| Equity | 16.75% | 11.12% |
| Others | 1.71% | 1.22% |
| Assumptions | ||
| Discount rate | 5.80%-7.30% | 5.20%-6.90% |
| Salary escalation rate | 7.00%-10.00% | 7.00%-10.00% |
| Estimated rate of return on plan assets | 7.00%-8.00% | 7.00%-8.00% |
1. Included in line item ‘Payments to and provision for employees’ of Schedule 16- Operating expenses.
Estimated rate of return on plan assets is based on the expected average long-term rate of return on investments of the Fund during the estimated term of the obligations.
F-63
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
(Continued)
Experience adjustment
Rs. in million
| Particulars | Year ended March 31, 2022 |
Year ended March 31, 2021 |
Year ended March 31, 2020 |
Year ended March 31, 2019 |
Year ended March 31, 2018 |
| Plan assets | 16,738.3 | 16,541.6 | 13,636.8 | 12,112.4 | 10,972.1 |
| Defined benefit obligations | (16,895.1) | (16,954.5) | (15,743.6) | (13,317.1) | (11,846.6) |
| Amount not recognised as an asset (limit in para 59(b) of AS 15 on ‘employee benefits’) | .. | .. | .. | .. | .. |
| Surplus/(deficit) | (156.8) | (412.9) | (2,106.8) | (1,204.7) | (874.5) |
| Experience adjustment on plan assets | (33.1) |
892.1 | (167.4) |
(62.0) | (124.7) |
| Experience adjustment on plan liabilities | 464.7 |
(548.2) | 253.6 |
243.7 | 261.8 |
The estimates of future salary increases, considered in actuarial valuation, take into consideration inflation, seniority, promotion and other relevant factors.
Provident Fund (PF)
The Group does not have any liability towards interest rate guarantee on exempt provident fund on the basis of actuarial valuation at year ended March 31, 2022 (year ended March 31, 2021: Rs. 2.7 million).
The following tables set forth, for the periods indicated, movement of the present value of the defined benefit obligation, fair value of plan assets and other details for provident fund of the Group.
Rs. in million
| Particulars | Year ended March 31, 2022 |
Year ended March 31, 2021 |
| Opening obligations | 45,617.9 | 38,703.4 |
| Less: Adjustments1 | (711.1) | .. |
| Adjusted opening balance | 44,906.8 | 38,703.4 |
| Service cost | 2,202.0 | 1,880.5 |
| Interest cost | 2,947.1 | 2,537.5 |
| Actuarial (gain)/loss | (15.9) | 1,690.5 |
| Employees contribution | 4,049.0 | 3,892.5 |
| Obligations transferred from/to other companies | 546.1 | 406.8 |
| Benefits paid | (5,223.6) | (3,493.3) |
| Obligations at end of the year | 49,411.5 | 45,617.9 |
| Opening plan assets | 45,615.2 | 38,682.6 |
| Less: Adjustments1 | (708.4) | .. |
| Adjusted opening balance | 44,906.8 | 38,682.6 |
| Expected return on plan assets | 3,761.0 | 3,582.2 |
| Actuarial gain/(loss) | 415.0 | 663.8 |
F-64
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
| Particulars | Year ended March 31, 2022 |
Year ended March 31, 2021 |
| Employer contributions | 2,202.0 | 1,880.6 |
| Employees contributions | 4,049.0 | 3,892.5 |
| Assets transfer from/to other companies | 546.1 | 406.8 |
| Benefits paid | (5,223.6) | (3,493.3) |
| Closing plan assets | 50,656.3 | 45,615.2 |
| Plan assets at the end of the year | 50,656.3 | 45,615.2 |
| Present value of the defined benefit obligations at the end of the year | (49,411.5) |
(45,617.9) |
| Amount not recognised as an asset (Limit in para 59(b) of AS-15 on ‘employee benefits’)2 | (1,244.8) | .. |
| Asset/(liability) | .. | (2.7) |
| Cost for the year3 | ||
| Service cost | 2,202.0 | 1,880.5 |
| Interest cost | 2,947.1 | 2,537.5 |
| Expected return on plan assets | (3,761.0) | (3,582.2) |
| Actuarial (gain)/loss | (430.9) | 1,026.7 |
| Effect of limit in para 59(b)2 | 1,244.8 | .. |
| Net cost | 2,202.0 | 1,862.5 |
| Actual return on plan assets | 4,176.0 | 4,246.0 |
| Expected employer's contribution next year | 2,357.2 | 2,013.6 |
| Investment details of plan assets | ||
| Government of India securities | 53.56% | 50.06% |
| Corporate Bonds | 35.56% | 40.78% |
| Special deposit scheme | 1.07% | 1.33% |
| Others | 9.81% | 7.83% |
| Assumptions | ||
| Discount rate | 6.00%-6.85% | 5.70%-6.55% |
| Expected rate of return on assets | 7.54%-8.25% | 6.88%-8.59% |
| Discount rate for the remaining term to maturity of investments | 6.75%-7.15% | 6.30%-6.80% |
| Average historic yield on the investment | 8.25%-8.87% | 7.93%-8.54% |
| Guaranteed rate of return | 8.10%-8.10% | 8.50%-8.50% |
F-65
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
(Continued)
Experience adjustment
Rs. in million
| Particulars | Year ended March 31, 2022 |
Year ended March 31, 2021 |
Year ended March 31, 2020 |
Year ended March 31, 2019 |
Year ended March 31, 2018 |
| Plan assets | 50,656.3 | 45,615.2 | 38,682.6 | 33,282.4 | 29,587.9 |
| Defined benefit obligations | (49,411.5) |
(45,617.9) | (38,703.4) | (33,282.4) | (29,587.9) |
| Amount not recognised as an asset (limit in para 59(b)) AS 15 on ‘employee benefits’)2 | (1,244.8) |
.. | .. | .. | .. |
| Surplus/(deficit) | .. | (2.7) | (20.8) | .. | .. |
| Experience adjustment on plan assets | 415.1 |
663.8 | (662.0) | 13.0 | (15.1) |
| Experience adjustment on plan liabilities | (684.8) |
1,703.3 | (129.9) | 447.4 | 501.6 |
1.In case of ICICI Venture Funds Management Company Limited, assets and liabilities of Employee Provident Fund Trust were realised and transferred to Central Provident Fund at March 31, 2022.
2.Pursuant to revised Guidance Note 29 on “Valuation of Interest Rate Guarantees on Exempt Provident Funds under AS 15 (Revised)” issued by ‘ Institute of Actuaries of India on February 16, 2022, plan assets held by PF Trust have been fair valued. The amount represents the fair value gain on plan assets.
3.Included in line item ‘Payments to and provision for employees’ of Schedule 16- Operating expenses.
The Group has contributed Rs. 4,018.3 million to provident fund including Government of India managed employees provident fund for the year ended March 31, 2022 (year ended March 31, 2021: Rs. 3,918.8 million), which includes compulsory contribution made towards employee pension scheme under Employees Provident Fund and Miscellaneous Provisions Act, 1952.
Superannuation Fund
The Group has contributed Rs. 274.0 million for the year ended March 31, 2022 (year ended March 31, 2021: Rs. 248.7 million) to Superannuation Fund for employees who had opted for the scheme.
National Pension Scheme (NPS)
The Group has contributed Rs. 291.8 million for the year ended March 31, 2022 (March 31, 2021: Rs. 246.0 million) to NPS for employees who had opted for the scheme.
Compensated absence
The following table sets forth, for the periods indicated, cost for compensated absence.
Rs. in million
| Particulars | Year ended March 31, 2022 |
Year ended March 31, 2021 |
| Total actuarial liability | 3,616.9 | 4,131.3 |
| Cost1 | 874.9 | 1,586.6 |
| Assumptions | ||
| Discount rate | 5.80%-7.30% | 5.20%-6.90% |
| Salary escalation rate | 7.00%-10.00% | 7.00%-10.00% |
1. Included in line item ‘Payments to and provision for employees’ of schedule- 16 Operating expenses.
F-66
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
(Continued)
8. Provision for income tax
The provision for income tax (including deferred tax) for the year ended March 31, 2022 amounted to Rs. 84,574.4 million (March 31, 2021: Rs. 56,643.7 million).
The Group has a comprehensive system of maintenance of information and documents required by transfer pricing legislation under sections 92-92F of the Income Tax Act, 1961. The management is of the opinion that all transactions with international related parties and specified transactions with domestic related parties are primarily at arm's length so that the above legislation does not have material impact on the financial statements.
9. Deferred tax
At March 31, 2022, the Group has recorded net deferred tax asset of Rs. 79,484.8 million (March 31, 2021: Rs. 93,350.2 million), which has been included in other assets.
The following table sets forth, for the periods indicated, the break-up of deferred tax assets and liabilities into major items.
Rs. in million
| Particulars | At March 31, 2022 | At March 31, 2021 |
| Deferred tax assets | ||
| Provision for bad and doubtful debts | 105,637.7 | 111,990.0 |
| Foreign currency translation reserve1 | .. | 0.02 |
| Others | 11,024.8 | 13,938.4 |
| Total deferred tax assets | 116,662.5 | 125,928.4 |
| Deferred tax liabilities | ||
| Special reserve deduction | 31,118.6 | 27,449.2 |
| Foreign currency translation reserve1 | 1,245.6 | 1,048.3 |
| Mark-to-market gains1 | 278.6 | .. |
| Depreciation on fixed assets | 4,093.8 | 3,717.6 |
| Interest on refund of taxes1 | 168.4 | 115.3 |
| Others | 272.7 | 247.8 |
| Total deferred tax liabilities | 37,177.7 | 32,578.2 |
| Total net deferred tax assets/(liabilities) | 79,484.8 | 93,350.2 |
| 1. | These items are considered in accordance with the requirements of Income Computation and Disclosure Standards (ICDS). |
| 2. | Insignificant amount. |
10. Information about business and geographical segments
| A. | Business Segments |
The business segments of the Group have been presented as follows:
| i. | Retail banking includes exposures of the Bank which satisfy the four criteria of orientation, product, granularity and low value of individual exposures for retail exposures laid down in Basel Committee on Banking Supervision document “International Convergence of Capital Measurement and Capital Standards: A Revised Framework”. This segment also includes income from credit cards, debit cards, third party product distribution and the associated costs. |
F-67
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
| ii. | Wholesale banking includes all advances to trusts, partnership firms, companies and statutory bodies, by the Bank which are not included under Retail banking. |
| iii. | Treasury includes the entire investment and derivative portfolio of the Bank and ICICI Strategic Investments Fund. |
| iv. | Other banking includes leasing operations and other items not attributable to any particular business segment of the Bank. Further, it includes the Bank’s banking subsidiaries i.e. ICICI Bank UK PLC and ICICI Bank Canada. |
| v. | Life insurance represents results of ICICI Prudential Life Insurance Company Limited. |
| vi. | General insurance represents results of ICICI Lombard General Insurance Company Limited. From April 1, 2021, ICICI Lombard General Insurance Company Limited ceased to be a subsidiary and accordingly general insurance has been discontinued as a business segment from April 1, 2021. From April 1, 2021, the Bank’s share in the net profit of ICICI Lombard General Insurance Company Limited is included in “share of profit in associates.” |
| vii. | Others includes ICICI Home Finance Company Limited, ICICI Venture Funds Management Company Limited, ICICI International Limited, ICICI Securities Primary Dealership Limited, ICICI Securities Limited, ICICI Securities Holdings Inc., ICICI Securities Inc., ICICI Prudential Asset Management Company Limited, ICICI Prudential Trust Limited, ICICI Investment Management Company Limited, ICICI Trusteeship Services Limited and ICICI Prudential Pension Funds Management Company Limited. |
| viii. | Unallocated includes items such as tax paid in advance net of provision, deferred tax and provisions to the extent reckoned at the entity level. |
Income, expenses, assets and liabilities are either specifically identified with individual segments or are allocated to segments on a systematic basis.
All liabilities of the Bank are transfer priced to a central treasury unit, which pools all funds and lends to the business units at appropriate rates based on the relevant maturity of assets being funded after adjusting for regulatory reserve requirements.
The transfer pricing mechanism of the Bank is periodically reviewed. The segment results are determined based on the transfer pricing mechanism prevailing for the respective reporting periods.
F-68
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
The following table sets forth, the business segment results for the year ended March 31, 2022.
Rs. in million
| Sr. no. | Particulars | Retail banking | Wholesale banking | Treasury | Other banking business | Life insurance | Others | Inter- segment adjustments | Total |
| 1 | Revenue | 846,392.2 | 399,714.9 | 673,210.9 | 27,784.1 | 453,402.4 | 87,332.5 | (912,473.8) | 1,575,363.2 |
| 2 | Segment results1 | 114,003.9 | 90,529.3 | 96,744.8 | 6,271.2 | 7,905.6 | 43,499.9 | (16,792.0) | 342,162.7 |
| 3 | Unallocated expenses | (250.0) | |||||||
| 4 | Share of profit from associates | 7,544.3 | |||||||
| 5 | Operating profit (2) – (3)+(4)1 | 349,957.0 | |||||||
| 6 | Income tax expenses (net)/(net deferred tax credit) | 84,574.4 | |||||||
| 7 | Net profit2 (5) – (6) |
265,382.6 | |||||||
| Other information | |||||||||
| 8 | Segment assets | 4,876,519.3 | 3,790,918.0 | 5,218,960.9 | 682,866.9 | 2,440,064.2 | 516,534.8 | (105,216.9) | 17,420,647.2 |
| 9 | Unallocated assets | 105,726.6 | |||||||
| 10 | Total assets (8) + (9) |
17,526,373.8 | |||||||
| 11 | Segment liabilities | 7,918,942.5 | 3,213,907.0 | 2,933,413.93 | 541,143.13 | 2,441,543.23 | 520,286.43 | (105,216.9)3 | 17,464,019.2 |
| 12 | Unallocated liabilities | 62,354.6 | |||||||
| 13 | Total liabilities (11) + (12) |
17,526,373.8 | |||||||
| 14 | Capital expenditure | 9,901.7 | 4,453.3 | 623.1 | 345.7 | 732.3 | 943.8 | .. | 16,999.9 |
| 15 | Depreciation | 8,068.8 | 3,130.8 | 399.6 | 321.9 | 669.1 | 726.3 | (16.4) | 13,300.1 |
| 1. | Profit before tax and minority interest. |
| 2. | Includes share of net profit of minority shareholders. |
| 3. | Includes share capital and reserves and surplus. |
F-69
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
The following table sets forth, the business segment results for the year ended March 31, 2021.
Rs. in million
| Sr. no. | Particulars | Retail banking | Wholesale banking | Treasury | Other banking business | Life insurance | General insurance | Others | Inter- segment adjustments | Total |
| 1 | Revenue | 756,692.9 | 371,945.3 | 664,810.9 | 31,800.6 | 436,215.9 | 129,648.3 | 78,270.3 | (857,462.3) | 1,611,921.9 |
| 2 | Segment results1 | 77,399.7 | 58,199.5 | 106,155.9 | 5,735.7 | 10,811.8 | 19,539.5 | 40,077.1 | (11,578.8) | 306,340.4 |
| 3 | Unallocated expenses | 47,500.0 | ||||||||
| 4 | Share of profit from associates | 1,442.9 | ||||||||
| 5 | Operating profit (2) – (3)+(4)1 | 260,283.3 | ||||||||
| 6 | Income tax expenses (net)/(net deferred tax credit) | 56,643.7 | ||||||||
| 7 | Net profit2 (5) – (6) |
203,639.6 | ||||||||
| Other information | ||||||||||
| 8 | Segment assets | 4,124,986.5 | 3,259,375.0 | 4,602,320.5 | 750,682.3 | 2,169,189.1 | 389,436.1 | 445,994.8 | (147,461.6) | 15,594,522.7 |
| 9 | Unallocated assets | 143,599.7 | ||||||||
| 10 | Total assets (8) + (9) |
15,738,122.4 | ||||||||
| 11 | Segment liabilities | 6,869,207.9 | 2,821,639.2 | 2,480,180.33 | 639,123.33 | 2,170,346.23 | 392,588.73 | 449,893.83 | (147,461.6)3 | 15,675,517.8 |
| 12 | Unallocated liabilities | 62,604.6 | ||||||||
| 13 | Total liabilities (11) + (12) |
15,738,122.4 | ||||||||
| 14 | Capital expenditure | 9,228.1 | 4,745.0 | 866.6 | 401.2 | 400.1 | 773.0 | 745.2 | .. | 17,159.2 |
| 15 | Depreciation | 7,249.4 | 2,859.8 | 481.0 | 323.3 | 598.0 | 1,306.0 | 599.6 | (16.4) | 13,400.7 |
| 1. | Profit before tax and minority interest. |
| 2 | .Includes share of net profit of minority shareholders. |
| 3. | Includes share capital and reserves
and surplus. |
F-70
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
(Continued)
B. Geographical segments
The Group has reported its operations under the following geographical segments.
| · | Domestic operations comprise branches and subsidiaries/joint ventures in India. |
| · | Foreign operations comprise branches and subsidiaries/joint ventures outside India and offshore banking units in India. |
The Group conducts transactions with its customers on a global basis in accordance with their business requirements, which may span across various geographies.
The following tables set forth, for the periods indicated, the geographical segment results.
Rs. in million
| Revenue | Year ended March 31, 2022 |
Year ended March 31, 2021 |
| Domestic operations1 | 1,550,493.6 | 1,579,203.4 |
| Foreign operations | 32,413.9 | 34,161.4 |
| Total | 1,582,907.5 | 1,613,364.8 |
| 1. | Includes share of profit from associates of Rs. 7,544.3 million (March 31, 2021: Rs. 1,442.9 million). |
Rs. in million
| Assets | At March 31, 2022 | At March 31, 2021 |
| Domestic operations | 16,060,154.4 | 14,216,048.7 |
| Foreign operations | 1,360,492.8 | 1,378,474.0 |
| Total | 17,420,647.2 | 15,594,522.7 |
Note: Segment assets do not include tax paid in advance/tax deducted at source (net) and deferred tax assets (net).
The following table sets forth, for the periods indicated, capital expenditure and depreciation thereon for the geographical segments.
Rs. in million
| Capital expenditure incurred during the | Depreciation provided during the | |||
| Year ended March 31, 2022 | Year ended March 31, 2021 | Year ended March 31, 2022 | Year ended March 31, 2021 | |
| Domestic operations | 16,765.8 | 16,866.4 | 13,012.5 | 13,120.0 |
| Foreign operations | 234.1 | 292.8 | 287.6 | 280.7 |
| Total | 16,999.9 | 17,159.2 | 13,300.1 | 13,400.7 |
11. Penalties/fines imposed by banking regulatory bodies
The penalties amounting to Rs. 33.0 million (year ended March 31, 2021: Nil) were imposed by RBI during the year ended March 31, 2022. One penalty of Rs. 30.0 million was related to shifting of certain investment from held-to-maturity category to available-for-sale category in May 2017 and the other penalty of Rs. 3.0 million was on account of non-compliance with directions issued by RBI on levy of penal charges on non-maintenance of minimum balance in savings bank accounts dated November 20, 2014.
No penalty was imposed by overseas banking regulatory bodies during the year ended March 31, 2022 (year ended March 31, 2021: Nil).
F-71
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
(Continued)
12. Additional information to consolidated accounts
Additional information to consolidated accounts at March 31, 2022 (Pursuant to Schedule III of the Companies Act, 2013)
Rs. in million
| Name of the entity | Net assets1 | Share in profit or loss | ||
| % of total net assets | Amount | % of total net profit | Amount | |
| Parent | ||||
| ICICI Bank Limited | 93.7% | 1,705,119.7 | 92.9% | 233,394.9 |
| Subsidiaries | ||||
| Indian | ||||
| ICICI Securities Primary Dealership Limited | 0.9% | 15,897.8 | 1.3% | 3,301.6 |
| ICICI Securities Limited | 1.3% | 24,087.2 | 5.6% | 13,948.1 |
| ICICI Home Finance Company Limited | 0.9% | 17,038.1 | 0.4% | 934.4 |
| ICICI Trusteeship Services Limited | 0.0%2 | 8.6 | 0.0%2 | 0.5 |
| ICICI Investment Management Company Limited | 0.0%2 | 95.8 | 0.0%2 | 12.8 |
| ICICI Venture Funds Management Company Limited | 0.1% | 2,461.3 | 0.0%2 | 2.2 |
| ICICI Prudential Life Insurance Company Limited | 5.0% | 91,630.6 | 3.0% | 7,541.3 |
| ICICI Prudential Trust Limited | 0.0%2 | 17.7 | 0.0%2 | 3.7 |
| ICICI Prudential Asset Management Company Limited | 1.0% | 18,599.4 | 5.7% | 14,363.4 |
| ICICI Prudential Pension Funds Management Company Limited | 0.0%2 | 549.2 | 0.0%2 | 50.7 |
| Foreign | ||||
| ICICI Bank UK PLC | 1.3% | 23,940.8 | 0.3% | 812.2 |
| ICICI Bank Canada | 1.3% | 23,436.9 | 0.7% | 1,737.3 |
| ICICI International Limited | 0.0%2 | 104.1 | 0.0%2 | 0.8 |
| ICICI Securities Holdings Inc. | 0.0%2 | 130.8 | 0.0%2 | 0.3 |
| ICICI Securities Inc. | 0.0%2 | 303.8 | 0.0%2 | 30.0 |
| Other consolidated entities | ||||
| Indian | ||||
| ICICI Strategic Investments Fund | 0.0%2 | 112.1 | 0.2% | 535.9 |
| Foreign | ||||
| NIL | .. | .. | .. | .. |
| Minority Interests | (3.3%) | (59,808.9) | (5.7%) | (14,281.6) |
| Associates | ||||
| Indian | ||||
| ICICI Lombard General Insurance Company Limited | .. | .. | 2.4% | 6,106.5 |
F-72
| Name of the entity | Net assets1 | Share in profit or loss | ||
| % of total net assets | Amount | % of total net profit | Amount | |
| I-Process Services (India) Private Limited | .. | .. | 0.0%2 | 34.3 |
| NIIT Institute of Finance Banking and Insurance Training Limited | .. | .. | 0.0%2 | 2.3 |
| ICICI Merchant Services Private Limited | .. | .. | (0.0%)2 | (4.6) |
| India Infradebt Limited | .. | .. | 0.6% | 1,396.5 |
| India Advantage Fund III | .. | .. | (0.0%)2 | (0.2) |
| India Advantage Fund IV | .. | .. | (0.0%)2 | (2.4) |
| Arteria Technologies Private Limited | .. | .. | 0.0%2 | 12.0 |
| Foreign | ||||
| NIL | .. | .. | .. | .. |
| Joint Ventures | ||||
| NIL | .. | .. | .. | .. |
| Inter-company adjustments | (2.2%) | (43,200.1) | (7.4%) | (18,831.9) |
| TOTAL | 100.0% | 1,820,524.9 | 100.0% | 251,101.0 |
1. Total assets minus total liabilities.
2. Insignificant.
Additional information to consolidated accounts at March 31, 2021 (Pursuant to Schedule III of the Companies Act, 2013)
Rs. in million
| Name of the entity | Net assets1 | Share in profit or loss | ||
| % of total net assets | Amount | % of total net profit | Amount | |
| Parent | ||||
| ICICI Bank Limited | 93.6% | 1,475,091.9 | 88.1% | 161,926.8 |
| Subsidiaries | ||||
| Indian | ||||
| ICICI Securities Primary Dealership Limited | 0.9% | 14,409.7 | 3.5% | 6,473.3 |
| ICICI Securities Limited | 1.1% | 18,027.0 | 5.9% | 10,933.0 |
| ICICI Home Finance Company Limited | 1.0% | 16,085.9 | 0.4% | 806.3 |
| ICICI Trusteeship Services Limited | 0.0%2 | 8.1 | 0.0%2 | 0.7 |
| ICICI Investment Management Company Limited | 0.0%2 | 83.0 | (0.0%)2 | (11.8) |
| ICICI Venture Funds Management Company Limited | 0.2% | 2,459.1 | 0.0%2 | 40.1 |
| ICICI Prudential Life Insurance Company Limited | 5.8% | 91,188.6 | 5.2% | 9,601.5 |
| ICICI Lombard General Insurance Company Limited | 5.1% | 81,156.6 | 8.0% | 14,730.5 |
F-73
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements (Continued)
| Name of the entity | Net assets1 | Share in profit or loss | ||
| % of total net assets | Amount | % of total net profit | Amount | |
| ICICI Prudential Trust Limited | 0.0%2 | 15.4 | 0.0%2 | 1.7 |
| ICICI Prudential Asset Management Company Limited | 1.0% | 16,274.7 | 6.4% | 11,795.0 |
| ICICI Prudential Pension Funds Management Company Limited | 0.0%2 | 288.5 | (0.0%)2 | (39.9) |
| Foreign | ||||
| ICICI Bank UK PLC | 2.4% | 37,047.9 | 0.6% | 1,097.9 |
| ICICI Bank Canada | 2.2% | 34,795.0 | 0.6% | 1,126.1 |
| ICICI International Limited | 0.0%2 | 99.6 | (0.0%)2 | (11.8) |
| ICICI Securities Holdings Inc. | 0.0%2 | 130.4 | (0.0%)2 | (1.3) |
| ICICI Securities Inc. | 0.0%2 | 274.8 | 0.0%2 | 6.3 |
| Other consolidated entities | ||||
| Indian | ||||
| ICICI Strategic Investments Fund | 0.0%2 | 375.0 | 0.0%2 | 75.0 |
| Foreign | ||||
| NIL | .. | .. | .. | .. |
| Minority Interests | (6.1%) | (95,883.4) | (10.8%) | (19,796.5) |
| Associates | ||||
| Indian | ||||
| I-Process Services (India) Private Limited | .. | .. | 0.0%2 | 11.8 |
| NIIT Institute of Finance Banking and Insurance Training Limited | .. | .. | 0.0%2 | 0.5 |
| ICICI Merchant Services Private Limited | .. | .. | 0.1% | 185.8 |
| India Infradebt Limited | .. | .. | 0.7% | 1,198.8 |
| India Advantage Fund III | .. | .. | 0.0%2 | 13.8 |
| India Advantage Fund IV | .. | .. | 0.0%2 | 19.3 |
| Arteria Technologies Private Limited | .. | .. | 0.0%2 | 13.0 |
| Foreign | ||||
| NIL | .. | .. | .. | .. |
| Joint Ventures | ||||
| NIL | .. | .. | .. | .. |
| Inter-company adjustments | (7.2%) | (116,052.8) | (8.9%) | (16,352.7) |
| TOTAL NET ASSETS/NET PROFIT | 100.0% | 1,575,875.0 | 100.0% | 183,843.2 |
1. Total assets minus total liabilities.
2. Insignificant.
F-74
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
(Continued)
13. Revaluation of fixed assets
The Bank and its housing finance subsidiary follow the revaluation model for their premises (land and buildings) other than improvements to leasehold property as per AS 10 – ‘Property, Plant and Equipment’. The Bank had initially revalued its premises at March 31, 2016 and its housing finance subsidiary revalued its premises at March 31, 2017. In accordance with the policy, annual revaluation is carried out through external valuers, using methodologies such as direct sales comparison method and income generation method and the incremental amount has been taken to revaluation reserve. The revalued amount at March 31, 2022 was Rs. 58,090.8 million (March 31, 2021: Rs. 57,271.4 million) as compared to the historical cost less accumulated depreciation of Rs. 25,805.8 million (March 31, 2021: Rs. 26,018.6 million).
The revaluation reserve is not available for distribution of dividend.
14. Proposed dividend on equity shares
The Board of Directors at its meeting held on April 23, 2022 has recommended a dividend of Rs. 5 per equity share for the year ended March 31, 2022 (year ended March 31, 2021: Rs. 2 per equity share). The declaration and payment of dividend is subject to requisite approvals.
15. Divergence in asset classification and provisioning for NPAs
In terms of the RBI circular no. //DBR.BP.BC.No.32/21.04.018/2018-19 dated April 1, 2019, banks are required to disclose the divergences in asset classification and provisioning consequent to RBI’s annual supervisory process in their notes to accounts to the financial statements, wherever either (a) the additional provisioning requirements assessed by RBI exceed 10% of the reported net profits before provisions and contingencies or (b) the additional gross NPAs identified by RBI exceed 15% of the published incremental gross NPAs for the reference period, or both. Based on the condition mentioned in RBI circular, no disclosure on divergence in asset classification and provisioning for NPAs is required with respect to RBI’s supervisory process for the year ended March 31, 2021 and for the year ended March 31, 2020.
16. Demerger of general insurance business of Bharti AXA General Insurance Company Limited into ICICI Lombard General Insurance Company Limited
In August 2020, the Board of Directors of ICICI Lombard General Insurance Company Limited (ICICI General) and Bharti AXA General Insurance Company Limited (Bharti AXA) at their respective meetings approved entering into definitive agreements for demerger of Bharti AXA’s general insurance business and transferring the same into ICICI Lombard General Insurance Company through a Scheme of Arrangement (Scheme). The scheme was approved by Insurance Regulatory and Development Authority of India (IRDAI) on September 3, 2021 effective from September 8, 2021.
In accordance with the Scheme, assets and liabilities of Bharti AXA’s general insurance business vested with ICICI General on the Appointed Date of April 1, 2020. ICICI General issued two fully paid up equity shares of ₹ 10 each to the shareholders of Bharti AXA for every 115 fully paid up equity shares of ₹ 10 each. Subsequent to issuance of equity shares to Bharti AXA shareholders, the Bank’s shareholding in ICICI General reduced to below 50.0%. Due to reduction in the Bank’s shareholding below 50.0%, ICICI General ceased to be a subsidiary of the Bank and the Bank has accounted its investment in ICICI General as an associate under Accounting Standard – 23 (AS-23) “Accounting for Investments in Associates” in consolidated financial statement.
Under the Banking Regulation Act, 1949, the Bank is required to reduce its shareholding in ICICI General to 30.0%. In September 2020, the Central Government, on the recommendation of RBI, has issued a notification exempting ICICI Bank from the provisions of Section 19(2) of the Banking Regulation Act, 1949 with respect to shareholding above 30.0% in ICICI Lombard General Insurance Company Limited, for a period of three years.
F-75
ICICI Bank Limited and subsidiaries Schedules forming part of the Consolidated Financial Statements
(Continued)
17. Impact of Covid-19 on the performance of the Group
During the year ended March 31, 2021, the Covid-19 pandemic resulted in a nation-wide lockdown in April-May 2020 which substantially impacted economic activity. The subsequent easing of lockdown measures led to gradual improvement in economic activity and progress towards normalcy from the second half of financial year 2021. In the year ended March 31, 2022, India witnessed two more waves of the Covid-19 pandemic and the re-imposition of localised/regional lock-down measures in certain parts of the country.
Currently, while the number of new Covid-19 cases have reduced significantly and the Government of India has withdrawn Covid-19 related restrictions, the future trajectory of the pandemic may have an impact on the results of the Bank and the Group.
18. Additional disclosure
18.1 Disclosure on lending and borrowing activities under Rule 11(e) of the Companies (Audit and Auditors) Rules, 2014
The Bank, as part of its normal banking business, grants loans and advances, makes investment, provides guarantees to and accept deposits and borrowings from its customers, other entities and persons. These transactions are part of Bank’s normal banking business, which is conducted ensuring adherence to all regulatory requirements.
Other than the transactions described above, no funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Bank and other subsidiaries incorporated in India to or in any other persons or entities, including foreign entities (“Intermediaries”) with the understanding, whether recorded in writing or otherwise, that the Intermediary shall lend or invest in party identified by or on behalf of the Bank and other subsidiaries incorporated in India (Ultimate Beneficiaries). The Bank and other subsidiaries incorporated in India have also not received any fund from any parties (Funding Party) with the understanding that the Bank and other subsidiaries incorporated in India shall whether, directly or indirectly lend or invest in other persons or entities identified by or on behalf of the Funding Party (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
18.2 Other disclosures
Additional statutory information disclosed in the separate financial statements of the Bank and subsidiaries having no material bearing on the true and fair view on the consolidated financial statements and the information pertaining to the items which are not material have not been disclosed in the consolidated financial statements.
19. Comparative figures
Figures of the previous year have been re-grouped to conform to the current year presentation.
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ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
B. Additional Notes
| 1. | Reserves |
Statutory reserve: Represents reserve created as a percentage of the net profit before any other appropriation as required by the Banking Regulation Act, 1949. Every banking company in India is currently required to transfer not less than 25% of the net profit (before appropriations) to the “statutory reserve”.
Special reserve: Represents reserve maintained under the Income Tax Act, 1961 to avail tax benefits.
Securities premium: Represents amount of premium received on issue of share capital, net of expenses incurred on issue of shares.
Investment reserve account: Represents provision for depreciation on available for sale and held for trading securities in excess of required amount which is credited to profit and loss account and appropriated to this reserve, net of tax and transfer to statutory reserve.
Investment fluctuation reserve: Represents appropriation of net gains on sale of securities classified as available for sale and held for trading, or net profit after mandatory appropriations to other reserves, whichever is lower, until the amount of this reserve is at least 2% of held for trading and available for sale portfolio. Balance in investment fluctuation reserve in excess of 2% of held for trading and available for sale portfolio can be drawn down and transferred to balance in profit and loss account.
Unrealized investment reserve: Represents unrealized gains/losses on investments of consolidated venture capital funds.
Capital reserve: Represents amount of gains on sale of securities classified as held to maturity and gains on sale of land and building, net of tax and transfer to statutory reserve.
Capital redemption reserve: Represents appropriations made from the surplus profit available for previous years on redemption of preference shares by the Bank, as required under the Companies Act, 2013.
Foreign currency translation reserve: Represents cumulative exchange differences arising from translation of financial statements of non-integral foreign operations.
Revaluation reserve: Represents reserve on revaluation of premises carried out by the Group.
Reserve fund: Represents appropriation made to reserve fund in accordance with regulations applicable to Sri Lanka branch of the Bank. Balance in reserve fund was transferred to balance in profit and loss account on closure of Sri Lanka branch in fiscal 2021.
Revenue and other reserves: Represents reserves other than capital reserves and those separately classified.
Balance in profit and loss account: Represents the balance of profit after appropriations.
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| 2. | Deposits |
Deposits include demand deposits, which are non-interest bearing, and savings and time deposits, which are interest bearing.
The following table sets forth the residual contractual maturities of time deposits at March 31, 2022.
Rupees in million
| Deposits maturing during the year ending March 31, | ||||
| 2023 | 3,895,554.2 | |||
| 2024 | 956,189.9 | |||
| 2025 | 300,587.2 | |||
| 2026 | 146,346.2 | |||
| 2027 | 255,432.6 | |||
| Thereafter | 55,055.3 | |||
| Total time deposits | 5,609,165.4 | |||
At March 31, 2022, the aggregate of time deposits with individual balances greater than Rs. 5.0 million was Rs. 2,789,181.9 million (March 31, 2021: Rs. 2,591,789.6 million).
3. Long-term debt
Long-term debt represents debt with an original contractual maturity of greater than one year. Maturity distribution is based on contractual maturity or the date at which the debt is callable at the option of the holder, whichever is earlier. A portion of the long-term debt bears a fixed rate of interest. Interest rates on floating-rate debt are generally linked to the London Inter-Bank Offer Rate, Secured Overnight Financing Rate or similar money market rates. The segregation between fixed-rate and floating-rate obligations is based on the contractual terms.
The following table sets forth a listing of long-term debt at March 31, 2022, by maturity and interest rate profile.
Rupees in million
| Fixed-rate obligations | Floating-rate obligations | Total | ||||||||||
| Long-term debt maturing during the year ending March 31, | ||||||||||||
| 2023 | 198,489.6 | 32,851.7 | 231,341.3 | |||||||||
| 2024 | 209,736.7 | 21,278.1 | 231,014.8 | |||||||||
| 2025 | 159,413.3 | 18,255.3 | 177,668.6 | |||||||||
| 2026 | 158,549.7 | 9,893.6 | 168,443.3 | |||||||||
| 2027 | 105,365.6 | 15,304.9 | 120,670.5 | |||||||||
| Thereafter | 269,130.4 | .. | 269,130.4 | |||||||||
| Total | 1,100,685.3 | 97,583.6 | 1,198,268.9 | |||||||||
| Less: Unamortized debt issue costs | (1,070.8 | ) | ||||||||||
| Total | 1,197,198.1 | |||||||||||
Long-term debt is denominated
in various currencies. At March 31, 2022, long-term debt comprises Indian rupee debt of Rs. 832,170.3 million (March 31, 2021: Rs. 695,391.1
million) and foreign currency debt of Rs. 365,027.8 million (March 31, 2021: Rs. 483,645.6 million).
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Indian rupee debt
The following tables set forth, for the periods indicated, a listing of major categories of Indian rupee debt.
Rupees in million
| Category | At March 31, 2022 | |||
|
Amount |
Weighted average interest rate |
Range |
Weighted average residual maturity (in years) | |
| Bonds issued to institutional/individual investors | 591,019.1 | 8.0% | 4.9% to 14.2% | 4.6 |
| Refinance from financial institutions | 198,265.0 | 4.7% | 2.8% to 8.4% | 1.9 |
| Borrowings from other banks | 13,846.2 | 7.0% | 5.5% to 7.4% | 3.8 |
| Fixed deposits | 29,040.0 | 7.0% | 3.9% to 8.8% | 2.8 |
| Total | 832,170.3 | 7.1% | 3.9 | |
Rupees in million
| Category | At March 31, 2021 | |||
|
Amount |
Weighted average interest rate |
Range |
Weighted average residual maturity (in years) | |
| Bonds issued to institutional/individual investors | 423,428.8 | 8.6% | 5.2% to 14.2% | 3.2 |
| Refinance from financial institutions | 228,385.5 | 4.7% | 2.8% to 9.6 % | 2.3 |
| Borrowings from other banks | 14,038.4 | 7.0% | 6.2% to 7.5% | 3.0 |
| Fixed deposits | 29,538.4 | 7.5% | 4.2% to 8.9% | 2.8 |
| Total | 695,391.1 | 7.2% | 2.9 | |
Foreign currency debt
The following tables set forth, for the periods indicated, a listing of major categories of foreign currency debt.
Rupees in million
| Category | At March 31, 2022 | |||
|
Amount |
Weighted average interest rate |
Range |
Weighted average residual maturity (in years) | |
| Bonds | 187,034.1 | 3.6% | 0.5% to 5.4% | 3.0 |
| Other borrowings | 177,993.7 | 1.9% | 0.0% to 10.4% | 2.8 |
| Total | 365,027.8 | 2.8% | 2.9 | |
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Rupees in million
| Category | At March 31, 2021 | |||
|
Amount |
Weighted average interest rate |
Range |
Weighted average residual maturity (in years) | |
| Bonds | 191,728.5 | 3.4% | 0.5% to 5.4% | 3.8 |
| Other borrowings | 291,917.1 | 1.4% | 0.0% to 5.2% | 2.1 |
| Total | 483,645.6 | 2.2% | 2.8 | |
See note on “Schedule 18B-Additional note-19 Selected information from Indian GAAP financials” for assets pledged as securities for borrowings.
| 4. | Cash and cash equivalents |
Deposits maintained with the Reserve Bank of India were Rs. 530,008.6 million at March 31, 2022 (March 31, 2021: Rs. 390,002.3 million) towards compliance with the guidelines governing minimum cash reserve requirements. Out of this, the Bank’s minimum cash reserve requirement at March 31, 2022 was Rs. 407,243.4 million (March 31, 2021: Rs. 316,478.6 million) which is subject to withdrawal and usage restrictions.
Deposits with other banks include Rs. 54,309.7 million (March 31, 2021: Rs. 48,515.7 million) in deposits, which have original maturities greater than 90 days.
| 5. | Investments |
The following table sets forth, for the periods indicated, the portfolio of investments classified as held to maturity.
Rupees in million
| At March 31, 2022 | At March 31, 2021 | |||||||||||||||||||||||||||||||
| Amortized cost/cost | Gross unrealized gain | Gross unrealized loss | Fair value | Amortized cost/cost | Gross unrealized gain | Gross unrealized loss | Fair value | |||||||||||||||||||||||||
| Held to maturity | ||||||||||||||||||||||||||||||||
| Corporate debt securities | 177,005.2 | 5,488.1 | (821.1 | ) | 181,672.1 | 297,027.3 | 15,426.1 | (263.3 | ) | 312,190.1 | ||||||||||||||||||||||
| Government securities | 2,546,164.0 | 41,635.4 | (23,863.5 | ) | 2,563,935.9 | 2,276,602.6 | 75,097.1 | (6,182.6 | ) | 2,345,517.1 | ||||||||||||||||||||||
| Other debt securities1 | 3,938.9 | - | - | 3,938.9 | 5,909.9 | 7.6 | (1.3 | ) | 5,916.2 | |||||||||||||||||||||||
| Total debt securities | 2,727,108.1 | 47,123.5 | (24,684.6 | ) | 2,749,546.9 | 2,579,539.8 | 90,530.8 | (6,447.2 | ) | 2,663,623.4 | ||||||||||||||||||||||
| Equity shares2 | 45,464.5 | 287,016.9 | - | 332,481.4 | 30.0 | 5.5 | .. | 35.5 | ||||||||||||||||||||||||
| Other securities | 5,023.3 | 2,460.6 | (24.6 | ) | 7,459.3 | 7,269.5 | 1,029.6 | (199.6 | ) | 8,099.5 | ||||||||||||||||||||||
| Total | 2,777,595.9 | 336,601.0 | (24,709.2 | ) | 3,089,487.6 | 2,586,839.3 | 91,565.9 | (6,646.8 | ) | 2,671,758.4 | ||||||||||||||||||||||
| 1. | Includes certificate of deposit and commercial paper. |
| 2. | From April 1, 2021, ICICI Lombard General Insurance Company Limited ceased to be a subsidiary and accounted as an affiliate. Investment in equity shares of ICICI Lombard General Insurance Company Limited was classified as held-to-maturity in terms of the Reserve Bank of India Guidelines. |
| 3. | Interest accrued on held-to-maturity securities amounted to Rs. 44,340.7 million at March 31, 2022 (March 31, 2021 - Rs. 46,253.8 million). |
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The following table sets forth, for the periods indicated, the portfolio of investments classified as available for sale.
Rupees in million
| At March 31, 2022 | At March 31, 2021 | |||||||||||||||||||||||||||||||
Amortized cost/cost | Gross unrealized gain | Gross unrealized loss | Fair value | Amortized cost/cost | Gross unrealized gain | Gross unrealized loss | Fair value | |||||||||||||||||||||||||
| Available for sale | ||||||||||||||||||||||||||||||||
| Corporate debt securities | 167,879.7 | 5,362.0 | (742.9 | ) | 172,498.8 | 218,314.7 | 8,405.8 | (77.1 | ) | 226,643.4 | ||||||||||||||||||||||
| Government securities | 615,555.5 | 1,970.2 | (1,773.3 | ) | 615,752.6 | 460,358.4 | 2,620.6 | (121.7 | ) | 462,857.3 | ||||||||||||||||||||||
| Other debt securities1 | 113,652.3 | 1,318.0 | (682.2 | ) | 114,288.1 | 150,411.5 | 2,895.1 | (2,163.4 | ) | 151,143.2 | ||||||||||||||||||||||
| Total debt securities | 897,087.5 | 8,650.2 | (3,198.4 | ) | 902,539.5 | 829,084.6 | 13,921.5 | (2,362.2 | ) | 840,643.9 | ||||||||||||||||||||||
| Equity shares | 124,059.9 | 65,347.6 | (14,584.0 | ) | 174,823.4 | 151,569.1 | 62,954.3 | (16,281.9 | ) | 198,241.5 | ||||||||||||||||||||||
| Other securities | 43,993.6 | 6,343.7 | (5,734.0 | ) | 44,603.4 | 46,602.8 | 4,777.6 | (7,045.6 | ) | 44,334.8 | ||||||||||||||||||||||
| Total | 1,065,141.0 | 80,341.5 | (23,516.4 | ) | 1,121,966.3 | 1,027,256.5 | 81,653.4 | (25,689.7 | ) | 1,083,220.2 | ||||||||||||||||||||||
| 1. | Includes pass through certificates, certificate of deposit, commercial paper and banker's acceptance. |
| 2. | Interest accrued on available for sale securities amounted to Rs. 12,545.8 million at March 31, 2022 (March 31, 2021 - Rs. 15,588.2 million). |
Income from securities available for sale
The following table sets forth, for the periods indicated, a listing of income from securities classified as available for sale.
Rupees in million
| Year ended March 31, | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Interest | 41,719.0 | 48,297.5 | 48,006.9 | |||||||||
| Dividend | 1,023.4 | 1,719.5 | 2,055.8 | |||||||||
| Total | 42,742.4 | 50,017.0 | 50,062.7 | |||||||||
| Gross realized gain | 22,227.6 | 73,793.0 | 19,397.4 | |||||||||
| Gross realized loss | (1,772.1 | ) | (10,817.4 | ) | (6,019.8 | ) | ||||||
| Total | 20,455.5 | 62,975.6 | 13,377.6 | |||||||||
Income from securities held for trading
The following table sets forth, for the periods indicated, a listing of income from securities classified as held for trading.
Rupees in million
| Year ended March 31, | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Interest and dividend | 11,713.9 | 14,954.8 | 23,130.8 | |||||||||
| Realized gain/(loss) on sale of trading portfolio | (648.7 | ) | 5,749.2 | 8,233.0 | ||||||||
| Unrealized gain/(loss) on trading portfolio | 1,952.6 | 340.7 | (2,073.3 | ) | ||||||||
| Total | 13,017.8 | 21,044.7 | 29,290.5 | |||||||||
Maturity profile of debt securities
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The following table sets forth a listing of each category of held to maturity debt securities at March 31, 2022, by maturity.
Rupees in million
| Amortized cost | Fair value | |||||||
| Corporate debt securities | ||||||||
| Less than one year | 14,824.2 | 14,946.2 | ||||||
| One to five years | 47,240.6 | 48,614.6 | ||||||
| Five to ten years | 69,781.7 | 71,698.6 | ||||||
| Greater than ten years | 45,158.7 | 46,412.7 | ||||||
| Total corporate debt securities | 177,005.2 | 181,672.1 | ||||||
| Government securities | ||||||||
| Less than one year | 19,408.2 | 19,869.3 | ||||||
| One to five years | 1,056,989.6 | 1,079,647.4 | ||||||
| Five to ten years | 607,274.6 | 615,308.1 | ||||||
| Greater than ten years | 862,491.6 | 849,111.1 | ||||||
| Total government securities | 2,546,164.0 | 2,563,935.9 | ||||||
| Other debt securities | ||||||||
| Less than one year | 3,938.9 | 3,938.9 | ||||||
| One to five years | - | - | ||||||
| Five to ten years | - | - | ||||||
| Greater than ten years | - | - | ||||||
| Total other debt securities | 3,938.9 | 3,938.9 | ||||||
| Total debt securities classified as held to maturity | 2,727,108.1 | 2,749,546.9 | ||||||
The following table sets forth a listing of each category of available for sale debt securities at March 31, 2022, by maturity.
Rupees in million
| Amortized cost | Fair value | |||||||
| Corporate debt securities | ||||||||
| Less than one year | 32,262.8 | 32,901.4 | ||||||
| One to five years | 122,803.5 | 126,277.9 | ||||||
| Five to ten years | 10,690.4 | 11,070.7 | ||||||
| Greater than ten years | 2,123.0 | 2,248.8 | ||||||
| Total corporate debt securities | 167,879.7 | 172,498.8 | ||||||
| Government securities | ||||||||
| Less than one year | 378,171.8 | 378,609.3 | ||||||
| One to five years | 153,641.9 | 154,372.8 | ||||||
| Five to ten years | 38,482.0 | 38,211.9 | ||||||
| Greater than ten years | 45,259.8 | 44,558.5 | ||||||
| Total Government securities | 615,555.5 | 615,752.5 | ||||||
| Other debt securities | ||||||||
| Less than one year | 79,461.3 | 79,966.4 | ||||||
| One to five years | 18,843.8 | 19,054.1 | ||||||
| Five to ten years | 7,548.8 | 7,561.2 | ||||||
| Greater than ten years | 7,798.4 | 7,706.3 | ||||||
| Total other debt securities | 113,652.3 | 114,288.0 | ||||||
| Total debt securities classified as available for sale | 897,087.5 | 902,539.3 | ||||||
Credit rating profile of held-to-maturity debt securities
The Group considers credit rating as credit quality indicators for the held-to-maturity debt securities. The credit rating of debt securities is issued by external credit rating agencies.
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The following table sets forth, held-to-maturity debt securities by external credit rating at March 31, 2022:
Rupees in million
| AAA, AA+, AA, AA-, 1, 2A-C | A+, A, A-, 3 A-C | BBB+, BBB and BBB-, 4A-C | Below investment grade | Unrated | Total | |||||||||||||||||||
| Corporate debt securities | 161,685.4 | 198.6 | 12,071.6 | 3,049.6 | - | 177,005.2 | ||||||||||||||||||
| Government securities | 2,546,164.0 | - | - | - | - | 2,546,164.0 | ||||||||||||||||||
| Other debt securities | 3,938.9 | - | - | - | - | 3,938.9 | ||||||||||||||||||
| Total Debt securities | 2,711,788.3 | 198.6 | 12,071.6 | 3,049.6 | - | 2,727,108.1 | ||||||||||||||||||
The following table sets forth, held-to-maturity debt securities by external credit rating at March 31, 2021:
Rupees in million
| AAA, AA+, AA, AA-, 1, 2A-C | A+, A, A-, 3 A-C | BBB+, BBB and BBB-, 4A-C | Below investment grade | Unrated | Total | |||||||||||||||||||
| Corporate debt securities | 281,298.8 | .. | 12,786.9 | 2,941.6 | .. | 297,027.3 | ||||||||||||||||||
| Government securities | 2,276,602.6 | .. | .. | .. | .. | 2,276,602.6 | ||||||||||||||||||
| Other debt securities | 5,909.9 | .. | .. | .. | .. | 5,909.9 | ||||||||||||||||||
| Total Debt securities | 2,563,811.3 | .. | 12,786.9 | 2,941.6 | .. | 2,579,539.8 | ||||||||||||||||||
There were no held-to-maturity debt securities that were past due (30 days overdue) at year ended March 31, 2022 and March 31, 2021. There were no-held-to-maturity debt securities that were overdue for more than 90 days and still accruing at the year ended March 31, 2022 and March 31, 2021.
| 6. | Repurchase transactions |
The Group has undertaken repurchase and reverse repurchase transactions of Government securities and corporate bonds during the year. These transactions are generally of a very short tenure and are undertaken with the Reserve Bank of India, banks and other financial institutions as counterparties.
At March 31, 2022, outstanding borrowings under repurchase transactions including Liquidity Adjustment Facility and Marginal Standing Facility offered by the Reserve Bank of India amounted to Rs. 126,911.1 million (March 31, 2021: Rs. 149,161.7 million) and the outstanding lendings under reverse repurchase transactions including Liquidity Adjustment Facility and Marginal Standing Facility amounted to Rs. 521,508.1 million (March 31, 2021: Rs. 362,796.7 million).
During fiscal 2022, average borrowings under repurchase transactions including Liquidity Adjustment Facility and Marginal Standing Facility amounted to Rs. 212,852.2 million (March 31, 2021: Rs. 467,872.0 million) and average lendings under reverse repurchase transactions including Liquidity Adjustment Facility and Marginal Standing Facility amounted to Rs. 411,776.6 million (March 31, 2021: Rs. 468,286.2 million).
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| 7. | Loans |
The following table sets forth, for the periods indicated, a listing of loans by category.
Rupees in million
| At March 31, | ||||||||
| 2022 | 2021 | |||||||
| Commercial loans | 3,962,140.8 | 3,437,735.3 | ||||||
| Term loans | 1,852,029.2 | 1,813,443.6 | ||||||
| Working capital facilities1 | 2,110,111.6 | 1,624,291.7 | ||||||
| Consumer loans and credit card receivable | 5,512,549.6 | 4,808,137.6 | ||||||
| Mortgage loans | 3,301,415.5 | 2,805,690.7 | ||||||
| Other secured loans | 1,287,985.6 | 1,283,462.3 | ||||||
| Credit cards | 254,739.8 | 183,319.4 | ||||||
| Other unsecured loans | 668,408.7 | 535,665.2 | ||||||
| Lease financing2 | 416.5 | 723.0 | ||||||
| Total gross advances | 9,475,106.8 | 8,246,595.9 | ||||||
| Provision for loan losses3 | (272,025.4 | ) | (328,582.0 | ) | ||||
| Total net advances | 9,203,081.4 | 7,918,013.9 | ||||||
| 1. | Includes bills purchased and discounted, over drafts, cash credit and loans repayable on demand. |
| 2. | Lease financing activity includes leasing and hire purchase. |
| 3. | Excludes provision on performing loans. |
Commercial loans
Commercial loans include term loans and working capital facilities extended to corporate and other business entities.
Each commercial loan undergoes a detailed credit review process in accordance with the Bank’s credit policy. After disbursement, commercial loans are individually monitored and reviewed for any possible deterioration in the borrower’s ability to repay the loan. Term loans, including corporate finance and project finance loans, are typically secured by a first lien on the borrower’s fixed assets, which normally consist of property, plants and equipment. Working capital facilities, which include bills purchased and discounted, over drafts, cash credit and loans repayable on demand, are typically secured by a first lien on the borrower’s current assets, which normally consist of inventory and receivables.
The overall economic conditions affecting businesses impact the Bank’s commercial loan portfolio. A prolonged slowdown in the Indian economy and significant movement in commodity prices could adversely affect borrowers’ abilities to repay loans. In light of increasing international trade linkages, borrowers’ abilities to repay loans may also be negatively affected by adverse economic developments in the United States and other major economies. Unfavorable exchange rate movements may also increase borrowers’ debt burden and adversely affect their abilities to repay loans.
Borrowers’ ability to repay project finance term loans depends on the viability of the project financed which, in turn, depends on the timeliness of the project’s completion, the stability of government policies and changes in market demand.
Consumer loans
The Bank’s consumer loan portfolio includes both secured loans and unsecured loans. Secured consumer loans constitute a significant majority of the Bank’s total consumer loan portfolio. Though the loans in the Bank’s secured loan portfolio are secured by first and exclusive liens on the assets financed, recoveries in case of default may be subject of delays up to several years, due to the protracted legal process in India. To mitigate risk, the Bank obtains direct debit mandates or post-dated checks with pre-specified dates for repayment of consumer installment loans.
F-84
Secured consumer loan portfolio
The Bank’s secured loan portfolio consists of mortgage loans, automobile loans, commercial vehicle loans, jewel loans, farm equipment loans, kisan (farmer) credit cards and other secured loans.
The Bank’s mortgage loan portfolio includes home loans made to individuals and business entities and loan against mortgage of property for any business or personal requirement. Typically, mortgage loans are secured by first and exclusive liens on the financed properties. Borrower default risk is mitigated by rigorous credit review procedures. The Bank’s mortgage loan portfolio risk is driven primarily by interest rate movement, the loan-to-value ratios of the loans in the portfolio changes in property price, the nature of the borrowers’ employment (e.g., salaried or self-employed) and the borrowers’ income levels.
The Bank’s automobile loan and commercial vehicle loan portfolios are also secured by first liens on the assets financed by the loans. Major factors affecting the performance of the automobile loan portfolio include the nature of the borrowers’ employment, the borrowers’ income levels, the loan-to-value ratios of the loans in the portfolio and the nature of use of the financed vehicles. The Bank’s commercial vehicle loan portfolio risk is largely driven by borrowers’ characteristics, rate of economic activity and fuel price.
The Bank extends kisan (farmer) credit card facility to farmers for meeting their cost of cultivation and other ancillary expenses. These loans are secured by hypothecation of crops and mortgage of the agricultural land. Unfavorable monsoon, natural calamities and announcement of farm loan waiver by state governments are among the key risk drivers of kisan (farmer) credit card portfolio.
The Bank provides jewel loans against gold ornaments and gold coins. Key risks include volatility in gold price and authenticity (purity and weight) of the jewels.
Borrowers’ abilities to repay farm equipment loans generally depend on the agriculture sector in India which, in turn, depends on the monsoons.
Unsecured consumer loan portfolio
The Bank’s unsecured loan portfolio includes personal loans, credit cards and other unsecured loans. General economic conditions and other factors such as changes in unemployment rates, economic growth rates and borrowers’ income levels impact this portfolio.
Impact of Covid-19 pandemic
During fiscal 2021, the Covid-19 pandemic resulted in a nation-wide lockdown in April-May 2020 which substantially impacted economic activity. The subsequent easing of lockdown measures led to gradual improvement in economic activity and progress towards normalcy from the second half of fiscal 2021. For the banking sector, these developments resulted in lower demand for loans and fee-based services and regulatory measures like moratorium on payment of dues and standstill in asset classification to mitigate the economic consequences on borrowers. It also resulted in increase in provisioning reflecting higher actual and expected additions to non-performing loans following the cessation of moratorium and asset classification standstill. Subsequently, during fiscal 2022, India witnessed two more waves of the Covid-19 pandemic and the re-imposition of localised/regional lock-down measures in certain parts of the country.
While the number of new Covid-19 cases has reduced significantly and the Government of India has withdrawn Covid-19 related restrictions, the future trajectory of the pandemic may have an impact on the loan portfolio.
F-85
Standard restructured loans
A loan is classified as restructuring, where a concessionary modification such as changes in repayment period, principal amount, repayment installment and rate of interest has been made by the Group, and downgraded to non-performing. The restructuring of loans in the event of a natural calamity, restructuring involving deferment of date of commencement of commercial operations for projects under implementation and restructuring for certain medium and small medium enterprises continue to be classified as standard restructured loans. Further, the Reserve Bank of India through its guideline on ‘Resolution Framework for COVID-19-related Stress’ dated August 6, 2020, provided a prudential framework to implement a resolution plan in respect of eligible borrowers and personal loans, while classifying such exposures as standard, subject to specified conditions.
The loan accounts subjected to restructuring by the Bank are upgraded to the standard category from standard restructured category if the borrower has demonstrated, over a minimum period of one year, the ability to repay the loan in accordance with the contractual terms and the borrower has been reinstated to a normal level of general provisions for standard loans/risk weights for capital adequacy computations. The period of one year is from the commencement of the first payment of principal or interest whichever was later on the credit facility with the longest period of moratorium under the restructured terms. The restructured loans, classified as non-performing, can be upgraded only after satisfactory performance during the ‘specified period’, that is, the date by which at least a certain percentage of the outstanding principal debt as per the resolution plan and interest capitalization sanctioned as part of the restructuring, if any, is repaid or one year from the commencement of the first payment of interest or principal on the credit facility with the longest period of moratorium under the terms of the resolution plan, whichever is later. Further, large restructured accounts (accounts where the aggregate exposure of lenders is Rs. 1.00 billion and above) would qualify for an upgrade if in addition to demonstration of satisfactory payment performance as mentioned above, the loan is rated at investment grade (BBB- equivalent or better) at the end of the ‘specified period’ by credit rating agencies accredited by the Reserve Bank of India.
The moratorium granted by the Group to the borrowers in accordance with the Reserve Bank of India guidelines dated March 27, 2020, is not considered as restructuring of loans.
At March 31, 2022, the Group had committed to lend (including non-fund based facilities) Rs. 1,378.3 million (March 31, 2021: Rs. 749.7 million) to borrowers who are parties to standard restructurings.
The following table sets forth, for the dates indicated, a listing of standard restructured loans.
Rupees in million
| At March 31, | ||||||||
| 2022 | 2021 | |||||||
| Commercial loans | ||||||||
| Term loans | 21,640.6 | 13,925.8 | ||||||
| Working capital facilities | 4,328.6 | 1,415.4 | ||||||
| Consumer loans | ||||||||
| Mortgage loans | 46,241.6 | 14,425.1 | ||||||
| Other secured loans | 18,734.2 | 8,168.2 | ||||||
| Credit cards | 27.4 | .. | ||||||
| Other unsecured loans | 2,293.5 | 841.1 | ||||||
| Lease financing | .. | .. | ||||||
| Total gross restructured loans2 | 93,265.9 | 38,775.6 | ||||||
| Provision for loan losses3 | (2,914.3 | ) | (896.6 | ) | ||||
| Total net restructured loans | 90,351.6 | 37,879.0 | ||||||
| 1. | Represents entire borrower level outstanding of the restructured accounts. |
| 2. | At March 31, 2022, includes loans amounting to Rs. 58,297.3 million restructured under the Reserve Bank of India guidelines on ‘Resolution Framework for COVID-19-related Stress’ dated August 6, 2020. and May 05, 2021 (March 31, 2021: loans amounting to Rs. 19,208.8 million) |
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| 3. | Represents provision due to diminution in the fair value of restructured/rescheduled loans in accordance with the applicable RBI guidelines. |
In addition, the Bank holds general provision amounting to Rs. 23,562.1 million at March 31, 2022 (March 31, 2021: Rs. 4,560.2 million) on these restructured accounts, subject to minimum provisioning requirement as per the guidelines issued by the Reserve Bank of India.
Non-performing loans
The Bank classifies all credit exposures at a borrower level, including overdues arising from crystallized derivative contracts, into performing and non-performing loans as per the Reserve Bank of India guidelines. Under the Reserve Bank of India guidelines, an asset is generally classified as non-performing if any amount of interest or principal remains overdue for more than 90 days (360 days for direct agriculture loans), in respect of term loans. In respect of overdraft or cash credit, an asset is classified as non-performing if the account remains out of order for a period of 90 days. An account is treated as ‘out of order’ if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power for 90 days or where there are no credits continuously for 90 days or credits are not enough to cover the interest debited during the preceding 90 day period. In respect of bills, an asset is classified as non-performing if the account remains overdue for more than 90 days. The Bank also identifies non-performing loans based on a review of accounts selected on the basis of certain criteria, by evaluating additional information (other than that relating to the payment record). In accordance with regulatory package announced by the Reserve Bank of India, consequent to outbreak of Covid-19 pandemic, the Bank extended the option of payment of moratorium on loans to its borrowers. The moratorium period, where ever granted, was excluded from the number of days past-due for the purpose of asset classification as per the Reserve Bank of India guidelines. Advances held at the overseas branches that are identified as impaired as per host country regulations but which are standard as per the extant Reserve Bank of India guidelines, are identified as non-performing to the extent of amount outstanding in the host country. In case of the Bank’s housing finance subsidiary, loans and other credit facilities are classified into performing and non-performing loans as per the National Housing Bank guidelines. Further, non-performing loans are classified into sub-standard, doubtful and loss assets based on the criteria stipulated by National Housing Bank. Loans in the Bank’s United Kingdom subsidiary are classified as impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the loan (a loss event) and that loss event (or events) has an impact on the estimated future cash flows of the loans that can be reliably estimated. Loans in the Bank’s Canadian subsidiary are considered credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that loan have occurred.
The following table sets forth, the nonaccrual status of the loans for the year ended March 31, 2022.
Rupees in million
Loans outstanding | ||||||||||||||||||||
| At the beginning of the year | At the end of the year | Loans which are overdue for more than 90 days but on accrual status | Loans on non-accrual basis on which no provision is made | Interest income recognized during the year on loans on non-accrual basis | ||||||||||||||||
| Commercial loans | ||||||||||||||||||||
| - Term loans | 199,707.8 | 167,209.3 | .. | .. | 2,249.3 | |||||||||||||||
| - Working capital facilities | 84,398.1 | 65,033.2 | .. | .. | 816.1 | |||||||||||||||
| Consumer loans | ||||||||||||||||||||
| - Mortgage loans | 61,876.0 | 54,559.5 | .. | .. | 1,951.5 | |||||||||||||||
| - Other secured loans | 51,517.8 | 44,822.2 | 33,269.2 | .. | 1,353.9 | |||||||||||||||
| - Credit cards | 9,905.6 | 3,864.6 | .. | .. | 958.3 | |||||||||||||||
| - Other unsecured loans | 19,623.6 | 10,024.8 | .. | .. | 826.8 | |||||||||||||||
| Lease financing | .. | .. | .. | .. | .. | |||||||||||||||
| Total gross loans | 427,028.9 | 345,513.6 | 33,269.2 | .. | 8,155.9 | |||||||||||||||
| Provision for loan losses | (327,680.4 | ) | (269,105.3 | ) | .. | |||||||||||||||
| Total net loans | 99,348.5 | 76,408.3 | 33,269.2 | |||||||||||||||||
F-87
The following table sets forth, the nonaccrual status of the loans for the year ended March 31, 2021.
Rupees in million
| Loans outstanding | ||||||||||||||||||||
| At the beginning of the year | At the end of the year | Loans which are overdue for more than 90 days but on accrual status | Loans on non-accrual basis on which no provision is made | Interest income recognized during the year on loans on non-accrual basis | ||||||||||||||||
| Commercial loans | ||||||||||||||||||||
| - Term loans | 258,621.8 | 199,707.8 | 0.6 | .. | 2,705.9 | |||||||||||||||
| - Working capital facilities | 105,889.4 | 84,398.1 | 5.9 | .. | 607.2 | |||||||||||||||
| Consumer loans | ||||||||||||||||||||
| - Mortgage loans | 25,209.7 | 61,876.0 | 84.1 | .. | 774.8 | |||||||||||||||
| - Other secured loans | 33,254.1 | 51,517.8 | 35,515.5 | .. | 980.3 | |||||||||||||||
| - Credit cards | 6,609.5 | 9,905.6 | 8.0 | .. | 399.5 | |||||||||||||||
| - Other unsecured loans | 8,837.5 | 19,623.6 | 6.6 | .. | 283.7 | |||||||||||||||
| Lease financing | .. | .. | .. | .. | .. | |||||||||||||||
| Total gross loans1 | 438,422.0 | 427,028.9 | 35,620.7 | .. | 5,751.4 | |||||||||||||||
| Provision for loan losses | (330,221.5 | ) | (327,680.4 | ) | .. | |||||||||||||||
| Total net loans | 108,200.5 | 99,348.5 | 35,620.7 | .. | ||||||||||||||||
| 1. | Does not include Rs. 3,694.5 million at March 31, 2021 (March 31, 2020: Rs. 13,092.6 million), where asset classification benefits were extended due to moratorium on repayment based on the guidelines issued by the Reserve Bank of India, consequent to outbreak of Covid-19. |
Provision for loan losses
The Bank and its housing finance subsidiary hold specific provisions against non-performing loans and general provisions against performing loans as per the requirements of respective regulators. The assessment of incremental specific provisions is made after taking into consideration the existing specific provision held.
The specific provisions on retail loans held by the Bank are higher than the minimum regulatory requirements. The Bank’s United Kingdom subsidiary maintains provision for loan losses at a level that management considers adequate to absorb identified credit related losses as well as losses that have occurred but are not yet identifiable. The Bank’s Canadian subsidiary maintains provision for all financial assets using expected credit loss model. The expected credit loss for impaired financial assets is computed based on individual assessment of expected cash flows from such assets. The Bank makes provision on assets that are restructured/rescheduled subject to minimum requirements as per the Reserve Bank of India guidelines.
F-88
The following table sets forth, for the periods indicated, the movement in the provision for loan losses on standard restructured loans.
Rupees in million
| Year ended March 31, | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Provision for loan losses at the beginning of the year | 896.6 | 231.7 | 278.9 | |||||||||
| Provision for loan losses made for new additions during the year | 2,329.7 | 705.6 | 159.6 | |||||||||
| Increase/(decrease) of provision for existing loan losses during the year | (172.8 | ) | (20.4 | ) | (57.0 | ) | ||||||
| Reduction/write-back of provision on restructured loans due to: Upgrade to standard assets |
|
| ||||||||||
| Downgrade to non-performing assets | (139.2 | ) | (20.3 | ) | (149.8 | ) | ||||||
| Provision for loan losses at the end of the year | 2,914.3 | 896.6 | 231.7 | |||||||||
The following table sets forth the movement in the provision for loan losses for the year ended March 31, 2022.
Rupees in million
Particulars | Commercial loans | Consumer loans | ||||||||||||||||||||||||||||||||||
Term loans | Working capital facilities | Mortgage loans | Other secured loans | Credit cards
| Other unsecured loans | Lease financing | Unallocated | Total | ||||||||||||||||||||||||||||
| A. Non-performing loans | ||||||||||||||||||||||||||||||||||||
| Aggregate provision for loan losses at the beginning of the year | 173,905.8 | 72,706.5 | 25,418.8 | 32,594.7 | 8,395.4 | 14,659.2 | .. | .. | 327,680.4 | |||||||||||||||||||||||||||
| Add: Provisions for loan losses | 13,677.5 | 17,842.9 | 26,440.8 | 37,637.8 | 11,240.3 | 18,452.0 | .. | .. | 125,291.3 | |||||||||||||||||||||||||||
| Less: Utilized for write-off of loans | (20,169.8 | ) | (26,607.9 | ) | (6,709.2 | ) | (23,824.4 | ) | (12,204.7 | ) | (18,485.5 | ) | .. | .. | (108,001.5 | ) | ||||||||||||||||||||
| Less: Write back of excess provisions | (15,213.4 | ) | (13,118.7 | ) | (16,297.9 | ) | (20,234.3 | ) | (4,311.9 | ) | (6,688.7 | ) | .. | .. | (75,864.9 | ) | ||||||||||||||||||||
| Aggregate provision for loan losses at the end of the year for non-performing loans | 152,200.11 | 50,822.8 | 28,852.5 | 26,173.8 | 3,119.1 | 7,937.0 | .. | .. | 269,105.3 | |||||||||||||||||||||||||||
| B. Aggregate provision for loan losses at the end of the year for performing loans including restructured loans | 12,295.0 | 3,379.4 | 11,943.0 | 5,561.9 | 7.1 | 898.9 | .. | 118,124.21 | 152,209.5 | |||||||||||||||||||||||||||
| C. Aggregate provision for loan losses at the end of the year (A) + (B) | 164,495.1 | 54,202.2 | 40,795.5 | 31,735.7 | 3,126.2 | 8,835.9 | .. | 118,124.2 | 421,314.8 | |||||||||||||||||||||||||||
| Closing balance of provision: individually evaluated for impairment | 164,495.1 | 54,202.2 | 40,795.5 | 31,735.7 | 3,126.2 | 8,835.9 | .. | .. | 303,190.6 | |||||||||||||||||||||||||||
| Closing balance of provision: collectively evaluated for impairment | .. | .. | .. | .. | .. | .. | .. | 118,124.2 | 118,124.2 | |||||||||||||||||||||||||||
| Closing balance of provision: loans acquired with deteriorated credit quality | .. | .. | .. | .. | .. | .. | .. | .. | .. | |||||||||||||||||||||||||||
| 1. | At March 31, 2022, the Bank held contingency provisions of Rs. 74,500.0 million, including Covid-19 related contingency provision amounting to Rs. 64,250.0 million, which is included in the above amount. |
F-89
The following table sets forth the movement in the provision for loan losses for the year ended March 31, 2021.
Rupees in million
Particulars
| Commercial loans | Consumer loans | ||||||||||||||||||||||||||||||||||
Term loans | Working capital facilities | Mortgage loans | Other secured loans | Credit cards
| Other unsecured loans | Lease financing | Unallocated | Total | ||||||||||||||||||||||||||||
| A. Non-performing loans | ||||||||||||||||||||||||||||||||||||
| Aggregate provision for loan losses at the beginning of the year | 203,736.5 | 87,163.8 | 10,649.9 | 16,659.1 | 5,400.0 | 6,612.2 | .. | .. | 330,221.5 | |||||||||||||||||||||||||||
| Add: Provisions for loan losses | 24,846.2 | 33,480.8 | 20,814.5 | 25,620.9 | 14,615.7 | 17,898.2 | .. | .. | 137,276.3 | |||||||||||||||||||||||||||
| Less: Utilized for write-off of loans | (51,609.7 | ) | (26,571.6 | ) | (4,569.7 | ) | (6,975.2 | ) | (8,907.8 | ) | (7,782.6 | ) | .. | .. | (106,416.6 | ) | ||||||||||||||||||||
| Less: Write back of excess provisions | (3,067.2 | ) | (21,366.5 | ) | (1,475.9 | ) | (2,710.1 | ) | (2,712.5 | ) | (2,068.6 | ) | .. | .. | (33,400.8 | ) | ||||||||||||||||||||
| A. Aggregate provision for loan losses at the end of the year for non-performing loans | 173,905.8 | 72,706.5 | 25,418.8 | 32,594.7 | 8,395.4 | 14,659.2 | .. | .. | 327,680.4 | |||||||||||||||||||||||||||
| B. Aggregate provision for loan losses at the end of the year for performing loans including restructured loans | 4,376.8 | 1,638.2 | 1,476.2 | 1,061.5 | 9.9 | 130.6 | .. | 114,792.61 | 123,485.8 | |||||||||||||||||||||||||||
| C. Aggregate provision for loan losses at the end of the year (A) + (B) | 178,282.6 | 74,344.7 | 26,895.0 | 33,656.2 | 8,405.3 | 14,789.8 | .. | 114,792.6 | 451,166.2 | |||||||||||||||||||||||||||
| Closing balance of provision: individually evaluated for impairment | 178,282.6 | 74,344.7 | 26,895.0 | 33,656.2 | 8,405.3 | 14,789.8 | .. | .. | 336,373.6 | |||||||||||||||||||||||||||
| Closing balance of provision: collectively evaluated for impairment | .. | .. | .. | .. | .. | .. | .. | 114,792.6 | 114,792.6 | |||||||||||||||||||||||||||
| Closing balance of provision: loans acquired with deteriorated credit quality | .. | .. | .. | .. | .. | .. | .. | .. | .. | |||||||||||||||||||||||||||
| 1. | At March 31, 2021, the Bank held Covid-19 related provisions of Rs. 74,750.0 million which is included in the above amount. |
F-90
While the Group assesses the incremental specific provisions after taking into consideration the existing specific provision held, the amounts recovered against debts written off in earlier years and provisions no longer considered necessary in the context of the current status of the borrower are recognized in the profit and loss account. The Bank’s Canadian subsidiary adopted IFRS 9 – Financial instruments from April 1, 2018 and measures impairment loss on all financial assets using expected credit loss model based on a three-stage approach. At March 31, 2022, the Bank’s Canadian subsidiary classified exposure of Rs. 13,965.8 million as Stage-2 (March 31, 2021: Rs. 27,701.2 million) (financial assets, that are not credit impaired, but which have experienced significant increase in credit risk since origination), with allowance for expected credit loss of Rs. 844.7 million (March 31, 2021: Rs. 1,007.8 million) in fiscal 2022. The decrease in Stage-2 exposure and allowance for expected credit loss was primarily due to sell-down of certain exposures and improvement in the economic and business environment in fiscal 2022 compared with fiscal 2021.
Aging Analysis of Past Due Financing Receivable - Performing Loans
Any amount due under a credit facility is considered as ‘past due’ if it remains unpaid for more than 30 days from the due date.
The following table sets forth the aging analysis of past due performing loans at March 31, 2022.
Rupees in million
| Particulars | Current1 | 31 to 60 days | 61 to 90 days | Above 90 days2 | Total past due3 | |||||||||||||||
| Commercial loans | ||||||||||||||||||||
| Term loans | 1,682,801.5 | 1,307.3 | 711.0 | .. | 2,018.3 | |||||||||||||||
| Working capital facilities4 | 2,039,221.3 | 5,340.1 | 517.0 | .. | 5,857.1 | |||||||||||||||
| Consumer loans | ||||||||||||||||||||
| Mortgage loans | 3,227,102.8 | 16,270.3 | 3,482.9 | .. | 19,753.2 | |||||||||||||||
| Other secured loans | 1,188,144.5 | 16,887.6 | 4,862.1 | 33,269.2 | 55,018.9 | |||||||||||||||
| Credit cards | 247,317.0 | 2,499.0 | 1,059.2 | .. | 3,558.2 | |||||||||||||||
| Other unsecured loans | 653,445.5 | 3,832.6 | 1,105.8 | .. | 4,938.4 | |||||||||||||||
| Lease financing | 416.5 | .. | .. | .. | .. | |||||||||||||||
| Total | 9,038,449.1 | 46,136.9 | 11,738.0 | 33,269.2 | 91,144.1 | |||||||||||||||
| 1. | Loans up to 30 days past due are considered current. |
| 2. | Primarily includes crop related agriculture loans overdue less than 360 days. |
| 3. | The amount disclosed represents the outstanding amount of the facility which has overdues, and not the borrower-level outstanding. |
| 4. | Includes bills purchased and discounted, over drafts, cash credit and loans repayable on demand. |
F-91
The following table sets forth the aging analysis of past due performing loans at March 31, 2021.
Rupees in million
Particulars
| Current1 | 31 to 60 days | 61 to 90 days | Above 90 days2 | Total past due3 | |||||||||||||||
| Commercial loans | ||||||||||||||||||||
| Term loans | 1,607,889.7 | 3,359.5 | 2,486.1 | 0.6 | 5,846.2 | |||||||||||||||
| Working capital facilities4 | 1,534,774.9 | 4,392.2 | 720.7 | 5.9 | 5,118.8 | |||||||||||||||
| Consumer loans | ||||||||||||||||||||
| Mortgage loans | 2,719,541.3 | 18,317.3 | 5,872.0 | 84.1 | 24,273.4 | |||||||||||||||
| Other secured loans | 1,167,851.6 | 22,341.0 | 6,236.4 | 35,515.5 | 64,092.9 | |||||||||||||||
| Credit cards | 170,094.0 | 2,317.7 | 994.1 | 8.0 | 3,319.8 | |||||||||||||||
| Other unsecured loans | 503,761.0 | 4,042.5 | 8,231.3 | 6.6 | 12,280.4 | |||||||||||||||
| Lease financing | 723.0 | .. | .. | .. | .. | |||||||||||||||
| Total | 7,704,635.5 | 54,770.2 | 24,540.6 | 35,620.7 | 114,931.5 | |||||||||||||||
| 1. | Loans up to 30 days past due are considered current. |
| 2. | Primarily includes crop related agriculture loans overdue less than 360 days. |
| 3. | The amount disclosed represents the outstanding amount of the facility which has overdues, and not the borrower-level outstanding. |
| 4. | Includes bills purchased and discounted, over drafts, cash credit and loans repayable on demand. |
Credit quality indicators of loans
The Group has a comprehensive framework for monitoring credit quality of its commercial loans based on internal ratings and of its consumer loans based on delinquency status. For the majority of the portfolio, the credit rating of every borrower/portfolio is reviewed at least annually. For the purpose of disclosure, the Group has used internal ratings as credit quality indicator for commercial loans, for consumer loans the Group has considered the delinquency status as a credit quality indicator. Till fiscal 2021, the Group was disclosing the credit quality indicators of loans based on internal rating for both commercial loans as well as consumer loans. Fiscal 2022 onwards, the disclosure for consumer loans is based on delinquency status as the Group believes that delinquency status is better representative of credit quality for these loans. The comparative period information has been recast on the aforementioned basis.
The following table sets forth, a description of internal rating grades linked to the likelihood of default associated with each rating grade:
| Grade | Definition |
| (I) Investment grade | Entities/obligations are judged to offer moderate to high protection with regard to timely payment of financial obligations. |
| AAA, AA+, AA, AA-, 1, 2A-C | Entities/obligations are judged to offer high protection with regard to timely payment of financial obligations. |
| A+, A, A-, 3A-C | Entities/obligations are judged to offer an adequate degree of protection with regard to timely payment of financial obligations. |
| BBB+, BBB and BBB-, 4A-C | Entities/obligations are judged to offer moderate protection with regard to timely payment of financial obligations. |
| (II) Below investment grade (BB and B, D, 5, 6, 7, 8) | Entities/obligations are judged to offer inadequate protection with regard to timely payment of financial obligations. |
F-92
The following table sets forth, for the periods indicated, credit quality indicators of commercial loans at March 31, 2022.
Rupees in million
| Non-revolving loans originated in | ||||||||||||||||||||||||||||||||
| Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | Fiscal 2019 | Fiscal 2018 | Prior to 2018 | Revolving loans1 | Total loans | |||||||||||||||||||||||||
| Rating grades | ||||||||||||||||||||||||||||||||
| Investment grade | 672,031.5 | 570,041.2 | 151,973.3 | 194,197.7 | 67,039.7 | 72,478.3 | 1,877,515.5 | 3,605,277.3 | ||||||||||||||||||||||||
| AAA, AA+, AA, AA-, 1, 2A-C | 280,749.6 | 336,997.1 | 28,189.3 | 54,997.2 | 6,943.5 | 3,685.2 | 515,614.9 | 1,227,176.8 | ||||||||||||||||||||||||
| A+, A, A-, 3 A-C | 226,803.1 | 145,059.2 | 66,245.9 | 64,168.6 | 27,224.7 | 33,746.8 | 848,088.0 | 1,411,336.3 | ||||||||||||||||||||||||
| BBB+, BBB and BBB-, 4A-C | 164,478.8 | 87,984.9 | 57,538.2 | 75,031.9 | 32,871.6 | 35,046.2 | 513,812.6 | 966,764.2 | ||||||||||||||||||||||||
| Below investment grade1 | 7,747.0 | 10,438.0 | 11,542.4 | 11,838.9 | 48,185.2 | 143,975.9 | 87,711.4 | 321,438.9 | ||||||||||||||||||||||||
| Unrated | 3,910.8 | 1,040.0 | 38.9 | 75.4 | 81.6 | 31.4 | 30,662.8 | 35,840.9 | ||||||||||||||||||||||||
| Total Gross loans | 683,689.4 | 581,519.2 | 163,554.6 | 206,112.1 | 115,306.5 | 216,485.6 | 1,995,889.7 | 3,962,557.1 | ||||||||||||||||||||||||
| Provisions | (1,725.4 | ) | (1,984.0 | ) | (5,418.6 | ) | (3,160.9 | ) | (21,377.4 | ) | (121,650.1 | ) | (48,686.3 | ) | (204,002.7 | ) | ||||||||||||||||
| Total net loans | 681,964.0 | 579,535.2 | 158,136.0 | 202,951.2 | 93,929.1 | 94,835.5 | 1,947,203.4 | 3,758,554.4 | ||||||||||||||||||||||||
| 1. | Includes bills purchased and discounted, over drafts, cash credit, credit cards and revolving demand loans. |
The following table sets forth, for the periods indicated, credit quality indicators of commercial loans at March 31, 2021.
Rupees in million
| Non-revolving loans originated in | ||||||||||||||||||||||||||||||||
| Fiscal 2021 | Fiscal 2020 | Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | Prior to 2017 | Revolving loans1 | Total loans | |||||||||||||||||||||||||
| Rating grades | 859,415.4 | 272,293.4 | 347,891.1 | 92,750.3 | 49,519.6 | 62,712.2 | 1,338,755.2 | 3,023,337.2 | ||||||||||||||||||||||||
| Investment grade | ||||||||||||||||||||||||||||||||
| AAA, AA+, AA, AA-, 1, 2A-C | 465,282.9 | 50,314.1 | 115,552.4 | 7,615.4 | 3,176.6 | 2,923.8 | 334,165.8 | 979,031.0 | ||||||||||||||||||||||||
| A+, A, A-, 3 A-C | 246,600.2 | 114,226.9 | 127,798.7 | 38,865.7 | 21,048.7 | 14,245.2 | 611,827.6 | 1,174,613.0 | ||||||||||||||||||||||||
| BBB+, BBB and BBB-, 4A-C | 147,532.3 | 107,752.4 | 104,540.0 | 46,269.2 | 25,294.3 | 45,543.2 | 392,761.8 | 869,693.2 | ||||||||||||||||||||||||
| Below investment grade1 | 13,575.4 | 14,654.4 | 27,708.5 | 47,158.6 | 23,195.2 | 155,860.0 | 115,110.5 | 397,262.6 | ||||||||||||||||||||||||
| Unrated | 2,733.7 | 152.3 | 86.1 | 189.4 | 3.8 | 116.1 | 14,577.3 | 17,858.7 | ||||||||||||||||||||||||
| Total Gross loans | 875,724.5 | 287,100.1 | 375,685.7 | 140,098.3 | 72,718.6 | 218,688.3 | 1,468,443.0 | 3,438,458.5 | ||||||||||||||||||||||||
| Provision | (3,924.0 | ) | (10,235.4 | ) | (6,129.7 | ) | (24,150.6 | ) | (11,147.7 | ) | (122,232.7 | ) | (70,140.7 | ) | (247,960.8 | ) | ||||||||||||||||
| Total net loans | 871,800.5 | 276,864.7 | 369,556.0 | 115,947.7 | 61,570.9 | 96,455.6 | 1,398,302.3 | 3,190,497.7 | ||||||||||||||||||||||||
| 1. | Includes bills purchased and discounted, over drafts, cash credit, credit cards and revolving demand loans. |
F-93
The following table sets forth, for the periods indicated, credit quality indicators of consumer loans at March 31, 2022.
Rupees in million
| Non-revolving loans originated in | ||||||||||||||||||||||||||||||||
| Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | Fiscal 2019 | Fiscal 2018 | Prior to 2018 | Revolving loans1 | Total loans | |||||||||||||||||||||||||
| Mortgage loans | 1,042,163.1 | 718,384.4 | 473,710.8 | 339,350.0 | 252,038.3 | 475,768.9 | .. | 3,301,415.5 | ||||||||||||||||||||||||
| Current2 | 1,040,069.6 | 711,385.5 | 452,457.6 | 326,436.9 | 244,024.1 | 452,729.1 | .. | 3,227,102.8 | ||||||||||||||||||||||||
| Performing loans which are overdue3 | 578.3 | 2,772.3 | 6,432.5 | 3,128.0 | 2,018.5 | 4,823.6 | .. | 19,753.2 | ||||||||||||||||||||||||
| Non-performing loans | 1,515.2 | 4,226.6 | 14,820.7 | 9,785.2 | 5,995.6 | 18,216.2 | .. | 54,559.5 | ||||||||||||||||||||||||
| Other secured loans | 528,450.5 | 242,763.3 | 141,796.8 | 72,459.3 | 23,508.2 | 7,760.5 | 271,246.8 | 1,287,985.6 | ||||||||||||||||||||||||
| Current2 | 524,384.0 | 229,822.0 | 128,960.9 | 64,805.0 | 20,765.0 | 3,641.8 | 215,765.8 | 1,188,144.5 | ||||||||||||||||||||||||
| Performing loans which are overdue3 | 1,807.6 | 7,963.6 | 6,443.5 | 3,591.0 | 1,284.3 | 449.1 | 33,479.8 | 55,018.9 | ||||||||||||||||||||||||
| Non-performing loans | 2,258.9 | 4,977.7 | 6,392.4 | 4,063.3 | 1,459.0 | 3,669.6 | 22,001.3 | 44,822.2 | ||||||||||||||||||||||||
| Credit cards | .. | .. | .. | .. | .. | .. | 245,739.8 | 254,739.8 | ||||||||||||||||||||||||
| Current2 | .. | .. | .. | .. | .. | .. | 247,317.0 | 247,317.0 | ||||||||||||||||||||||||
| Performing loans which are overdue3 | .. | .. | .. | .. | .. | .. | 3,558.2 | 3,558.2 | ||||||||||||||||||||||||
| Non-performing loans | .. | .. | .. | .. | .. | .. | 3,864.6 | 3,864.6 | ||||||||||||||||||||||||
| Other unsecured loans | 370,892.3 | 145,313.1 | 97,243.6 | 37,017.2 | 6,461.6 | 4,108.2 | 7,372.7 | 668,408.7 | ||||||||||||||||||||||||
| Current2 | 369,155.5 | 141,835.0 | 90,736.0 | 34,916.2 | 5,970.9 | 3,757.9 | 7,074.0 | 653,445.5 | ||||||||||||||||||||||||
| Performing loans which are overdue3 | 846.1 | 1,399.6 | 1,961.8 | 538.3 | 123.6 | 16.9 | 52.1 | 4,938.4 | ||||||||||||||||||||||||
| Non-performing loans | 890.7 | 2,078.5 | 4,545.8 | 1,562.7 | 367.0 | 333.5 | 246.6 | 10,024.8 | ||||||||||||||||||||||||
| Total Gross loans | 1,941,505.9 | 1,106,460.8 | 712,751.3 | 448,826.5 | 282,008.1 | 487,637.6 | 533,359.4 | 5,512,549.6 | ||||||||||||||||||||||||
| Provisons | (1,986.8 | ) | (5,322.9 | ) | (14,006.8 | ) | (8,520.0 | ) | (4,779.2 | ) | (15,938.4 | ) | (17,468.6 | ) | (68,022.7 | ) | ||||||||||||||||
| Total net loans | 1,939,519.1 | 1,101,137.9 | 698,744.5 | 440,306.5 | 277,228.9 | 471,699.2 | 515,890.8 | 5,444,526.9 | ||||||||||||||||||||||||
| 1. | Includes bills purchased and discounted, over drafts, cash credit, credit cards and revolving demand loans. |
| 2. | Loans upto 30 days past due are considered current. |
| 3. | The amount disclosed represents the outstanding amount of the facility which has overdues, and not the borrower-level outstanding. |
F-94
The following table sets forth, for the periods indicated, credit quality indicators of consumer loans at March 31, 2021.
Rupees in million
| Non-revolving loans originated in | ||||||||||||||||||||||||||||||||
| Fiscal 2021 | Fiscal 2020 | Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | Prior to 2017 | Revolving loans1 | Total loans | |||||||||||||||||||||||||
| Mortgage loans | 841,066.3 | 583,898.7 | 428,465.5 | 319,645.2 | 214,788.4 | 417,826.6 | .. | 2,805,609.7 | ||||||||||||||||||||||||
| Current2 | 839,251.9 | 562,843.1 | 412,068.8 | 309,102.4 | 203,826.1 | 392,449.0 | .. | 2,719,541.3 | ||||||||||||||||||||||||
| Performing loans which are overdue3 | 841.1 | 8,865.6 | 4,991.4 | 2,817.3 | 2,094.4 | 4,663.6 | .. | 24,273.4 | ||||||||||||||||||||||||
| Non-performing loans | 973.3 | 12,190.0 | 11,405.3 | 7,725.5 | 8,867.9 | 20,714.0 | .. | 61,876.0 | ||||||||||||||||||||||||
| Other secured loans | 497,317.5 | 271,829.1 | 151,008.0 | 63,549.7 | 19,649.1 | 9,740.8 | 270,368.1 | 1,283,462.3 | ||||||||||||||||||||||||
| Current2 | 487,604.7 | 251,549.1 | 132,484.2 | 54,819.8 | 16,132.9 | 5,522.0 | 219,738.9 | 1,167,851.6 | ||||||||||||||||||||||||
| Performing loans which are overdue3 | 6,651.2 | 8,368.3 | 6,476.3 | 2,440.1 | 885.6 | 259.1 | 39,012.3 | 64,092.9 | ||||||||||||||||||||||||
| Non-performing loans | 3,061.6 | 11,911.7 | 12,047.5 | 6,289.8 | 2,630.6 | 3,959.7 | 11,616.9 | 51,517.8 | ||||||||||||||||||||||||
| Credit cards | .. | .. | .. | .. | .. | .. | 183,319.4 | 183,319.4 | ||||||||||||||||||||||||
| Current2 | .. | .. | .. | .. | .. | .. | 170,094.0 | 170,094.0 | ||||||||||||||||||||||||
| Performing loans which are overdue3 | .. | .. | .. | .. | .. | .. | 3,319.8 | 3,319.8 | ||||||||||||||||||||||||
| Non-performing loans | .. | .. | .. | .. | .. | .. | 9,905.6 | 9,905.6 | ||||||||||||||||||||||||
| Other unsecured loans | 233,802.0 | 195,708.8 | 79,527.1 | 22,244.2 | 3,939.0 | 367.5 | 76.4 | 535,665.0 | ||||||||||||||||||||||||
| Current2 | 232,879.6 | 181,953.2 | 65,780.6 | 19,764.6 | 3,223.4 | 87.1 | 72.5 | 503,761.0 | ||||||||||||||||||||||||
| Performing loans which are overdue3 | 421.6 | 3,230.9 | 8,118.6 | 406.1 | 91.8 | 7.6 | 3.8 | 12,280.4 | ||||||||||||||||||||||||
| Non-performing loans | 500.8 | 10,524.7 | 5,627.9 | 2,073.5 | 623.8 | 272.8 | 0.1 | 19,623.6 | ||||||||||||||||||||||||
| Total Gross loans | 1,572,185.8 | 1,051,436.6 | 659,000.6 | 405,439.1 | 238,376.5 | 427,934.9 | 453,763.9 | 4,808,137.4 | ||||||||||||||||||||||||
| Provisions | (1,427.0 | ) | (17,297.4 | ) | (15,092.6 | ) | (8,755.8 | ) | (6,645.7 | ) | (15,580.9 | ) | (15,821.8 | ) | (80,621.2 | ) | ||||||||||||||||
| Total net loans | 1,570,758.8 | 1,034,139.2 | 643,908.0 | 396,683.3 | 231,730.8 | 412,354.0 | 437,942.1 | 4,727,516.2 | ||||||||||||||||||||||||
| 1. | Includes bills purchased and discounted, over drafts, cash credit, credit cards and revolving demand loans. |
| 2. | Loans upto 30 days past due are considered current. |
| 3. | The amount disclosed represents the outstanding amount of the facility which has overdues, and not the borrower-level outstanding. |
F-95
| 8. | Financial assets transferred during the year to securitization company/reconstruction company |
The Bank has transferred certain assets to securitization companies’/asset reconstruction companies in compliance with the terms of the guidelines issued by the Reserve Bank of India governing such transfer. The Bank transfers its non-performing assets to asset reconstruction companies primarily in exchange for the receipt of securities in the form of pass-through instruments issued by such asset reconstruction companies, wherein payments to holders of securities are based on the actual realized cash flows from the transferred assets. In accordance with Reserve Bank of India guidelines, in case of non-performing loans sold to asset reconstruction companies, the Bank reverses the excess provision in profit and loss account in the year in which amounts are received. Any shortfall of sale value over the net book value on sale of such assets is recognized by the Bank in the year in which the assets are sold. For the purpose of the valuation of underlying security receipts issued by underlying trusts managed by asset reconstruction companies, the security receipts are valued at their respective net asset values as advised by the asset reconstruction companies.
The following table sets forth, for the periods indicated, the details of the assets transferred.
Rupees in million, except number of accounts
| Year ended March 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
| Number of accounts1 | 5612 | 2 | 5 | |||||||||
| Aggregate value (net of provisions) of accounts sold to securitization company/reconstruction company | 630.52 | 11.3 | 7.8 | |||||||||
| Aggregate consideration | 2,340.7 | 81.0 | 310.9 | |||||||||
| Aggregate gain/(loss) over net book value | 1,710.2 | 69.7 | 303.1 | |||||||||
| Excess provision reversed to profit and loss account on account of sale of NPAs | 1,710.2 | 69.7 | 303.1 | |||||||||
| 1. | Excludes accounts previously written-off. |
| 2. | Includes 557 consumer loans amounting to Rs. 385.7 million |
| 9. | Details of non-performing assets sold, excluding those sold to securitization company/reconstruction company |
The Bank has sold certain non-performing assets to entities other than securitization company/reconstruction company in compliance with the terms of the guidelines issued by the Reserve Bank of India on such sale.
The following table sets forth, for the periods indicated, the details of non-performing assets sold to entities, excluding those sold to securitization company/reconstruction company.
Rupees in million, except number of accounts
| Year ended March 31, | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| No. of accounts1 | 3 | 5 | 2 | |||||||||
| Aggregate value (net of provisions) of accounts sold, excluding those sold to securitization company/reconstruction company | 188.6 | 1,302.8 | 649.0 | |||||||||
| Aggregate consideration | 1,164.1 | 1,357.8 | 995.9 | |||||||||
| Aggregate gain/(loss) over net book value | 975.5 | 55.0 | 346.9 | |||||||||
| 1. | Represents corporate loans. |
F-96
| 10. | Concentration of credit risk |
Concentration of credit risk exists when changes in economic, industry or geographic factors affect groups of counter-parties whose aggregate credit exposure is material in relation to the Group’s total credit exposure. The Group’s portfolio of financial instruments is broadly diversified along industry, product and geographic lines primarily within India.
The Group is subject to supervision guidelines issued by the Reserve Bank of India. The Group’s 20 largest exposures (non-bank) based on gross exposure (credit, derivative and investments), totaled Rs. 1,618,647.1 million at March 31, 2022 which represented 99.8% of the capital funds (March 31, 2021: Rs. 1,747,685.4 million representing 118.1% of the capital funds). The single largest exposure (non-bank) at March 31, 2022 was Rs. 249,230.4 million, which was included in rating category “AAA, AA+, AA, AA-, 1, 2A-C”, and represented 15.4% of the capital funds (March 31, 2021: Rs. 235,320.2 million representing 15.9% of the capital funds).
The largest group of companies under the same management control accounted for 25.0% of the capital funds at March 31, 2022 (March 31, 2021: 22.6% of the capital funds).
| 11. | Loan commitments |
The Group has outstanding undrawn commitments to provide loans and financing to customers. These loan commitments aggregated to Rs. 3,712,500.2 million (including fund based commitments fungible with non-fund based facilities) at March 31, 2022 (March 31, 2021: Rs. 2,670,402.5 million). The interest rate on a significant portion of these commitments is dependent on the lending rates prevailing on the date of the loan disbursement. Further, the commitments have fixed expiration dates and are generally contingent upon the borrower’s ability to maintain specific credit standards.
| 12. | Capital commitments |
The Group is obligated under a number of capital contracts. Capital contracts are job orders of a capital nature, which have been committed. The amounts of contracts remaining to be executed on capital account aggregated to Rs. 11,792.6 million at March 31, 2022 (March 31, 2021: Rs. 9,339.5 million).
| 13. | Derivatives |
ICICI Bank is a major participant in the financial derivatives market. The Bank deals in derivatives for balance sheet management, proprietary trading and market making purposes whereby the Bank offers derivative products to its customers, enabling them to hedge their risks.
Dealing in derivatives is carried out by identified groups in the treasury of the Bank based on the purpose of the transaction. Derivative transactions are entered into by the treasury front office. The Bank’s Treasury and Securities Services Group conducts an independent check of the transactions entered into by the front office and also undertakes activities such as confirmation, settlement, accounting, risk monitoring and reporting and ensures compliance with various internal and regulatory guidelines.
The market making and the proprietary trading activities in derivatives are governed by the investment policy and derivative policy of the Bank, which lays down the position limits and stop loss limits as well as other risk limits. The Risk Management Group lays down the methodology for computation and monitoring of risk. The Risk Committee of the Board reviews the Bank’s risk management policy in relation to various risks including credit and recovery policy, investment policy, derivative policy, asset liability management policy and operational risk management policy. The Risk Committee of the Board comprises independent directors and the Executive Director of the Bank.
F-97
The Bank measures and monitors risk of its derivatives portfolio using risk metrics such as value at risk (VaR), stop loss limits and relevant greeks for options. Risk reporting on derivatives forms an integral part of the management information system.
Over the counter derivative transactions are covered under International Swaps and Derivatives Association master agreements with the respective counter parties. The exposure on account of derivative transactions is computed as per RBI guidelines.
The Board of Directors has authorised the Asset Liability Management Committee to review and approve matters, as applicable, pertaining to the London Inter-Bank Offer Rate transition to alternate risk free rates. A London Inter-Bank Offer Rate Working Group has been constituted which reviews the progress on the international front, and the work carried out alongside Indian Banking Association. An update on the activities on the London Inter-Bank Offer Rate transition and the proceedings of the Working Group is presented quarterly to the Asset Liability Management Committee. The necessary changes were implemented in the treasury system of the Bank to handle the transition of existing trades to the alternate risk free rates. The transition was carried out for the London Inter-Bank Offer Rate (GBP, JPY, EUR, CHF) that ceased on December 31, 2021. USD London Inter-Bank Offer Rate was expected to cease at the end of June 2023. There is sufficient liquidity in market for USD London Inter-Bank Offer Rate linked trades. The Bank does not expect material valuation risk arising out of non-alignment of fallback provisions of commercially linked positions such as trading deals and on the existing hedge deals of the Bank.
The use of derivatives for hedging purposes is governed by the hedge policy approved by the Asset Liability Management Committee. The Group deals in derivatives for hedging fixed rate, floating rate or foreign currency assets/liabilities. Transactions for hedging and market making purposes are recorded separately. For hedge transactions, the Bank identifies the hedged item (asset or liability) at the inception of the hedge itself. The effectiveness is assessed at the time of inception of the hedge and periodically thereafter.
Based on guidelines issued by Reserve Bank of India on June 26, 2019, the accounting of hedge relationships established after June 26, 2019 is in accordance with the Guidance Note on Accounting for Derivative Contracts issued by Institute of Chartered Accountants of India. Accordingly, for fair value hedges established after June 26, 2019, the hedging instruments and the hedged items (for the risks being hedged) are measured at fair value with changes recognized in the profit and loss account by the Bank. The swaps under hedge relationships established prior to that date are accounted for on an accrual basis and are not marked-to-market unless their underlying transaction is marked-to-market. The Group companies measure the hedging instruments and the hedged items (for the risks being hedged) at fair value with changes recognized in the profit and loss account for fair value hedge. To the extent a cash flow hedge is effective, the change in the fair value of the hedging instrument is recognized in cash flow hedge reserve. The ineffective portion of the hedge is accounted in the profit and loss account. The premium or discount arising on inception of forward exchange contracts, which are not hedging instruments and are not intended for trading purpose, is amortized over the life of the contract as interest income/expense.
Credit exposure on interest rate and currency derivative transactions (both trading and hedging), is computed using the current exposure method according to the Reserve Bank of India guidelines, which is arrived at by adding up the positive mark-to-market values and the potential future exposure of these contracts. According to the Reserve Bank of India guidelines, the potential future exposure is determined by multiplying the notional principal amount of each of these contracts (irrespective of whether the mark-to-market value of these contracts is zero, positive or negative value) by the relevant add-on factor, ranging from 0.5% to 15%, according to the type of contract and residual maturity of the instrument. The credit exposure for equity futures is computed based on the market value and open quantity of the contracts at the balance sheet date and credit exposure for equity options is computed based on the price sensitivity of the option and open quantity of the contracts at the balance sheet date.
F-98
The following table sets forth the details of the notional amounts, fair value, realized/unrealized gain and loss on derivatives and credit exposure of trading derivatives for the year ended March 31, 2022.
Rupees in million
| Particulars | Notional amount | Gross positive fair value | Gross negative fair value | Gain/(loss) on derivatives1 | Credit exposure | |||||||||||||||
| Interest rate derivatives2 | 31,560,087.8 | 48,571.0 | (48,494.8 | ) | 8,874.7 | 330,568.1 | ||||||||||||||
| Currency derivatives (including foreign exchange derivatives)3 | 11,898,939.6 | 46,742.3 | (53,095.3 | ) | 49,080.4 | 373,318.1 | ||||||||||||||
| Equity derivatives | 771.3 | 7.2 | (0.0 | ) | (195.9 | ) | 332.5 | |||||||||||||
| Un-funded credit derivatives | .. | .. | .. | 1.8 | .. | |||||||||||||||
| 1. | The Bank has recovered Rs. 27.3 million from earlier recorded credit losses. |
| 2. | Includes foreign currency interest rate swaps, forward rate agreements and swap options. |
| 3. | Includes foreign currency options, cross currency interest rate swaps and foreign currency futures. |
The following table sets forth the details of the notional amounts, fair value, realized/unrealized gain and loss on derivatives and credit exposure of trading derivatives for the year ended March 31, 2021.
Rupees in million
| Particulars | Notional amount | Gross positive fair value | Gross negative fair value | Gain/(loss) on derivatives1 | Credit exposure | |||||||||||||||
| Interest rate derivatives2 | 19,167,947.8 | 48,923.1 | (61,863.6 | ) | 3,299.1 | 236,125.7 | ||||||||||||||
| Currency derivatives (including foreign exchange derivatives)3 | 9,313,042.5 | 59,559.8 | (38,740.6 | ) | 30,029.4 | 327,184.6 | ||||||||||||||
| Equity derivatives | 1,055.9 | 1.7 | (4.8 | ) | 141.5 | 169.2 | ||||||||||||||
| Un-funded credit derivatives | .. | .. | .. | 0.5 | .. | |||||||||||||||
| 1. | The Bank has recovered Rs. 13.8 million from earlier recorded credit losses. |
| 2. | Includes foreign currency interest rate swaps, forward rate agreements and swap options. |
| 3. | Includes foreign currency options, cross currency interest rate swaps and foreign currency futures. |
The following table sets forth the details of the notional amounts, marked-to-market position and credit exposure of hedging derivatives for the year ended March 31, 2022.
Rupees in million
| Particulars | Notional amount | Gross positive fair value | Gross negative fair value | Credit exposure | ||||||||||||
| Interest rate derivatives1 | 371,526.8 | 990.0 | (3,340.6 | ) | 8,337.3 | |||||||||||
| Currency derivatives (including foreign exchange derivatives)2 | 11,608.4 | 340.6 | (27.2 | ) | 1,382.0 | |||||||||||
| 1. | Includes foreign currency interest rate swaps, forward rate agreements and swap options. |
| 2. | Includes foreign currency options, cross currency interest rate swaps and foreign currency futures. |
The following table sets forth the details of the notional amounts, marked-to-market position and credit exposure of hedging derivatives for the year ended March 31, 2021.
Rupees in million
| Particulars | Notional amount | Gross positive fair value | Gross negative fair value | Credit exposure | ||||||||||||
| Interest rate derivatives1 | 196,259.2 | 7,216.2 | (1,379.2 | ) | 10,131.3 | |||||||||||
| Currency derivatives (including foreign exchange derivatives)2 | 15,472.3 | 643.7 | (41.4 | ) | 1,849.0 | |||||||||||
| 1. | Includes foreign currency interest rate swaps, forward rate agreements and swap options. |
| 2. | Includes foreign currency options, cross currency interest rate swaps and foreign currency futures. |
F-99
The gains/(losses) on hedged items arising from changes in fair value for the year ended March 31, 2022 and March 31, 2021 amounted to Rs. 5,750.5 million and Rs. 5,151.8 million respectively and gains/(losses) on corresponding hedging instruments arising from changes in fair value during the year ended March 31, 2022 and March 31, 2021 amounted to Rs. (7,870.3) million and Rs. (5,740.5) million respectively.
The gains/(losses) on cash flow hedges recorded in cash flow hedge reserve for fiscal 2022 and fiscal 2021 amounted to Rs. (397.7) million and Rs. (54.5) million respectively. At year-end fiscal 2022, Rs. (4.1) million of gain/(loss) recorded in cash flow hedge reserve is expected to be reclassified into earnings during the next 12 months. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations or the addition of other hedges subsequent to year-end fiscal 2022. During fiscal 2022, there were no gains/(losses) reclassified from cash flow hedge reserve into earnings on account of discontinuance of cash flow hedges. At year-end fiscal 2022, the maximum length of time over which the Group was hedging its exposure to the variability in future cash flows was 107 months. At year-end fiscal 2022, accumulated cash flow hedge reserve was Rs. (452.0) million (year-end fiscal 2021: Rs. (54.5) million). During fiscal 2022, net amount reclassified from accumulated cash flow hedge reserve to earnings was Rs. 0.2 million.
Additionally, the Group has also hedged the foreign currency exposure of its net investment in foreign operations through currency forward contracts of a notional amount of Rs. 43,202.9 million at March 31, 2022 (March 31, 2021: Rs. 67,142.1 million). The gross positive and negative fair values of these hedging instruments were Rs. 218.9 million (March 31, 2021: Rs. 496.1 million) and Rs. (227.8) million (March 31, 2021: Rs. (496.2) million) respectively and the credit exposure was Rs. 1,288.8 million at March 31, 2022 (March 31, 2021: Rs. 2,418.2 million).
As per the Basel III Regulations, Banks may adopt the comprehensive approach, which allows fuller offset of collateral against exposures, by effectively reducing the exposure amount by the value ascribed to the collateral. Therefore, mark-to-market receivable has been fully off-set against the collateral received from the counterparty and the excess collateral posted over the net mark-to-market payable is reckoned as exposure. Since, the collateral received is counterparty wise and not product wise, the derivative exposure reported above has not been adjusted for the collateral received/posted.
At March 31, 2022, collateral utilized against mark-to-market receivable was Rs. 7,762.9 million (March 31, 2021: Rs. 7,385.2 million), excess collateral posted over net mark-to-market payable was Rs. 1,926.9 million (March 31, 2021: Rs. 743.7 million) and the net credit exposure post collateral netting on forex and derivatives was Rs. 596,673.7 million (March 31, 2021: Rs. 505,790.8 million).
| 14. | Tax contingencies |
Various tax-related legal proceedings are pending against the Group at various levels of appeal either with the tax authorities or in the courts. Where, after considering all available information, a liability requires accrual in the opinion of management, the Group accrues such liability.
Where such proceedings are sufficiently advanced to enable management to assess that a liability exists and are subject to reasonable estimation, management records its best estimate of such liability. The contested tax demands are adjusted by the tax authorities against refunds due to the Group on favorable resolution of other years’ appeals/completion of assessments or paid or kept in abeyance in accordance with the terms of the stay order. The payment/adjustment/stay does not prejudice the outcome of the appeals filed by the Group. The tax payments are recorded as tax paid in advance under other assets.
F-100
At March 31, 2022, the Group has assessed its contingent tax liability at an aggregate of Rs. 84,771.4 million (March 31, 2021: Rs. 83,575.0 million), mainly pertaining to income tax, service tax and sales tax/ value added tax demands by the Indian tax authorities for past years. The Group has appealed each of these tax demands. Based on consultation with counsel and favorable decisions in the Group’s own or other similar cases as set out below, the Group’s management believes that the tax authorities are not likely to be able to substantiate their tax assessments and accordingly has not provided for these tax demands at March 31, 2022. Disputed tax issues that are classified as remote are not disclosed as contingent liabilities by the Group.
The Group's contingent liabilities on income tax and interest tax amounted to Rs. 73,191.1 million (March 31, 2021: Rs. 63,479.0 million) which include appeals filed by the Group or the tax authorities, where the Group is relying on favorable precedent decisions of the appellate authorities and counsel opinions. The key disputed liabilities are detailed below:
Disallowance of expenses to earn tax free income: Rs. 29,598.3 million (March 31, 2021: Rs. 28,571.9 million) mainly relates to whether interest expenses can be attributed to earning tax-free income. The Group believes that no interest can be allocated thereto as there are no borrowings earmarked for investments in shares/tax free bonds and the interest free funds are sufficient to cover investments in the underlying tax free securities. The Group relies on favorable opinion from counsel and past decisions by the appellate authorities in Group’s own cases and other similar cases.
Mark-to-market losses on derivatives: Rs. 15,003.8 million (March 31, 2021: Rs. 14,990.8 million) relates to the disallowance of mark-to-market losses on derivative transactions treated by the tax authorities as notional losses. The Group relies on favorable opinion from the counsel and past decision by the appellate authorities in Group’s own cases and other similar cases, which had allowed the deduction of mark-to-market losses from business income.
Interest on perpetual bonds: Rs. 5,962.7 million (March 31, 2021: Rs. 3,880.7 million) relates to the disallowance of interest paid on perpetual bonds. The tax authorities do not deem these as borrowings and therefore the interest paid on these bonds has not been allowed as a deduction. The Group has relied on favourable opinion from counsel and the past decision by the appellate authorities in the Group’s own case.
Depreciation on leased assets: Rs. 4,744.8 million (March 31, 2021: Rs. 4,709.1 million) relates to the disallowance of depreciation claimed on leased assets due to treatment of the lease transactions as loan transactions by the tax authorities. The Group relies on favorable opinion from the counsel and past decisions by the appellate authorities in Group’s own case and other similar cases.
Disallowance of write off in respect of credit cards: Rs. 3,574.9 million (March 31, 2021: Rs. 3,192.0 million) relates to the disallowance of written-off amount for credit cards for claiming bad debt write-offs. It was disallowed on the ground that the credit card business is not a banking business or pertaining to money lending and hence did not fulfill conditions for claim of bad debt write off. The Group has relied on the favourable opinion from counsel and past decision by the appellate authorities in Group’s own case.
Interest on non-performing assets: Rs. 3,415.4 million (March 31, 2021: Rs. 637.4 million) relates to interest on non-performing assets de-recognized as per the Reserve Bank of India guidelines after 90 days. Interest income is assessed to tax on the ground that tax provisions have 180 days limit as against 90 days followed by the Bank. The Group has relied on favorable opinion from counsel and past decisions by the appellate authorities in other similar cases.
F-101
Taxability under section 41(4A) of amounts withdrawn from Special Reserve created up to Assessment Year 1997-98: Rs. 1,030.6 million (March 31, 2021: Rs. 1,030.6 million) relates to two special reserve accounts maintained by the Group, which included a special reserve created up to assessment year 1997-98. Withdrawals from the account were assessed as taxable by the tax authorities for assessment years 1998-99 to 2000-01. The Group has received favorable orders in respect of these assessment years. However, the income tax authorities have preferred further appeal against the favourable orders.
The Group’s contingent liabilities on service tax amounted to Rs. 10,236.3 million (March 31, 2021: Rs. 17,997.1 million), which mainly pertain to the service tax demands along with interest and penalty levied by the service tax authorities. The Group relies on favorable opinion from counsel. The key disputed liabilities are detailed below
Disallowance of input tax credit on interchange fees: Rs. 2,048.0 million (March 31, 2021: Rs. 2,048.0 million) relates to disallowance of input credit on ATM interchange fees paid to acquiring banks and switching fee paid to settlement agency on the basis of monthly statement and 100% penalty on the same. The Group has relied on a favorable opinion from counsel.
Service tax on surrender/foreclosure charges: Rs. 1,537.0 million (March 31, 2021: Rs. 1,537.0 million) pertaining to the life insurance subsidiary relates to levy of service tax on receipt of surrender/foreclosure charges under unit linked insurance plans or life insurance plans. The Group has relied on a favorable opinion from counsel.
Service tax on interchange fees: Rs. 1,488.7 million (March 31, 2021: Rs. 1,488.7 million) relates to service tax and interest on interchange fees received by the Bank as an issuing bank. The Group has relied on a favorable opinion from counsel.
Service tax on amount retained from contribution: Rs. 1,091.6 million (March 31, 2021: Rs. 1,091.6 million) pertaining to ICICI Strategic Investment Fund relates to retention of contribution received by the fund, being treated as income received towards the services rendered by fund to its contributors. The Group has relied on a favorable opinion from counsel.
The Group’s contingent liabilities on sales tax/value added tax amounted to Rs. 1,344.0 million (March 31, 2021: Rs. 2,098.9 million) by various state government authorities. The matters mainly pertain to procedural issues like submission of statutory forms and adhoc additions in turnover. The Group has relied on favorable opinions from the counsels and decisions in own/other cases.
Based on judicial precedents in the Group’s and other cases and upon consultation with the tax counsels, the management believes that it is more likely than not that the Group’s tax positions will be sustained. Accordingly, no provision has been made in the accounts.
The above mentioned contingent liabilities do not include Rs. 36,173.4 million (March 31, 2021: Rs. 53,618.0 million) considered as remote. Of the total disputed tax demands classified as remote, Rs. 30,753.3 million (March 31, 2021: Rs. 29,425.4 million) mainly pertains to the deduction of bad debts, broken period interest, and levy of penalties, which are covered by favorable Supreme Court of India decisions in the Group’s own/other cases and Rs. 4,492.1 million (March 31, 2021: Rs. 23,283.5 million) pertains to errors requiring rectification by tax authorities. Therefore, these are not required to be disclosed as contingent liability. The consequence of inquiries initiated by the tax authorities has not been quantified, as the Group believes that such proceedings are likely to be dropped by the tax authorities or would not be upheld by judicial authorities.
F-102
| 15. | Litigation |
A number of litigations and claims against the Group (and its directors and officers) are pending in various forums. The claims on the Group (and its directors and officers) mainly arise in connection with civil cases involving allegations of service deficiencies, property or labor disputes, fraudulent transactions, economic offences and other cases filed in the normal course of business. The Group is also subject to counter-claims arising in connection with its enforcement of contracts and loans. A provision is created where an unfavorable outcome is deemed probable and in respect of which a reliable estimate can be made. In view of inherent unpredictability of litigation and cases where claims sought are substantial in value, actual cost of resolving litigations may be substantially different than the provision held or the contingent liability recognized. For cases where unfavorable outcome is deemed to be reasonably possible, it is not possible to make an estimate of the possible loss or range of possible losses though aggregate of such amounts are recognized as contingent liabilities. The total amount of claims against the Group where an unfavorable outcome is deemed ‘probable’ was Rs. 2,351.1 million against which provision of Rs. 1,586.5 million has been recognized. The total amount of claims where unfavorable outcome is deemed ‘possible’ was Rs. 4,639.8 million at March 31, 2022, which has been included under contingent liability of the Group. Based upon a review of open matters with its legal counsels including loss contingency on account of such litigation and claims, and classification of such contingency as 'probable', 'possible' or 'remote' and with due provisioning for the relevant litigation and claims, the management believes that the outcome of such matters will not have a material adverse effect on the Group's consolidated financial position, results of operations or cash flows.
F-103
| 16. | Segmental Information |
The following table sets forth, the business segment results for the year ended March 31, 2022 prepared on the basis described in Schedule 18 note 10A.
Rupees in million
| Sr. no. | Particulars | Retail banking | Wholesale banking | Treasury | Other banking business | Life insurance | Others | Inter- segment adjustments | Total | |||||||||||||||||||||||||
| 1 | Total income | 846,392.2 | 399,714.9 | 673,210.9 | 27,784.1 | 453,402.4 | 87,332.5 | (912,473.8 | ) | 1,575,363.2 | ||||||||||||||||||||||||
| External revenue | 483,837.6 | 289,280.0 | 229,049.3 | 27,291.1 | 452,258.2 | 93,647.0 | .. | 1,575,363.2 | ||||||||||||||||||||||||||
| Revenue from transfer pricing on external liabilities and other internal revenue | 362,554.6 | 110,434.9 | 444,161.6 | 493.0 | 1,144.2 | (6,314.5 | ) | (912,473.8 | ) | .. | ||||||||||||||||||||||||
| 2 | Segment results1 | 114,003.9 | 90,529.3 | 96,744.8 | 6,271.2 | 7,905.6 | 43,499.9 | (16,792.0 | ) | 342,162.7 | ||||||||||||||||||||||||
| 3 | Unallocated expenses | (250.0 | ) | |||||||||||||||||||||||||||||||
| 4 | Share of profit from associates | 7,544.3 | ||||||||||||||||||||||||||||||||
| 5 | Operating profit (2) – (3)1 | 349,957.0 | ||||||||||||||||||||||||||||||||
| 6 | Income tax expenses (net)/(net deferred tax credit) | 84,574.4 | ||||||||||||||||||||||||||||||||
| 7 | Net profit2 (4) – (5) | 265,382.6 | ||||||||||||||||||||||||||||||||
| Other information | ||||||||||||||||||||||||||||||||||
| 8 | Segment assets | 4,876,519.3 | 3,790,918.0 | 5,218,960.9 | 682,866.9 | 2,440,064.2 | 516,534.8 | (105,216.9 | ) | 17,420,647.2 | ||||||||||||||||||||||||
| 9 | Unallocated assets | 105,726.6 | ||||||||||||||||||||||||||||||||
| 10 | Total assets (7) + (8) | 17,526,373.8 | ||||||||||||||||||||||||||||||||
| 11 | Segment liabilities | 7,918,942.5 | 3,213,907.0 | 2,933,413.93 | 541,143.13 | 2,441,543.23 | 520,286.43 | (105,216.9 | )3 | 17,464,019.2 | ||||||||||||||||||||||||
| 12 | Unallocated liabilities | 62,354.6 | ||||||||||||||||||||||||||||||||
| 13 | Total capital and liabilities (10) + (11) | 17,526,373.8 | ||||||||||||||||||||||||||||||||
| 14 | Capital expenditure | 9,901.7 | 4,453.3 | 623.1 | 345.7 | 732.3 | 943.8 | .. | 16,999.9 | |||||||||||||||||||||||||
| 15 | Depreciation | 8,068.8 | 3,130.8 | 399.6 | 321.9 | 669.1 | 726.3 | (16.4 | ) | 13,300.1 | ||||||||||||||||||||||||
| 1. | Profit before tax and minority interest. |
| 2. | Includes share of net profit of minority shareholders. |
| 3. | Includes share capital and reserves and surplus. |
F-104
The following table sets forth, the business segment results for the year ended March 31, 2021 prepared on the basis described in Schedule 18 note 10A.
Rupees in million
| Sr. no. | Particulars | Retail banking | Wholesale banking | Treasury | Other banking business | Life insurance | General | Others | Inter- segment adjustments | Total | ||||||||||||||||||||||||||||
| 1 | Total income | 756,692.9 | 371,945.3 | 664,810.9 | 31,800.6 | 436,215.9 | 129,648.3 | 78,270.3 | (857,462.3 | ) | 1,611,921.9 | |||||||||||||||||||||||||||
| External revenue | 414,943.4 | 259,621.0 | 265,108.2 | 29,880.4 | 435,804.7 | 126,511.3 | 80,052.9 | .. | 1,611,921.9 | |||||||||||||||||||||||||||||
| Revenue from transfer pricing on external liabilities and other internal revenue | 341,749.5 | 112,324.3 | 399,702.7 | 1,920.2 | 411.2 | 3,137.0 | (1,782.6 | ) | (857,462.3 | ) | .. | |||||||||||||||||||||||||||
| 2 | Segment results1 | 77,399.7 | 58,199.5 | 106,155.9 | 5,735.7 | 10,811.8 | 19,539.5 | 40,077.1 | (11,578.8 | ) | 306,340.4 | |||||||||||||||||||||||||||
| 3 | Unallocated expenses | 47,500.0 | ||||||||||||||||||||||||||||||||||||
| 4 | Share of profit from associates | 1,442.9 | ||||||||||||||||||||||||||||||||||||
| 5 | Operating profit (2) – (3)1 | 260,283.3 | ||||||||||||||||||||||||||||||||||||
| 6 | Income tax expenses (net)/(net deferred tax credit) | 56,643.7 | ||||||||||||||||||||||||||||||||||||
| 7 | Net profit2 (4) – (5) | 203,639.6 | ||||||||||||||||||||||||||||||||||||
| Other information | ||||||||||||||||||||||||||||||||||||||
| 8 | Segment assets | 4,124,986.5 | 3,259,375.0 | 4,602,320.5 | 750,682.3 | 2,169,189.1 | 389,436.1 | 445,994.8 | (147,461.6 | ) | 15,594,522.7 | |||||||||||||||||||||||||||
| 9 | Unallocated assets | 143,599.7 | ||||||||||||||||||||||||||||||||||||
| 10 | Total assets (7) + (8) | 15,738,122.4 | ||||||||||||||||||||||||||||||||||||
| 11 | Segment liabilities | 6,869,207.9 | 2,821,639.2 | 2,480,180.33 | 639,123.33 | 2,170,346.23 | 392,588.73 | 449,893.83 | (147,461.6 | )3 | 15,675,517.8 | |||||||||||||||||||||||||||
| 12 | Unallocated liabilities | 62,604.6 | ||||||||||||||||||||||||||||||||||||
| 13 | Total capital and liabilities (10) + (11) | 15,738,122.4 | ||||||||||||||||||||||||||||||||||||
| 14 | Capital expenditure | 9,228.1 | 4,745.0 | 866.6 | 401.2 | 400.1 | 773.0 | 745.2 | .. | 17,159.2 | ||||||||||||||||||||||||||||
| 15 | Depreciation | 7,249.4 | 2,859.8 | 481.0 | 323.3 | 598.0 | 1,306.0 | 599.6 | (16.4 | ) | 13,400.7 | |||||||||||||||||||||||||||
| 1. | Profit before tax and minority interest. |
| 2. | Includes share of net profit of minority shareholders. |
| 3. | Includes share capital and reserves and surplus. |
F-105
The following table sets forth, the business segment results for the year ended March 31, 2020 prepared on the basis described in Schedule 18 note 10A.
Rupees in million
| Sr. No. | Particulars | Retail Banking | Wholesale Banking | Treasury | Other banking business | Life insurance | General insurance | Others | Inter segment adjustment | Total | ||||||||||||||||||||||||||||
| 1 | Total income | 725,542.4 | 399,423.4 | 619,173.9 | 39,966.7 | 397,038.1 | 123,744.8 | 67,371.3 | (876,151.8 | ) | 1,496,108.8 | |||||||||||||||||||||||||||
| External revenue | 404,713.6 | 282,617.6 | 184,506.0 | 36,980.8 | 396,841.7 | 121,132.5 | 69,316.6 | .. | 1,496,108.8 | |||||||||||||||||||||||||||||
| Revenue from transfer pricing on external liabilities and other internal revenue | 320,828.8 | 116,805.8 | 434,667.9 | 2,985.9 | 196.4 | 2,612.3 | (1,945.3 | ) | (876,151.8 | ) | .. | |||||||||||||||||||||||||||
| 2 | Segment results1 | 89,930.2 | 9,272.3 | 49,958.6 | 10,867.9 | 10,684.0 | 16,968.9 | 23,852.7 | (12,295.8 | ) | 199,238.8 | |||||||||||||||||||||||||||
| 3 | Unallocated expenses | 15,104.9 | ||||||||||||||||||||||||||||||||||||
| 4 | Share of profit from associates | 1,752.2 | ||||||||||||||||||||||||||||||||||||
| 5 | Operating profit (2) – (3)1 | 185,886.1 | ||||||||||||||||||||||||||||||||||||
| 6 | Income tax expenses (net)/(net deferred tax credit) | 73,631.4 | ||||||||||||||||||||||||||||||||||||
| 7 | Net profit2 (4) - (5) | 112,254.7 | ||||||||||||||||||||||||||||||||||||
| Other information | ||||||||||||||||||||||||||||||||||||||
| 8 | Segment assets | 3,513,412.1 | 3,073,070.6 | 4,133,791.4 | 734,528.0 | 1,557,104.9 | 365,990.6 | 378,947.4 | (145,872.9 | ) | 13,610,972.1 | |||||||||||||||||||||||||||
| 9 | Unallocated assets | 161,950.2 | ||||||||||||||||||||||||||||||||||||
| 10 | Total assets (7) + (8) | 13,772,922.3 | ||||||||||||||||||||||||||||||||||||
| 11 | Segment liabilities | 5,732,467.7 | 2,307,128.6 | 2,880,715.43 | 670,469.03 | 1,558,623.13 | 370,420.93 | 383,865.63 | (145,872.9 | )3 | 13,757,817.4 | |||||||||||||||||||||||||||
| 12 | Unallocated liabilities | 15,104.9 | ||||||||||||||||||||||||||||||||||||
| 13 | Total capital and liabilities (10) + (11) | 13,772,922.3 | ||||||||||||||||||||||||||||||||||||
| 14 | Capital expenditure | 9,947.7 | 3,008.0 | .. | 880.9 | 605.7 | 3,056.0 | 616.5 | .. | 18,114.8 | ||||||||||||||||||||||||||||
| 15 | Depreciation & amortization | 6,865.4 | 2,515.8 | 0.4 | 280.6 | 605.5 | 906.2 | 554.7 | (16.4 | ) | 11,712.2 | |||||||||||||||||||||||||||
| 1. | Profit before tax and minority interest. |
| 2. | Includes share of net profit of minority shareholders. |
| 3. | Includes share capital and reserves and surplus. |
F-106
The Bank has pursued a conscious strategy of increasing the share of retail deposits and re-balancing the funding mix. Accordingly, retail deposits have been considerably higher than retail advances. Accordingly, segment liabilities of the retail business segment were higher as compared to segment assets for above periods.
| 17. | Revenue from contracts with customers |
The Group recognizes the revenue from contracts with customers primarily in the line item ‘commission, exchange and brokerage’ of ‘Schedule 14 - Other income’. The primary components of commission, exchange and brokerage are transaction banking fee, lending linked fee, fund management fee, commercial banking fee, securities brokerage income and third party products distribution fee.
The transaction banking fee primarily includes card related fee such as interchange fee, joining fee and annual fee, income on ATM transactions, deposit accounts related transaction charges and charges for normal transaction banking services and fee on cash management services, commission on bank guarantees, letters of credit and bills discounting. The lending linked fee primarily includes loan processing fee and fee on foreclosure/prepayment of loans. The fund management fee includes the income earned by the Bank’s asset management subsidiary on mutual fund schemes and by the private equity fund management subsidiary on private equity funds. The brokerage income earned by the Bank’s securities broking subsidiary on securities transactions by its customers is included in the securities brokerage income. The third party products distribution fee primarily includes income earned on distribution of products such as mutual funds, insurance products and bonds.
The revenue is recognized at the time when the performance obligation under the terms of contractual arrangement is completed. The Group recognizes the revenue either immediately upon completion of services or over time as the Group performs the services. In cases where the consideration is received in advance from customers by the Group, a liability is recorded and the same is subsequently recognized as revenue over the contract period or on completion of the performance obligation under the contract. The Group does not have any significant contract assets and contract liabilities at March 31, 2022 and March 31, 2021.
From April 1, 2021, ICICI Lombard General Insurance Company Limited ceased to be a subsidiary and accordingly general insurance has been discontinued as a business segment from April 1, 2021.
The segment-wise breakup of the above components of the Group’s revenue for the year ended March 31, 2022 is given below.
Rupees in million
| Sr. No. | Nature | Retail Banking | Wholesale Banking | Treasury | Other banking business | Life insurance | Others | Inter segment adjustment | Total | |||||||||||||||||||||||||
| 1 | Transaction banking fee | 59,375.0 | 19,482.6 | .. | 799.6 | .. | 23.5 | (783.1 | ) | 78,897.6 | ||||||||||||||||||||||||
| 2 | Lending linked fee | 20,290.7 | 11,551.6 | .. | 540.6 | .. | 932.0 | (274.8 | ) | 33,040.1 | ||||||||||||||||||||||||
| 3 | Fund management fee | .. | .. | .. | 18.1 | .. | 24,634.3 | (0.5 | ) | 24,651.9 | ||||||||||||||||||||||||
| 4 | Securities brokerage income | .. | .. | .. | .. | .. | 15,526.0 | (6.8 | ) | 15,519.2 | ||||||||||||||||||||||||
| 5 | Third party products distribution fee | 11,166.9 | .. | .. | 0.6 | .. | 5,740.8 | (7,506.0 | ) | 9,402.3 | ||||||||||||||||||||||||
| 6 | Others | 2,754.7 | 1,576.0 | 13.8 | 455.1 | 4.6 | 6,576.4 | (7.8 | ) | 11,372.8 | ||||||||||||||||||||||||
| Total | 93,587.3 | 32,610.2 | 13.8 | 1,814.0 | 4.6 | 53,433.0 | (8,579.0 | ) | 172,883.9 | |||||||||||||||||||||||||
| 1. | From April 1, 2021, ICICI Lombard General Insurance Company Limited ceased to be a subsidiary and accordingly general insurance has been discontinued as a business segment from April 1, 2021. |
F-107
The segment-wise breakup of the above components of the Group’s revenue for the year ended March 31, 2021 is given below.
Rupees in million
| Sr. No. | Nature | Retail Banking | Wholesale Banking | Treasury | Other banking business | Life insurance | General insurance | Others | Inter segment adjustment | Total | ||||||||||||||||||||||||||||
| 1 | Transaction banking fee | 47,821.6 | 17,466.5 | .. | 707.1 | .. | .. | 10.2 | (505.8 | ) | 65,499.6 | |||||||||||||||||||||||||||
| 2 | Lending linked fee | 16,714.2 | 8,387.1 | .. | 395.4 | .. | .. | 603.4 | (135.3 | ) | 25,964.8 | |||||||||||||||||||||||||||
| 3 | Fund management fee | .. | .. | .. | 1.4 | .. | .. | 20,424.7 | (0.6 | ) | 20,425.5 | |||||||||||||||||||||||||||
| 4 | Securities brokerage income | .. | .. | .. | .. | .. | .. | 15,045.2 | (198.6 | ) | 14,846.6 | |||||||||||||||||||||||||||
| 5 | Third party products distribution fee | 10,595.8 | 110.3 | .. | 1.2 | .. | .. | 4,099.6 | (9,046.4 | ) | 5,760.5 | |||||||||||||||||||||||||||
| 6 | Others | 1,767.8 | 1,190.0 | 702.9 | 299.7 | 3.9 | .. | 3,979.4 | (210.1 | ) | 7,733.6 | |||||||||||||||||||||||||||
| Total | 76,899.4 | 27,153.9 | 702.9 | 1,404.8 | 3.9 | .. | 44,162.5 | (10,096.8 | ) | 140,230.6 | ||||||||||||||||||||||||||||
The segment-wise breakup of the above components of the Group’s revenue for the year ended March 31, 2020 is given below.
Rupees in million
| Sr. No. | Nature | Retail Banking | Wholesale Banking | Treasury | Other banking business | Life insurance | General insurance | Others | Inter segment adjustment | Total | ||||||||||||||||||||||||||||
| 1 | Transaction banking fee | 54,092.5 | 18,624.0 | .. | 700.7 | .. | .. | 35.9 | (442.9 | ) | 73,010.2 | |||||||||||||||||||||||||||
| 2 | Lending linked fee | 14,868.3 | 12,063.4 | .. | 386.0 | .. | .. | 768.0 | (258.6 | ) | 27,827.1 | |||||||||||||||||||||||||||
| 3 | Fund management fee | .. | .. | .. | 9.3 | .. | .. | 20,149.5 | (0.7 | ) | 20,158.1 | |||||||||||||||||||||||||||
| 4 | Securities brokerage income | .. | .. | .. | 0.0 | .. | .. | 9,475.7 | (44.4 | ) | 9,431.3 | |||||||||||||||||||||||||||
| 5 | Third party products distribution fee | 12,313.1 | 26.4 | .. | 2.0 | .. | .. | 3,928.0 | (11,161.4 | ) | 5,108.1 | |||||||||||||||||||||||||||
| 6 | Others | 1,560.7 | 873.5 | 351.1 | 528.1 | 4.0 | .. | 1,633.1 | (100.1 | ) | 4,850.4 | |||||||||||||||||||||||||||
| Total | 82,834.6 | 31,587.3 | 351.1 | 1,626.1 | 4.0 | .. | 35,990.2 | (12,008.1 | ) | 140,385.2 | ||||||||||||||||||||||||||||
F-108
| 18. | Employee Stock Option Scheme |
The following table sets forth a summary of the Bank’s stock options outstanding at March 31, 2022.
| Number of options | Weighted-average exercise price (Rs.) | Weighted-average remaining contractual life (Number of years) | Aggregate intrinsic value (Rs. in million) | |||||||||||||
| Outstanding at the beginning of the year | 246,590,972 | 276.14 | 5.86 | 75,447.4 | ||||||||||||
| Add: Granted during the year | 25,550,350 | 570.43 | ||||||||||||||
| Less: Lapsed during the year, net of re-issuance | 2,164,335 | 444.41 | ||||||||||||||
| Less: Exercised during the year | 32,778,988 | 243.44 | ||||||||||||||
| Outstanding at the end of the year | 237,197,999 | 310.82 | 5.12 | 99,501.6 | ||||||||||||
| Options exercisable | 177,170,739 | 264.69 | 4.91 | 82,491.6 | ||||||||||||
The following table sets forth a summary of the Bank’s stock options outstanding at March 31, 2021.
| Number of options | Weighted-average exercise price (Rs.) | Weighted-average remaining contractual life (Number of years) | Aggregate intrinsic value (Rs. in million) | |||||||||||||
| Outstanding at the beginning of the year1 | 238,286,573 | 261.89 | 6.63 | 17,387.3 | ||||||||||||
| Add: Granted during the year | 33,417,700 | 337.73 | ||||||||||||||
| Less: Lapsed during the year, net of re-issuance | 880,530 | 336.57 | ||||||||||||||
| Less: Exercised during the year | 24,232,771 | 218.81 | ||||||||||||||
| Outstanding at the end of the year1 | 246,590,972 | 276.14 | 5.86 | 75,447.4 | ||||||||||||
| Options exercisable | 177,136,942 | 247.45 | 5.87 | 59,279.1 | ||||||||||||
| 1. | Includes options pertaining to Whole-time Directors of ICICI Bank and its subsidiaries pending for regulatory approval at March 31, 2021. |
Total fair value of options vested was Rs. 4,145.3 million for the year ended March 31, 2022, Rs. 3,555.6 million for the year ended March 31, 2021 and Rs. 3,966.2 million for the year ended March 31, 2020.
Total aggregate intrinsic value of options exercised was Rs. 15,094.0 million for the year ended March 31, 2022, Rs. 7,390.2 million for the year ended March 31, 2021 and Rs. 6,604.2 million for the year ended March 31, 2020.
The total compensation cost related to non-vested awards not yet recognized at March 31, 2022 and March 31, 2021 was Rs. 3,086.4 million and Rs. 2,560.9 million respectively and the weighted-average period over which it is expected to be recognized was 1.53 years and 1.78 years respectively.
F-109
The following table sets forth a summary of stock options exercisable at March 31, 2022.
Range of exercise price (Rupees per share) | Number of options | Weighted-average exercise price (Rs.) | Weighted-average remaining contractual life (Number of years) | Aggregate intrinsic value (Rs. in million) | ||||||||||||
| 60-199 | 11,245,113 | 160.69 | 2.52 | 6,405.4 | ||||||||||||
| 200-399 | 148,506,165 | 256.43 | 5.24 | 70,372.0 | ||||||||||||
| 400-599 | 17,419,461 | 402.26 | 3.62 | 5,714.2 | ||||||||||||
The following table sets forth a summary of stock options exercisable at March 31, 2021.
Range of exercise price (Rupees per share) | Number of options | Weighted-average exercise price (Rs.) | Weighted-average remaining contractual life (Number of years) | Aggregate intrinsic value (Rs. in million) | ||||||||||||
| 60-199 | 17,387,907 | 161.44 | 3.12 | 7,314.4 | ||||||||||||
| 200-399 | 150,238,576 | 247.61 | 6.30 | 50,253.6 | ||||||||||||
| 400-599 | 9,510,459 | 402.17 | 4.10 | 1,711.2 | ||||||||||||
The following table sets forth a summary of the Bank’s unvested stock options outstanding at March 31, 2022.
| Number of options | Weighted-average fair value at grant date (Rupees) | |||||||
| Unvested at April 1, 2021 | 69,454,030 | 130.30 | ||||||
| Add: Granted during the year | 25,550,350 | 227.75 | ||||||
| Less: Vested during the year | 32,901,210 | 125.99 | ||||||
| Less: Forfeited during the year | 2,075,910 | 174.60 | ||||||
| Unvested at March 31, 2022 | 60,027,260 | 172.61 | ||||||
The following table sets forth a summary of the Bank’s unvested stock options outstanding at March 31, 2021.
| Number of options | Weighted-average fair value at grant date (Rupees) | |||||||
| Unvested at April 1, 2020 | 68,310,674 | 124.57 | ||||||
| Add: Granted during the year | 33,417,700 | 125.44 | ||||||
| Less: Vested during the year | 31,544,690 | 112.72 | ||||||
| Less: Forfeited during the year | 729,654 | 131.62 | ||||||
| Unvested at March 31, 2021 | 69,454,030 | 130.30 | ||||||
F-110
The following table sets forth for the periods indicated, the key assumptions used to estimate the fair value of options.
| Year ended March 31, | |||
|
2022 |
2021 |
2020 | |
| Risk-free interest rate | 5.34% to 6.53% | 4.83% to 5.74% | 6.18% to 7.62% |
| Expected term | 3.55 years to 5.55 years | 3.45 years to 5.45 years | 3.46 years to 5.46 years |
| Expected volatility | 35.38% to 39.41% | 35.19% to 37.31% | 29.06% to 31.17% |
| Expected dividend yield | 0.18% to 0.30% | 0.26% to 0.30% | 0.19% to 0.37% |
Risk free interest rates over the expected term of the option are based on the government securities yield in effect at the time of the grant.
The expected term of an option is computed based on the vesting term and exercise period as well as expected exercise behavior of the employees who receive the option, estimated based on the historical stock option exercise pattern of the Bank.
Expected volatility during the estimated expected term of the option is based on historical volatility determined based on observed market prices of the Bank's publicly traded equity shares.
Expected dividends during the estimated expected term of the option are based on recent dividend activity.
| 19. | Selected information from Indian GAAP financials |
The following tables set forth, for the periods indicated, the income statement and balance sheet, by following the guidance of Regulation S-X.
Rupees in million
| Year ended March 31, | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Interest income | 954,068.7 | 891,626.6 | 848,357.7 | |||||||||
| Interest expense | 411,666.7 | 426,590.9 | 446,655.2 | |||||||||
| Net interest income | 542,402.0 | 465,035.7 | 401,702.5 | |||||||||
| Provision for loan losses & others | 84,354.2 | 165,723.9 | 132,004.2 | |||||||||
| Provision for depreciation on investments | 5,412.3 | (1,950.0 | ) | 18,136.5 | ||||||||
| Net interest income after provision for loan losses and investments | 452,635.5 | 301,261.8 | 251,561.8 | |||||||||
| Non-interest income | 621,294.5 | 720,295.3 | 647,751.1 | |||||||||
| Non-interest expense | 731,517.3 | 762,716.7 | 715,179.0 | |||||||||
| Income before income tax expense, minority interest and share of profit in associates | 342,412.7 | 258,840.4 | 184,133.9 | |||||||||
| Income tax expense | 84,574.4 | 56,643.7 | 73,631.4 | |||||||||
| Income before minority interest and share of profit in associates | 257,838.3 | 202,196.7 | 110,502.5 | |||||||||
| Add: Share of profit in associates | 7,544.3 | 1,442.9 | 1,752.2 | |||||||||
| Net profit for the year before minority interest | 265,382.6 | 203,639.6 | 112,254.7 | |||||||||
| Less: Minority interest | 14,281.6 | 19,796.4 | 16,591.6 | |||||||||
| Net income | 251,101.0 | 183,843.2 | 95,663.1 | |||||||||
| Year ended March 31, | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Earnings per equity share: (Rs.) | ||||||||||||
| Basic | 36.21 | 27.26 | 14.81 | |||||||||
| Diluted | 35.44 | 26.83 | 14.55 | |||||||||
| Weighted average number of equity shares used in computing earnings per equity share (millions) | ||||||||||||
| Basic | 6,934 | 6,743 | 6,460 | |||||||||
| Diluted | 7,076 | 6,842 | 6,567 | |||||||||
F-111
Rupees in million
| At March 31, | ||||||||
| 2022 | 2021 | |||||||
| Assets | ||||||||
| Cash and cash equivalents | 1,831,259.8 | 1,475,705.3 | ||||||
| Investments1,2 | 5,670,977.2 | 5,365,786.2 | ||||||
| Loans, net1,2 | 9,203,081.4 | 7,918,013.9 | ||||||
| Property, plant and equipment | 106,054.1 | 108,092.6 | ||||||
| Goodwill | 1,013.3 | 1,076.7 | ||||||
| Deferred tax asset (net) | 79,484.8 | 93,350.2 | ||||||
| Interest accrued, outstanding fees and other income | 115,466.2 | 116,011.0 | ||||||
| Other assets | 519,037.0 | 660,086.6 | ||||||
| Total assets | 17,526,373.8 | 15,738,122.5 | ||||||
| Liabilities | ||||||||
| Interest-bearing deposits | 9,280,377.2 | 8,207,396.6 | ||||||
| Non-interest bearing deposits | 1,633,280.8 | 1,392,003.6 | ||||||
| Short-term borrowings and trading liabilities | 418,828.7 | 259,962.7 | ||||||
| Long-term debt | 1,197,198.1 | 1,179,036.7 | ||||||
| Other liabilities | 3,116,355.2 | 3,027,964.5 | ||||||
Total liabilities | 15,646,040.0 | 14,066,364.1 | ||||||
| Minority interest | 59,808.9 | 95,883.4 | ||||||
| Stockholders’ equity | 1,820,524.9 | 1,575,875.0 | ||||||
| Total liabilities and stockholders’ equity | 17,526,373.8 | 15,738,122.5 | ||||||
| 1. | Includes investments and loans amounting to Rs. 122,799.8 million (March 31, 2021: Rs. 144,683.3 million) pledged as security towards short-term borrowings amounting to Rs. 122,268.9 million (March 31, 2021: Rs. 144,683.8 million). |
| 2. | Includes investments and loans amounting to Rs. 243,364.2 million (March 31, 2021: Rs. 238,103.8 million) pledged as security towards long-term borrowings amounting to Rs. 237,157.5 million (March 31, 2021: Rs. 230,653.2 million). |
The following tables set forth, for the periods indicated, the statement of stockholders’ equity.
Rupees in million
| Equity share capital | Employee stock options outstanding | Securities premium | Revenue and other reserves1 | Other special reserves2 | ||||||||||||||||
| Balance at April 1, 2021 | 13,834.1 | 31.0 | 489,694.7 | 456,653.6 | 615,661.6 | |||||||||||||||
| Proceeds from issue of share capital | 65.6 | - | 7,923.3 | - | - | |||||||||||||||
| Additions during the year | - | 2,642.2 | 27.13 | 144,130.1 | 95,590.6 | |||||||||||||||
| Deductions during the year | - | (9.1 | ) | - | (2,839.3 | )4 | (2,880.6 | )5 | ||||||||||||
| Balance at March 31, 2022 | 13,899.7 | 2,664.1 | 497,645.1 | 597,944.4 | 708,371.6 | |||||||||||||||
| 1. | Includes revenue and other reserves and balance in profit and loss account. |
| 2. | Includes statutory reserve, special reserve, unrealized investment reserve, capital reserve fund, foreign currency translation reserve, revaluation reserve, investment fluctuation reserve and capital redemption reserve. |
| 3. | Represents the ESOP cost recognized by the overseas banking subsidiaries under fair value method. |
| 4. | Includes Rs. 2,471.4 million towards reduction in fair value change account of ICICI Prudential Life Insurance Company Limited. |
| 5. | Represents amount transferred from revaluation reserve to general reserve on account of incremental depreciation charge on revaluation, revaluation surplus on premises sold and loss on revaluation on account of certain assets which were held for sale. |
F-112
Rupees in million
| Equity share capital | Employee stock options outstanding | Securities premium | Revenue and other reserves1 | Other special reserves2 | ||||||||||||||||
| Balance at April 1, 2020 | 12,947.7 | 34.9 | 335,899.4 | 308,804.0 | 571,914.7 | |||||||||||||||
| Proceeds from issue of share capital | 886.4 | .. | 154,419.43 | .. | .. | |||||||||||||||
| Additions during the year | .. | .. | 77.64 | 147,991.05,6 | 54,078.3 | |||||||||||||||
| Deductions during the year | .. | (3.9 | ) | (701.7 | ) | (141.4 | ) | (10,331.4 | )6,7 | |||||||||||
| Balance at March 31, 2021 | 13,834.1 | 31.0 | 489,694.7 | 456,653.6 | 615,661.6 | |||||||||||||||
| 1. | Includes revenue and other reserves and balance in profit and loss account. |
| 2. | Includes statutory reserve, special reserve, unrealized investment reserve, capital reserve fund, foreign currency translation reserve, revaluation reserve, investment fluctuation reserve, capital redemption reserve and reserve fund. |
| 3. | Includes Rs. 149,162.0 million on account of equity shares issued under Qualified Institutional Placement and Rs. 5,257.4 million (year ended March 31, 2020: Rs. 5,452.1 million) on exercise of employee stock options. |
| 4. | Represents the ESOP cost recognized by the overseas banking subsidiaries under fair value method. |
| 5. | Includes Rs. 10,725.6 million towards addition in fair value change account of insurance subsidiaries. |
| 6. | Includes balance in reserve fund transferred due to closure of Sri Lanka branch and excess balance in Investment Fluctuation Reserve to balance in profit and loss account during the year ended March 31, 2021. |
| 7. | Includes amount transferred from revaluation reserve on account of incremental depreciation charge on revaluation and revaluation surplus on premises sold or loss on revaluation on account of certain assets which were held for sale. |
Rupees in million
| Equity share capital | Employee stock options outstanding | Securities premium | Revenue and other reserves1 | Other special reserves2 | ||||||||||||||||
| Balance at April 1, 2019 | 12,894.6 | 46.8 | 330,333.2 | 268,271.2 | 530,988.3 | |||||||||||||||
| Proceeds from issue of share capital | 53.1 | .. | 5,452.1 | .. | .. | |||||||||||||||
| Additions during the year | .. | .. | 114.13 | 49,325.8 | 42,016.6 | |||||||||||||||
| Deductions during the year | .. | (11.9 | ) | .. | (8,793.0 | )4 | (1,090.2 | )5 | ||||||||||||
| Balance at March 31, 2020 | 12,947.7 | 34.9 | 335,899.4 | 308,804.0 | 571,914.7 | |||||||||||||||
| 1. | Includes revenue and other reserves and balance in profit and loss account. |
| 2. | Includes statutory reserve, special reserve, unrealized investment reserve, capital reserve fund, foreign currency translation reserve, revaluation reserve, investment fluctuation reserve, capital redemption reserve and reserve fund. |
| 3. | Represents the ESOP cost recognized by the overseas banking subsidiaries under fair value method. |
| 4. | Includes Rs. 6,896.7 million towards reduction in fair value change account of insurance subsidiaries. |
| 5. | Includes amount transferred from revaluation reserve on account of incremental depreciation charge on revaluation and revaluation surplus on premises sold or loss on revaluation on account of certain assets which were held for sale. |
The following table sets forth, for the periods indicated, the movement in profit and loss account.
Rupees in million
| March 31, 2022 | March 31, 2021 | March 31, 2020 | ||||||||||
| Balance at the beginning of the year | 385,155.9 | 267,999.9 | 220,201.1 | |||||||||
| Additions during the year | 251,101.0 | 183,843.2 | 95,663.1 | |||||||||
| Dividend (including corporate dividend tax) | (13,852.3 | ) | .. | (8,735.5 | ) | |||||||
| Deductions during the year1 | (113,416.1 | ) | (66,687.2 | ) | (39,128.8 | ) | ||||||
| Balance at the end of the year | 508,988.5 | 385,155.9 | 267,999.9 | |||||||||
| 1. | Includes appropriations/transfers to other reserves. |
The cash flow statement
is in compliance with the requirements of IAS 7 – Cash Flow Statements.
The following table sets forth, for the periods indicated, the supplementary information to the cash flow statements.
F-113
Rupees in million
| Year ended March 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
| Conversions of loans to investments | 204.3 | 3,064.9 | 9,984.6 | |||||||||
| Interest paid | 408,972.7 | 432,471.2 | 452,592.8 | |||||||||
| Interest and dividend received | 956,304.8 | 892,770.6 | 834,631.4 | |||||||||
| 20. | Estimated fair value of financial instruments |
The Group’s financial instruments include non-derivative financial assets and liabilities as well as derivative instruments. Fair value estimates are generally subjective in nature and are made at a specific point in time based on the characteristics of the financial instruments and relevant market information. Quoted market prices are used, wherever available. In other cases, fair values are based on estimates using present value or other valuation techniques. These techniques involve uncertainties and are significantly affected by the assumptions used and judgments made regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows and other factors. Changes in assumptions could significantly affect these estimates and the resulting fair values. Derived fair value estimates cannot necessarily be substantiated by comparison to independent markets and in many cases, may not be realized in an immediate sale of the instruments.
Fair value estimates are based on existing financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered as financial instruments. Disclosure of fair values is not required for certain items such as investments accounted for under the equity method of accounting, obligations for pension and other post-retirement benefits, income tax assets and liabilities, property and equipment, pre-paid expenses, insurance liabilities, core deposit intangibles and the value of customer relationships associated with certain types of consumer loans, particularly the credit card portfolio and other intangible assets. Accordingly, the aggregate fair value amount presented does not purport to represent and should not be considered representative of the underlying market or franchise value of the Group. In addition, because of differences in methodologies and assumptions used to estimate fair values, the Group’s fair values should not be compared to those of other financial institutions.
The methods and assumptions used by the Group in estimating the fair values of financial instruments are described below.
Cash and balances with banks and money at call and short notice
The carrying amounts reported in the balance sheet approximate fair values because a substantial amount of the portfolio has maturities of less than three months.
Investments
The fair values of investments are generally determined based on quoted price or based on discounted cashflows. For certain debt and equity investments that do not trade on established exchanges and for which markets do not exist, estimates of fair value are based upon management’s review of the investee’s financial results, condition and prospects.
Advances
The fair values of commercial and consumer loans are estimated by discounting the contractual cash flows using interest rates currently offered on various loan products. The carrying value of certain other loans approximate fair value due to the short-term nature of these loans. The advances are classified as Level 3 instruments in view of absence of any significant market observable data for valuation of these instruments.
F-114
Deposits
The carrying amount of deposits with no stated maturity is considered to be equal to their fair value. Fair value of fixed rate time deposits is estimated by discounting contractual cash flows using interest rates currently offered on the deposit products. Fair value estimates for deposits do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of alternative forms of funding (core deposit intangibles). The deposits are classified as Level 3 instruments in view of absence of any significant market observable data for valuation of these instruments.
Borrowings
The fair value of the Group’s debt is estimated by discounting future contractual cash flows using appropriate interest rates and credit spreads. The carrying value of certain other borrowings approximates fair value due to the short-term nature of these borrowings. The borrowings are classified as Level 2 instruments in view of the inputs used like interest rates, yield curves and credit spreads, which are available from public sources like Reuters, Bloomberg, Financial Benchmark India Private Limited and Fixed Income Money Markets & Derivatives Association of India.
The following table sets forth, for the periods indicated, the listing of the fair value by category of financial assets and financial liabilities.
Rupees in million
| At March 31, 2022 | At March 31, 2021 | |||||||||||||||
| Carrying value | Estimated fair value | Carrying value | Estimated fair value | |||||||||||||
| Financial assets | ||||||||||||||||
| Cash and balances with Reserve Bank of India | 602,287.1 | 602,287.1 | 463,022.0 | 463,022.0 | ||||||||||||
| Balances with banks and money at call and short notice | 1,228,972.8 | 1,228,972.8 | 1,012,683.3 | 1,012,683.3 | ||||||||||||
| Investments | 5,670,977.2 | 6,030,990.1 | 5,365,786.2 | 5,480,288.6 | ||||||||||||
| Advances | 9,203,081.4 | 9,280,758.0 | 7,918,013.9 | 7,967,930.4 | ||||||||||||
| Other assets | 597,430.8 | 597,430.8 | 717,025.8 | 717,025.8 | ||||||||||||
| Total | 17,302,749.3 | 17,740,438.8 | 15,476,531.2 | 15,640,950.1 | ||||||||||||
| Financial liabilities | ||||||||||||||||
| Interest-bearing deposits | 9,280,366.5 | 9,324,755.9 | 8,207,379.0 | 8,263,918.6 | ||||||||||||
| Non-interest-bearing deposits | 1,633,291.4 | 1,633,291.4 | 1,392,021.2 | 1,392,021.2 | ||||||||||||
| Borrowings | 1,616,026.8 | 1,616,877.2 | 1,438,999.4 | 1,473,222.7 | ||||||||||||
| Other liabilities and provisions | 681,328.9 | 681,328.9 | 863,168.0 | 863,168.0 | ||||||||||||
| Total | 13,211,013.6 | 13,256,253.4 | 11,901,567.6 | 11,992,330.5 | ||||||||||||
| 21. | Differences between Indian GAAP and U.S. GAAP |
The consolidated financial statements of the Group are prepared in accordance with Indian GAAP, which differs in certain significant aspects from U.S. GAAP.
The following tables summarize the significant adjustments to consolidated net income and stockholders’ equity which would result from the application of U.S. GAAP.
F-115
| 1. | Net income reconciliation |
Rupees in million
| Year ended March 31, | ||||||||||||||||
| Note | 2022 | 2021 | 2020 | |||||||||||||
| Consolidated profit after tax as per Indian GAAP excluding minority interests1 | 251,101.0 | 183,843.2 | 95,663.1 | |||||||||||||
| Adjustments on account of: | ||||||||||||||||
| Allowance for credit losses | (a) | 22,853.5 | 48,654.4 | 5,045.1 | ||||||||||||
| Business combinations | (b) | (634.9 | ) | (1,806.2 | ) | (1,806.2 | ) | |||||||||
| Consolidation | (c) | 248,275.4 | 6,215.0 | (8,052.0 | ) | |||||||||||
| Valuation of debt and equity securities | (d) | 10,930.7 | (11,626.2 | ) | 14,600.2 | |||||||||||
| Amortization of fees and costs | (e) | 3,925.8 | 4,298.8 | 9,400.5 | ||||||||||||
| Accounting for derivatives | (f) | 53.9 | 1,328.4 | (436.0 | ) | |||||||||||
| Accounting for compensation costs | (g) | (2,270.6 | ) | (4,352.7 | ) | (4,076.6 | ) | |||||||||
| Accounting for securitization | (h) | (532.5 | ) | 715.4 | 326.9 | |||||||||||
| Income tax benefit/(expense) | (i) | (21,701.9 | ) | (12,148.5 | ) | (4,775.7 | ) | |||||||||
| Others | (j) | (207.8 | ) | (1,420.9 | ) | 7,448.3 | ||||||||||
| Total impact of all adjustments | 260,691.6 | 29,857.5 | 17,674.5 | |||||||||||||
| Net income as per U.S. GAAP attributable to ICICI Bank stockholders | 511,792.6 | 213,700.7 | 113,337.6 | |||||||||||||
| Net income as per U.S. GAAP attributable to non-controlling interests1 | 13,282.7 | 20,443.0 | 8,852.8 | |||||||||||||
| Total net income as per U.S. GAAP | 525,075.3 | 234,143.7 | 122,190.4 | |||||||||||||
| Basic earnings per share (Rs.) | ||||||||||||||||
| Indian GAAP (consolidated) | 36.21 | 27.26 | 14.81 | |||||||||||||
| U.S. GAAP (consolidated) | 73.81 | 31.69 | 17.54 | |||||||||||||
| Diluted earnings per share (Rs.) | ||||||||||||||||
| Indian GAAP (consolidated) | 35.44 | 26.83 | 14.55 | |||||||||||||
| U.S. GAAP (consolidated) | 72.41 | 31.23 | 17.28 | |||||||||||||
| 1. | Profit attributable to minority interests as per Indian GAAP was Rs. 14,281.6 million (March 31, 2021: Rs. 19,796.4 million and March 31, 2020: Rs. 16,591.6 million). |
F-116
| 2. | Stockholders’ equity reconciliation |
Rupees in million
| At March 31, | ||||||||||||
| Note | 2022 | 2021 | ||||||||||
| Consolidated net worth as per Indian GAAP excluding minority interests1 | 1,820,524.9 | 1,575,875.0 | ||||||||||
| Adjustments on account of: | ||||||||||||
| Allowance for credit losses | (a) | 23,295.9 | 471.3 | |||||||||
| Business combinations | (b) | 29,774.0 | 124,310.8 | |||||||||
| Consolidation | (c) | 349,733.2 | 12,799.6 | |||||||||
| Valuation of debt and equity securities | (d) | 14,731.2 | 41,516.8 | |||||||||
| Amortization of fees and costs | (e) | 33,068.2 | 26,160.8 | |||||||||
| Accounting for derivatives | (f) | 1,880.8 | 1,827.0 | |||||||||
| Accounting for compensation costs | (g) | .. | .. | |||||||||
| Accounting for securitization | (h) | (1,371.7 | ) | (773.2 | ) | |||||||
| Income tax assets/(liabilities) | (i) | 11,451.2 | 19,591.0 | |||||||||
| Others | (j) | (9,654.8 | ) | (7,549.3 | ) | |||||||
| Total impact of all adjustments | 452,908.0 | 218,354.8 | ||||||||||
| ICICI Bank stockholders’ equity as per U.S. GAAP | 2,273,432.9 | 1,794,229.8 | ||||||||||
| Non-controlling interests1 | 16,358.6 | 131,398.7 | ||||||||||
| Total equity as per U.S. GAAP | 2,289,791.5 | 1,925,628.5 | ||||||||||
| 1. | Net worth, representing capital and reserves and surplus, attributable to minority interests as per Indian GAAP was Rs. 59,808.9 million (March 31, 2021: Rs. 95,883.4 million). |
| a) | Allowance for credit losses |
The differences in the credit losses between Indian GAAP and U.S. GAAP are primarily on account of:
| i. | Difference in the credit losses on restructured assets, including losses on certain loans transferred to asset reconstruction companies not accounted for as a sale under U.S. GAAP. |
| ii. | Expected credit losses on commercial loans based on individual assessment, which do not share similar risk characteristics with other loans under U.S. GAAP as compared to provisions based on graded provisioning rates on non-performing loans, subject to minimum provisioning rates prescribed by the Reserve Bank of India guidelines under Indian GAAP for the Bank. |
| iii. | Expected credit losses on the loans sharing similar risk characteristics under U.S. GAAP as compared to prescriptive/graded provisioning, subject to minimum provisioning rate, as per the Reserve Bank of India guidelines under Indian GAAP for the Bank. |
| iv. | Expected credit losses on non-cancellable loan commitments, non-fund exposures and other financial assets under U.S. GAAP as compared to estimated provision on expected devolvement of guarantees on certain borrowers classified as non-performing under Indian GAAP for the Bank. |
Prior to adoption
of ASC Topic 326 in fiscal year 2021, the Bank was creating allowance for loan losses under U.S. GAAP in accordance with FASB ASC Topic
450, “Contingencies” and FASB ASC Topic 310, “Receivables” on impaired loans and performing portfolios.
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Credit losses on restructured loans
Under Indian GAAP, certain loans restructured by the Bank (excluding loans given for implementation of projects in the infrastructure sector and non-infrastructure sector and which are delayed up to a specified period and few other loans explained below) by re-scheduling principal repayments and/or the interest are classified as non-performing as per the Reserve Bank of India guidelines. Provisions as applicable to non-performing loans, are made on restructured loans. In addition to this, provision for the diminution in fair value of the restructured loans is also made by the Bank. The diminution in fair value is computed by discounting both sets of cash flows, based on interest rate prior to restructuring and post restructuring, at the existing rate of interest charged on the loan before the restructuring.
Loans restructured under specific guidelines issued by the Reserve Bank of India for Resolution Framework for Covid-19-related Stress and for certain eligible micro, small and medium enterprises are not classified as non-performing under Indian GAAP. The Bank makes provision on these loans subject to minimum requirements as per the Reserve Bank of India guidelines.
Under U.S. GAAP, the credit losses for restructured loans are provided for by discounting expected cash flows at originally contracted interest rates. The credit losses recognized on account of reductions of future interest rates as a part of troubled debt restructurings are accreted as a credit to the provision for loan losses over the tenor of the restructured loan under U.S. GAAP. Under U.S. GAAP, additional credit losses based on present value of expected cash flows are made for restructured loans, which are not performing as per the restructured terms.
Under Indian GAAP, the loan accounts subjected to restructuring are upgraded to the standard category if the borrower demonstrates, over a minimum period of one year, the ability to repay the loan in accordance with the contractual terms and the borrower gets reinstated to a normal level of general provisions for standard loans/risk weights for capital adequacy computations. The period of one year is from the commencement of the first payment of principal or interest whichever was later on the credit facility with the longest period of moratorium under the restructured terms. The restructured loans can be upgraded to standard category only after satisfactory performance during the ‘specified period’, that is, the date by which at least certain percentage of the outstanding principal debt as per the resolution plan and interest capitalization sanctioned as part of the restructuring, if any, is repaid or one year from the commencement of the first payment of interest or principal on the credit facility with longest period of moratorium under the terms of the resolution plan, whichever is later. Further, large restructured accounts (accounts where the aggregate exposure of lenders is Rs. 1.00 billion and above) would qualify for an upgrade if in addition to demonstration of satisfactory payment performance as mentioned above, the loan is rated at investment grade (BBB- equivalent or better) at the end of the ‘specified period’ by credit rating agencies accredited with the Reserve Bank of India. However, the process of upgrading under U.S. GAAP is not rule-based and the timing of upgrades may differ across individual loans.
The Bank transfers certain loans to borrower specific funds/trusts managed by asset reconstruction companies in exchange for security receipts issued by the funds/trusts, as part of the strategy for resolution of non-performing assets. The funds/trusts have been set up by the asset reconstruction companies under enacted debt recovery legislation in India and they aim to improve the recoveries of banks on non-performing assets by aggregating lender interests and speeding up the enforcement of security interests by lenders. While under Indian GAAP, such transfers are recognized as a sale, under U.S. GAAP these transfers are not recognized as a sale due to the following reasons:
• Certain transfers do
not qualify for sale accounting under FASB ASC Topic 860, “Transfers and servicing”, as the Bank retains the risks and rewards
in such transfers.
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• Certain transfers were impacted by FASB ASC Subtopic 810-10, “Consolidation – overall”. The funds/trusts to which these loans have been transferred are variable interest entities within the definition contained in ASC Subtopic 810-10. As the Bank is the ‘Primary Beneficiary’ of certain of these funds/trusts, it is required under U.S. GAAP to consolidate these entities.
Credit losses on commercial loans which do not share similar risk characteristics
These differences primarily relate to provisions on non-performing commercial loans under Indian GAAP and credit loss provisions on commercial loans which do not share similar risk characteristics under U.S. GAAP. The difference related to the credit loss for non-performing loans under Indian GAAP and for loans which do not share similar risk characteristics under U.S. GAAP arises due to a difference in methodology applied to calculate the credit losses under U.S. GAAP and Indian GAAP.
Under Indian GAAP, non-performing loans are classified into three categories: sub-standard assets, doubtful assets and loss assets. A loan is classified as sub-standard if interest payments or installments have remained overdue for more than 90 days. A provision of 15.0% is required for all sub-standard loans. An additional provision of 10.0% is required for accounts that are unsecured from the time of origination. A loan is classified as a doubtful loan if it has remained sub-standard for more than twelve months or if the value of security charged to the Bank has eroded and fallen below 50% of the outstanding loan. A 100% provision/write-off is required with respect to the unsecured portion of the doubtful loans. A 100% provision is required for the secured portion of loans classified as doubtful for more than three years and is recorded in a graded manner as the three-year period occurs. A loan is classified as a loss asset if the losses on it are identified or the loan is considered uncollectible. For loans classified as a loss, the entire loan is required to be provided for. In accordance with regulatory package announced by the Reserve Bank of India, consequent to outbreak of Covid-19 pandemic, the Bank extended the option of payment of moratorium on loans to its borrowers. The moratorium period, wherever granted, is excluded from the determination of number of days past-due for the purpose of asset classification as per the Reserve Bank of India guidelines.
Under U.S. GAAP, commercial loans representing significant individual credit exposures (both funded and non-funded), are individually evaluated to ascertain if they share similar risk characteristics, based on the ability of the borrower to repay the contractual amounts due to the Bank, including considerations of both quantitative and qualitative criteria such as the account conduct, future prospects, repayment history and financial performance. The credit losses for commercial loans, ascertained to not share the similar risk characteristics, are estimated on an individual basis and are based on either the present value of expected future cash flows or in case of a collateral dependent loan, the net realizable value of the collateral net of cost to sell, if any.
Under Indian GAAP, the Bank holds specific provisions on certain performing commercial loans and advances based on the Reserve Bank of India guidelines/direction.
Under Indian GAAP, accounts where the Bank had invoked/implemented strategic debt restructuring under the Reserve Bank of India guidelines were classified as non-performing. Under U.S. GAAP, the Bank opted for fair value option for accounting these loans at fair value through income statement under ASC Subtopic 825-10 “Financial Instruments”. See also– 22. Notes under U.S. GAAP – Fair value accounting of financial interests.
Under Indian GAAP, any contractual
amount due from the counter-party under derivative contracts, if not collected within 90 days, is required to be reversed through income
statement under the Reserve Bank of India guidelines. Under U.S. GAAP, these receivables are analyzed to identify the required credit
losses in the same manner as individual credit exposures.
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Credit losses on loans sharing similar risk characteristics
Commercial loans
Credit losses on commercial loans sharing similar risk characteristics primarily relate to performing commercial loans.
Under Indian GAAP, the allowances on the performing portfolios are based on guidelines issued by the Reserve Bank of India. The provisioning requirement is a uniform rate of 0.4% for all standard assets except –
| · | Small and micro enterprise sectors, which attract a provisioning requirement of 0.25%, |
| · | Advances to commercial real estate residential and non-residential sectors which attract a provisioning requirement of 0.75% and 1.0% respectively, |
As per the guidelines issued by the Reserve Bank of India, additional general provision between 0.0%-0.8% is made on outstanding amounts to entities having unhedged foreign currency exposure. The provision range is based on percentage of likely loss due to unhedged foreign currency exposure to their earnings before interest, depreciation and lease rentals, if any. As per the guidelines issued by the Reserve Bank of India, the Bank also makes additional general provision on loans to specific borrowers in specific stressed sectors and on incremental exposure to borrowers identified as per the Reserve Bank of India’s large exposure framework.
Under U.S. GAAP, credit losses on the commercial loans sharing similar risk characteristics are accounted on a collective basis. The segmentation based on risk characteristics for commercial loans primarily includes customer type, risk rating and delinquency status. The collective assessment begins with a quantitative calculation that considers the likelihood of the borrower defaulting. The quantitative calculation covers expected credit losses over an instrument’s expected life and is estimated by applying probability of default and loss given default. The probabilities of default are derived using a macro-economic scenario over a reasonable and supportable forecast period. The term structure for subsequent periods is built using single year reversion to the long run historical information. The forecasts take into consideration the Group’s economic outlook based on internal as well as external inputs and involve a governance process that incorporates feedback from senior management.
Consumer loans
Credit losses on consumer loans sharing similar risk characteristics primarily relate to homogenous small balance loans including both performing and non-performing consumer loans under Indian GAAP.
Under Indian GAAP, the provision on non-performing consumer loans is made at a pre-determined rate, subject to minimum provision as required under the Reserve Bank of India guidelines. The provision on the performing portfolios are based on guidelines issued by the Reserve Bank of India. The provisioning requirement is a uniform rate of 0.4% for all standard assets except
| · | Farm credit to agriculture and home loan upto a certain amount which attract a provisioning requirement of 0.25%, |
| · | Advances to commercial real estate residential and non-residential sectors which attract a provisioning requirement of 0.75% and 1.0% respectively |
Under U.S. GAAP, credit losses on the consumer loans sharing similar risk characteristics are accounted for on collective basis. The segmentation for the consumer loans is based on risk characteristics such as product type, delinquency status, credit scores, and vintage. For agriculture
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loans, a further segmentation of risk characteristics is also carried out based on direct and indirect agriculture lending categories.
The collective assessment begins with a quantitative calculation that considers the likelihood of the borrower defaulting. The quantitative
calculation covers expected credit losses over an instrument’s expected life and is estimated by applying probability of default
and loss given default. The probabilities of default are derived using a macro-economic scenario over a reasonable and supportable forecast
period. The term structure for subsequent periods is built using single year reversion to the long run historical information. The forecasts
take into consideration the Group’s economic outlook based on internal as well as external inputs and involve a governance process
that incorporates feedback from senior management.
Credit losses on undrawn commitments, non-fund exposures and other debt securities
Under U.S. GAAP, the Bank records a liability for credit losses on non-cancellable undrawn commitments by the Group and non-fund exposures to its borrowers based on the life time expected losses. The credit losses are estimated in accordance with the ASC Topic 326, “Financial Instruments – Credit losses”.
Under Indian GAAP, the Bank makes estimated provision on guarantees, above a certain threshold, to its borrowers classified as non-performing based on an assessment of expected devolvement.
Under Indian GAAP, the Bank, on prudent basis, has made provisions related to Covid-19 and in view of the geopolitical and economic uncertainties. Under US GAAP, the Group makes adjustments to appropriately address these economic circumstances over and above the model output by increasing the probability of default estimates based on management judgement.
Under Indian GAAP, the Reserve Bank of India guidelines do not specify the conditions under which the assets may be written-off. The Bank has internal policies for charge off of non-performing loans against loan loss allowances. Commercial loans, are generally charged off against allowances when, based on a borrower-specific evaluation of the possibility of further recovery, the Bank concludes that the balance cannot be collected. The Bank evaluates whether a balance can be collected based on the realizable value of collateral, the results of the Bank’s past recovery efforts, the possibility of recovery through legal recourse and the possibility of recovery through settlement.
Small-balance homogenous loans are generally charged off against allowances after predefined periods of delinquency, as follows:
| • | Mortgage loans: 3 years of continuous delinquency |
| • | Other consumer loans: 6 months of continuous delinquency |
The same criteria are used for charge off of impaired loans under U.S. GAAP.
Prior to adoption of ASC Topic 326 from April 1, 2020, the allowances for loan losses under U.S. GAAP were recognized in accordance with FASB ASC Topic 450, “Contingencies” and FASB ASC Topic 310, “Receivables” on impaired loans and performing portfolios. On adoption of ASC Topic 326, “Financial Instruments—Credit Losses”, the Group recorded additional credit loss of Rs. 68,975.8 million at April 1, 2020.
The following table sets forth,
for the periods indicated, the difference in aggregate expected credit losses between Indian GAAP and U.S. GAAP as attributable to the
aforementioned reconciling items.
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Rupees in million
| Reconciling items | Year ended March 31, | |||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Differences due to expected credit losses on commercial loans classified as troubled debt restructuring under U.S. GAAP (includes cases transferred to asset reconstruction company) | (2,979.5 | ) | 4,185.6 | 23,068.0 | ||||||||
| Differences due to expected credit losses on commercial loans evaluated on individual basis | 5,868.8 | 13,788.7 | (2,097.5 | ) | ||||||||
| Differences due to expected credit losses on loans evaluated on collective basis | 8,963.6 | 30,275.1 | (19,282.2 | ) | ||||||||
| Differences due to expected credit losses on undrawn commitments, non-fund exposures and other financial assets | 11,000.6 | 405.0 | 3,356.8 | |||||||||
| 22,835.5 | 48,654.4 | 5,045.1 | ||||||||||
See note on 22 (f) Loans for detailed discussion on allowance for credit loss. See note on "Consolidated Financial Statements - Schedules to the consolidated financial statements - Schedule 9 - Advances" for Indian GAAP balance sheet presentation.
| b) | Business combinations |
The differences arising due to business combinations are primarily on account of:
| i) | Accounting for intangible assets and goodwill; and |
| ii) | Acquisition of control due to lapse of minority substantive participating rights in acquiree |
During fiscal 2011, ICICI Bank Limited acquired Bank of Rajasthan Limited through exchange of common stock. The acquisition of Bank of Rajasthan Limited was accounted for under Indian GAAP as per the Reserve Bank of India approved scheme of merger. Under Indian GAAP, the purchase consideration was determined based on the paid-up value of common stock issued. Under U.S. GAAP, the purchase consideration was determined as the fair value of total consideration transferred, based on ASC Topic 805, “Business Combinations”. The impact of this relating to the accounting of business combinations, resulted in an increase in reconciliation differences of Rs. 32,682.7 million in stockholders’ equity reconciliation in fiscal 2011. Under U.S. GAAP, goodwill of Rs. 27,120.9 million and definite life intangible assets of Rs.3,898.0 million were recorded as per ASC 805, “Business Combinations”, and FASB ASC Topic 350, “Intangibles – Goodwill and others”. Under Indian GAAP, no goodwill and intangible assets were recognized as per scheme of merger approved by the Reserve Bank of India. Intangibles recognized under U.S. GAAP due to the above business combinations have been fully amortized.
ICICI Lombard General Insurance
Company Limited, a general insurance company, was established as a joint venture, which allowed substantive participating rights to a
minority shareholder. Under U.S. GAAP, the Bank had been accounting for its investment in ICICI Lombard General Insurance Company Limited
as an equity affiliate. During fiscal 2018, the joint venture agreement was terminated, resulting in the Bank acquiring control in ICICI
Lombard General Insurance Company Limited without transferring any additional consideration. Under U.S. GAAP, this transaction has been
accounted using acquisition method for business combination under “ASC Subtopic 805-10, Business Combination – Overall”.
Under U.S. GAAP, goodwill was determined by deducting the fair value of net assets acquired from the fair value of equity interest held
by the Bank and fair value of minority interest. Accordingly, goodwill of Rs. 142,896.9 million and intangibles of Rs. 15,553.0 million
were recorded under U.S. GAAP. The goodwill was allocated to the General insurance segment of the Group. Under Indian GAAP, no specific
accounting was required for termination of the above joint venture agreement.
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During fiscal 2022, the Bank’s holding in ICICI Lombard General Insurance Company Limited has reduced below 50.0% and it ceased to be a subsidiary under ASC Topic 810-Consolidation. Accordingly, the goodwill and unamortized intangibles were de-recognized during fiscal 2022.
Further, for certain other acquisitions made by the Group, no goodwill and intangibles have been accounted for under Indian GAAP primarily due to accounting for the amalgamation by the pooling of interest method, determination of acquirer for accounting or as per scheme of merger approved by the Reserve Bank of India. However, under U.S. GAAP, goodwill has been accounted for in accordance with FASB ASC Topic 805, “Business Combinations”.
Under U.S. GAAP in accordance with FASB ASC Topic 350, the Group does not amortize goodwill and intangibles with infinite life but instead tests the same for impairment at least annually. The annual impairment test under ASC Topic 350 does not indicate an impairment loss for fiscal 2022, 2021 and 2020.
Under U.S. GAAP intangible assets with finite useful life are amortized over their estimated useful lives in proportion to the economic benefits consumed in each period.
The following table sets forth, for the periods indicated, the differences in net income arising from accounting for business combinations under Indian GAAP and U.S. GAAP.
Rupees in million
| Reconciling items | Year ended March 31, | |||||||||||
2022 | 2021 | 2020 | ||||||||||
| Amortization of intangibles | (704.1 | ) | (1,813.7 | ) | (1,813.7 | ) | ||||||
| Others | 69.2 | 7.5 | 7.5 | |||||||||
| Total difference in business combinations | (634.9 | ) | (1,806.2 | ) | (1,806.2 | ) | ||||||
| c) | Consolidation |
The differences on account of consolidation are primarily on account of:
| 1. | Consolidation of life insurance subsidiary; |
| 2. | Deconsolidation of former general insurance subsidiary |
| 3. | Equity affiliates and majority owned subsidiaries; and |
| 4. | Consolidation of variable interest entities. |
Under Indian GAAP, consolidation is required only if there is ownership of more than one-half of the voting power of an enterprise or control of the composition of the Board of Directors in the case of a company or of the composition of the governing body in case of any other enterprise. Under Indian GAAP, our life insurance subsidiary (ICICI Prudential Life Insurance Company Limited) is consolidated on line-by-line basis. Under U.S. GAAP, ICICI Prudential Life Insurance Company Limited is accounted for by the equity method of accounting as the minority shareholders have substantive participating rights as defined in ASC Subtopic 810-10, “Consolidation – Overall”.
In accordance with the Scheme of Arrangement between ICICI Lombard General Insurance Company Limited (ICICI General) and Bharti AXA General Insurance Company Limited, as approved by Insurance Regulatory and Development Authority of India (with effect from September 8, 2021), assets and liabilities of Bharti AXA's general insurance business vested with ICICI General on the Appointed Date of April 1, 2020. ICICI General issued two fully paid up equity shares to the shareholders of Bharti AXA for every 115 fully paid up equity shares. Subsequent to issuance of equity shares to Bharti AXA shareholders, the Bank's shareholding in ICICI General reduced to below 50.0%. Accordingly, the Bank has accounted its investment in ICICI General as an associate under Accounting Standard – 23 – “Accounting for Investments in Associates” in consolidated financial statements with effect from April 1, 2021 under Indian GAAP. Under U.S. GAAP, ICICI General was consolidated on line-by-line basis till September 7, 2021, and was accounted as an affiliate with effect from September 8, 2021, the date of loss of control. Under Indian GAAP, the retained interest in ICICI General was accounted at carrying value. Under U.S. GAAP, the retained interest in the ICICI General was fair valued on the date of loss of control based on the closing quoted price of the common stock of ICICI General in the stock exchange. This resulted in a gain of Rs. 254,998.1 million on deconsolidation. On the date of deconsolidation, in accordance with the requirements of FASB ASC Topics 323 and 805, the Bank carried out a preliminary purchase price allocation of carrying value of investment in ICICI General, and provisionally recognized identified intangibles amounting to Rs. 4,053.0 million and Goodwill amounting to Rs. 300,443.0 million. Given the complexity involved in the identification and measurement of the intangibles, the determination of final values of intangibles is underway and is planned to be completed within the permitted measurement period as per the aforementioned requirements.
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The following table sets forth, for the periods indicated, the differences in net income arising from accounting for consolidation under Indian GAAP and U.S. GAAP.
Rupees in million
| Reconciling items | Year ended March 31, | |||||||||||
2022 | 2021 | 2020 | ||||||||||
| Profit/(loss) as per U.S. GAAP for life insurance subsidiary1 | (1,758.2 | ) | 21,327.4 | (4,450.5 | ) | |||||||
| Less: Profit/(loss) as per Indian GAAP for life insurance subsidiary | 7,592.0 | 9,561.6 | 10,669.8 | |||||||||
| Net reconciliation difference for life insurance subsidiary2 | (9,350.2 | ) | 11,765.8 | (15,120.3 | ) | |||||||
| Profit/(loss) from life insurance subsidiary attributable to the Group3 | (4,780.5 | ) | 6,000.8 | (7,994.7 | ) | |||||||
| Profit on deconsolidation of former general insurance subsidiary | 254,998.1 | 4 | .. | .. | ||||||||
| Profit/(loss) from equity affiliates and majority owned subsidiaries | (1,932.8 | )5 | .. | .. | ||||||||
| Profit/(loss) on consolidation of variable interest entities and special purpose entities | (9.3 | ) | 214.2 | (57.3 | ) | |||||||
| Total differences in consolidation | 248,275.4 | 6,215.0 | (8,052.0 | ) | ||||||||
| 1. | The total comprehensive income under U.S. GAAP decreased from Rs. 17,982.4 million in fiscal 2021 to total comprehensive loss of Rs. 16,973.5 million in fiscal 2022. |
| 2. | Represents total differences in profit/(loss) between Indian GAAP and U.S. GAAP for life insurance subsidiary. See also- 22. Notes under U.S. GAAP – Insurance affiliates. |
| 3. | Represents the Group’s share of profit/(loss) in “Net reconciliation difference for life insurance subsidiary” and excludes the share of non-controlling interest holders. The Group owns part, not all, of the life insurance subsidiary. As such, only a portion of “Net reconciliation difference for life insurance subsidiary” is attributable to the Group; the rest is attributable to non-controlling interest holders. The share attributable to the Group constitutes the “Profit/(loss) from life insurance subsidiary attributable to the Group.” Reconciling items pertaining to significant differences between Indian GAAP and U.S. GAAP for life insurance affiliate are discussed separately below. |
| 4. | Represents gain on fair valuation of retained investment in General insurance affiliate. |
| 5. | Represents the Group’s share in difference in profit/(loss) between Indian GAAP and U.S. GAAP for General insurance affiliate. See also- 22. Notes under U.S. GAAP – Insurance affiliates. |
Profit/(loss) on consolidation of Variable Interest Entities
The Bank has consolidated certain qualified special purpose entities used for securitization transactions, effective April 1, 2010 on adoption of FAS 167 (codified within ASC 810-10). Upon consolidation, the assets of the qualifying special purpose entities were incorporated into the Bank’s loan portfolio and the amounts received from the investors were accounted for as borrowings. Under U.S. GAAP, the Bank accounts for the allowance for loan losses on these loans based on expected credit loss.
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Under Indian GAAP, securitized assets are derecognized from the Bank’s books. In accordance with the Reserve Bank of India guidelines for securitization, for securitization transactions entered into after February 1, 2006, the Bank accounted for any losses immediately at the time of securitization but amortized any profits over the life of the securities issued or to be issued by the qualifying special purpose entities. As per the Reserve Bank of India guidelines issued on September 24, 2021, gain realized at the time of securitization of loans is accounted through profit and loss account on completion of transaction. The unrealized gains, associated with expected future margin income is recognized in profit and loss account only when redeemed in cash, after absorbing losses, if any. The Bank also provides credit enhancement to the qualifying special purpose entities against delinquencies on securitized assets. Under Indian GAAP, the recognition of losses is based on the extent of utilization of credit enhancement extended to qualifying special purpose entities.
Due to these differences in the Bank’s accounting of securitization transactions, the timing of recognition of income and provision for loan losses differ under U.S. GAAP and Indian GAAP.
| d) | Valuation of debt and equity securities |
Under Indian GAAP unrealized losses of held for trading and available for sale securities are taken to profit and loss account. Under Indian GAAP, net unrealized gains on investments by category are ignored. Under U.S. GAAP, unrealized gains or losses on trading debt assets are recognized in the profit and loss account and unrealized gains or losses on debt securities classified as ‘available for sale’, which include all securities classified as ‘held to maturity’ under Indian GAAP, are recognized in Other Comprehensive Income under stockholders’ equity except for the unrealized losses on securities identified as impaired which are recognized in profit and loss account. Under U.S. GAAP, unrealized gains or losses on equity securities are recognized in profit and loss account. Under Indian GAAP, the investments are initially measured at transaction cost, while under U.S. GAAP investments are initially measured at fair value.
Under Indian GAAP, the impact of currency revaluation on debt securities denominated in foreign currency is taken to profit and loss account. Under U.S. GAAP, the impact of currency revaluation on non-hedged ‘available for sale’ debt securities denominated in foreign currency is taken to Other Comprehensive Income.
Under Indian GAAP, premium over the face value of fixed rate and floating rate securities under held to maturity category is amortized over the remaining period to maturity on an effective constant yield basis and straight line basis respectively. Any premium over the face value of fixed rate and floating rate investments in government securities classified under available for sale category is amortized over the remaining period to maturity on constant yield basis and straight line basis respectively. Under U.S. GAAP, the income as per interest method is arrived at by amortization/accrual of premium/discount on the face value of debt securities over the remaining period to maturity on an effective interest rate basis.
Under Indian GAAP, gain or
loss on sale of equity stake in a subsidiary company is recognized in the income statement. Under U.S. GAAP, change in the parent’s
ownership in the subsidiary company is accounted as an equity transaction, if the parent retains controlling financial interest in the
subsidiary and accordingly gain or loss is not recognized in the income statement. In fiscal 2021, the Bank sold part of its equity shareholdings
in its subsidiaries, namely ICICI Lombard General Insurance Company and ICICI Securities Limited, while retaining the control in these
subsidiaries. While, gains on sale of equity shares were recorded through profit and loss account under Indian GAAP, these gains were
accounted in equity under U.S. GAAP.
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In fiscal 2016, the Reserve Bank of India issued guidelines on strategic debt restructuring under which conversion of debt into equity and acquisition of ownership interests in the borrower by banks is allowed. The Reserve Bank of India has exempted banks from consolidation of these entities. Under U.S. GAAP, these entities were considered as equity affiliates. The Bank opted for fair value option of these equity affiliates under ASC Topic 825 “Financial Instruments”. Accordingly, fair value changes in the loans, guarantees and equity shares were accounted through income statement. While fair value impact on loans was recorded in the line item “Valuation of debt and equity securities”, the provisions made on these loans under Indian GAAP were reversed in the line item “Allowance for loan losses”. See also– 22. Notes under U.S. GAAP – Fair value accounting of financial interests.
The following table sets forth, for the periods indicated, the differences in net income arising from accounting for valuation of debt and equity securities under Indian GAAP and U.S. GAAP.
Rupees in million
| Reconciling items | Year ended March 31, | |||||||||||
2022 | 2021 | 2020 | ||||||||||
| Impact of differences in mark-to-market accounting for investment securities | 9,323.9 | 887.8 | 2,360.2 | |||||||||
| Impairment allowance on AFS securities under U.S. GAAP | (2,114.9 | ) | (2,067.4 | ) | (1,428.5 | ) | ||||||
| Impact of currency revaluation on non-hedged AFS debt securities denominated in foreign currency accounted for in profit and loss under Indian GAAP, which is accounted for in Other Comprehensive Income under U.S. GAAP | 176.0 | (571.1 | ) | 758.5 | ||||||||
| Impact of gain on sale of stake in subsidiary companies recognized in the income statement under Indian GAAP, which is recognized as an equity transaction under U.S. GAAP | .. | (25,726.7 | ) | .. | ||||||||
| Impact of fair value accounting for financial interest in certain equity affiliates | 5,156.8 | 5,738.4 | 9,642.0 | |||||||||
| Others1 | (1,611.1 | ) | 10,112.8 | 3,268.0 | ||||||||
| Total | 10,930.7 | (11,626.2 | ) | 14,600.2 | ||||||||
| 1. | The difference is primarily due to premium/discount amortization on debt securities and difference in gain on debt securities sold during the year, between Indian GAAP and U.S. GAAP. Under U.S. GAAP, available for sale debt securities include all securities classified as ‘held to maturity’ under Indian GAAP. First-In-First-Out method of accounting is applied on aggregate ‘available for sale’ securities under U.S. GAAP, resulting in difference in realized gain/(loss) on sale of securities between Indian GAAP and U.S. GAAP. |
| 2. | The Group adopted ASC Topic 326, “Financial Instruments—Credit Losses” from April 1, 2020 for investment in debt securities. The adoption of ASC Topic 326 did not have significant impact on the financial results. |
See note on "Consolidated Financial Statements - Schedules to the consolidated financial statements - Schedule 8 - Investments" for Indian GAAP balance sheet presentation.
| e) | Amortization of fees and costs |
Loan origination fees and costs
Under U.S. GAAP, loan origination fees (net of certain costs) are amortized over the period of the loans as an adjustment to the yield on the loan. However, under Indian GAAP, loan origination fees are accounted for upfront. Also under Indian GAAP, loan origination costs, including commissions paid to direct marketing agents, are expensed in the year in which they are incurred.
Retirement benefit cost
Under Indian GAAP, all actuarial gains/losses are recognized on the balance sheet of the enterprise in the year in which they arise through suitable credit/debit in the profit and loss account of the year. Under U.S. GAAP, actuarial gains/losses are accounted in Other Comprehensive Income. Subsequently cumulative actuarial gain/loss lying in the Other Comprehensive Income which is over
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and above 10% corridor is amortized through profit and loss account. Further, discount rate for computing benefit obligation is linked
to yield on high quality fixed income securities in U.S. GAAP as compared to yield on government securities under Indian GAAP.
Reinsurance commission and deferred acquisition costs
Under Indian GAAP, reinsurance commission on business ceded by general insurance subsidiary is recognized as income in the year of the ceding of the risk. Under U.S. GAAP, proceeds from reinsurance transactions that represent recovery of acquisition costs are reduced from acquisition costs in such a manner that net acquisition costs are capitalized and charged to expense in proportion to net revenue recognized over the related policy period.
Under Indian GAAP, acquisition costs for new and renewal of insurance contracts in general insurance subsidiary are charged as expense to the revenue account in the year in which these are incurred, whereas under U.S. GAAP, the same are capitalized and charged to expense in proportion to premium revenue recognized as per ASC Topic 944 “Financial Services-Insurance”.
The following table sets forth, for the periods indicated, the differences in net income arising from accounting for amortization of fees and costs under Indian GAAP and U.S. GAAP.
Rupees in million
| Reconciling items | Year ended March 31, | |||||||||||
2022 | 2021 | 2020 | ||||||||||
| Loan origination fees and costs | 6,425.0 | 4,345.2 | 5,349.0 | |||||||||
| Retirement benefit costs | (2,021.2 | ) | (1,679.8 | ) | 4,124.8 | |||||||
| Reinsurance commission and deferred acquisition costs | (319.7) 2 | 1,835.0 | (58.2 | ) | ||||||||
| Amortization of other costs | (158.3 | ) | (201.6 | ) | (15.1 | ) | ||||||
| Total differences in amortization of fees and costs1 | 3,925.8 | 4,298.8 | 9,400.5 | |||||||||
| 1. | Does not include any amount that is attributable to non-controlling interest holders. |
| 2. | Represents difference in net income of former general insurance subsidiary upto September 7, 2021 |
The amortization of loan origination fees and costs resulted in higher income under U.S. GAAP as compared to Indian GAAP primarily due to higher direct loan origination costs on consumer loans incurred during these years reflecting growth in consumer loans.
While under Indian GAAP, actuarial gain or loss are recognized in profit and loss account, under U.S. GAAP, the actuarial gain/loss are recognized through other comprehensive income and thereafter amortized through profit and loss account. During fiscal 2022, there was higher amortization of actuarial loss from other comprehensive income under U.S. GAAP, resulting in retirement benefit costs being higher under U.S. GAAP in fiscal 2022 as compared to Indian GAAP.
See note on "Consolidated Financial Statements - Schedules to the consolidated financial statements - Schedule 9 – Advances" for balance sheet presentation of amortization of loan processing fees and cost.
| f) | Accounting for derivatives |
Under Indian GAAP, the Group hedges interest rate and exchange rate risks on some on-balance sheet assets and liabilities are hedged through swap contracts. The impact of such derivative instruments is correlated with the movement of underlying assets and liabilities and accounted pursuant to the principles of the hedge accounting. Under Indian GAAP, based on the Reserve Bank of India’s guidelines, accounting for hedge relationship established after June 26, 2019 by the Bank, is based on
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Guidance note on Accounting for Derivative Contracts issued by Institute of Chartered Accountant of India. The hedging instruments and
the hedged items (for the risks being hedged) are measured at fair value with changes recognized in the profit and loss account. For hedge
relationship established before June 26, 2019, the accounting is based on accrual basis. To the extent a cash flow hedge is effective,
the change in the fair value of the hedging instrument is recognized in cash flow hedge reserve. The ineffective portion of hedge is accounted
in profit and loss account. The premium/discount on certain foreign currency swaps, used for asset liability management purposes, is amortized
over the life of the swap. All other outstanding forward exchange contracts are revalued and the resultant gains or losses are recognized
in the profit and loss account.
Under U.S. GAAP, the Group accounts for its derivative transactions in accordance with the provisions of FASB ASC Topic 815 “Derivatives and Hedging”. Accordingly, certain derivative contracts classified as hedges under Indian GAAP may not qualify as hedges under U.S. GAAP and are accounted for as trading derivatives with changes in fair value being recorded in the income statement. Under U.S. GAAP, the Group does not designate any derivative transaction as cash flow hedge.
Under U.S. GAAP, the Group has designated certain derivatives as fair value hedges of certain interest bearing assets and liabilities under ASC Topic 815. At the inception of a hedge transaction, the Group formally documents the hedge relationship and the risk management objective and strategy for undertaking the hedge. This process includes identification of the hedging instrument, hedged item, risk being hedged and the methodology for assessing effectiveness and measuring ineffectiveness of hedge. In addition, the Group assesses both at the inception of the hedge and on an ongoing basis, whether the hedge instrument used in the hedging transaction is effective in offsetting changes in fair value of the hedged item, and whether the hedge is expected to continue to be highly effective. Changes in the fair value of a derivative that is designated and qualifies as a fair value hedge, along with the gain or loss on the hedged asset or liability are recorded in the income statement. The Group has also designated certain forward contracts as hedging instruments for its certain net investments in foreign operations which are accounted for in accordance with ASC Topic 815.
| g) | Accounting for compensation cost |
FASB ASC Topic 718, “Compensation – stock compensation” requires all share-based payments to employees, including grants of employee stock options to be recognized in the income statement based on their fair values. Under Indian GAAP, till fiscal 2021, the Group followed the intrinsic value method to account for its stock-based employees’ compensation plans. Compensation cost was measured by the excess, if any, of the fair market price of the underlying stock over the exercise price on the grant date. In fiscal 2022, Reserve Bank of India, issued a clarification advising banks to recognize fair value of share-linked instruments granted subsequent to March 31, 2021 in income statement. Accordingly, from fiscal 2022 onwards, the Bank has started recognizing the fair value of stock options granted subsequent to March 31, 2021 in profit and loss account. The Group has not recognized an income tax benefit on employee stock options related compensation cost.
| h) | Accounting for securitization |
Under U.S. GAAP, the Group accounts for gain on sale of loans securitized at the time of sale in accordance with FASB ASC Topic 860, “Transfers and Servicing”. As per ASC Topic 860, any gain or loss on the sale of the financial asset is accounted for in the income statement at the time of the sale. Under Indian GAAP, net income arising from securitization of loan assets is accounted for over the life of the securities issued or to be issued by the special purpose vehicle/special purpose entity to which the assets are sold. The profit/premium arising from securitization is amortized over the life of the transaction based on the method prescribed by Reserve Bank of India. As per the Reserve Bank of India guidelines issued on September 24, 2021, gain realized at the time of securitization of loans is accounted through profit and loss account on completion of transaction. The unrealized gains, associated with
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expected future margin income is recognized in profit and loss account only when redeemed in cash, after absorbing losses, if any. Net
loss arising on account of the sell-down securitization of loan assets is recognized at the time of sale.
Further, the securitization transactions of mortgage loans by the Bank’s Canadian subsidiary do not qualify as sale transactions as they do not meet the de-recognition criteria under Indian GAAP. Under U.S. GAAP, these securitization transactions have been accounted for as transfers as these satisfy the derecognition criteria under ASC Topic 860 “Transfers and Servicing”.
Under ASC Topic 860 “Transfers and Servicing”, certain securitization transactions, which qualify as transfer under Indian GAAP, do not qualify as transfer under U.S. GAAP. See note 22 (a) on “Securitizations and variable interest entities”.
| i) | Income taxes |
Deferred taxes are recognized on temporary differences related to investments in subsidiaries, branches and affiliates, subject to limited exceptions, under U.S. GAAP while under Indian GAAP, no deferred taxes are recognized on temporary differences related to investments in subsidiaries, branches and affiliates.
The Bank has recognized current tax expense or benefit and recognized deferred tax assets or liabilities on the foreign currency translation reserves pertaining to its overseas branches under Indian GAAP with the offsetting amounts allocated to net income. Under U.S. GAAP, no deferred tax assets or liabilities are recognized on undistributed earnings of overseas branches where current taxes have been incurred and the current tax expense or benefit incurred has been allocated to Other Comprehensive Income.
Under Indian GAAP, deferred tax assets on unabsorbed depreciation or carried forward losses of domestic companies are recognized only if there is virtual certainty of realization of such assets, whereas under U.S. GAAP they are recognized based on a more-likely-than-not criteria.
The Bank and its housing finance subsidiary create a Special Reserve through appropriation of profits from time to time and receive the current tax benefit as per the Income Tax Act, 1961 for the appropriation. If the funds are withdrawn from the Special Reserve in future periods, the amount withdrawn is taxable. Under Indian GAAP, a deferred tax liability has been recognized on such Special Reserve in accordance with the guidelines issued by Reserve Bank of India/National Housing Bank. Under U.S. GAAP, deferred taxes are recognized and measured based on the expected manner of recovery and deferred taxes are not recognized if the expected manner of recovery does not give rise to income tax consequences. Accordingly, a deferred tax liability was not recognized under U.S. GAAP on the Special Reserve based on the Group’s continuing intention to not withdraw or utilize such Special Reserve until a liquidation of the entity and on an opinion from the legal counsel about the non–taxability of such Special Reserve in the scenario of a liquidation.
Under Indian GAAP, no deferred tax asset is recognized on property and equipment, which is not depreciable for income tax purposes. Under U.S. GAAP, a deferred tax asset is recognized for the temporary difference related to such assets including consideration of the indexation benefit available under tax laws.
Deferred tax assets and liabilities are recognized for the income tax impact of the non-tax adjustments that result from the application of U.S. GAAP.
The following table sets forth,
for the periods indicated, the components of the adjustments to income tax (expense)/benefit in the net income reconciliation.
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Rupees in million
| Reconciling items | Year ended March 31, | |||||||||||
2022 | 2021 | 2020 | ||||||||||
| Deferred tax on temporary differences related to subsidiaries, branches and affiliates1,2 | 9,340.1 | 3,676.7 | 2,359.9 | |||||||||
| Deferred tax on unabsorbed depreciation or carried forward losses3 | 2,168.3 | (156.4 | ) | 505.8 | ||||||||
| Deferred tax on Special Reserve | 3,669.5 | 2,743.2 | (6,829.4 | ) | ||||||||
| Deferred tax on temporary difference on property and equipment | 48.4 | 36.3 | 18.1 | |||||||||
| Income tax impact of non-tax U.S. GAAP adjustments | (36,928.2 | ) | (18,448.3 | ) | (830.1 | ) | ||||||
| Total differences in income taxes benefit/(expense) | (21,701.9 | ) | (12,148.5 | ) | (4,775.7 | ) | ||||||
| 1. | For the year ended March 31, 2022, tax effect of Rs.8,247.7 million was recognized for the existing deductible temporary difference for the Bank’s investment in ICICI General as it ceased to be a subsidiary and became an affiliate. |
| 2. | For the year ended March 31, 2021, tax effect of Rs. (1,363.7) million on gain on sale of equity shares of the Bank’s subsidiaries (where control is retained) is accounted in equity under U.S. GAAP. |
| 3. | For the year ended March 31, 2021, tax effect of Rs. (983.2) million on gain on sale of equity shares of the Bank’s subsidiaries (where control is retained) is accounted in equity under U.S. GAAP. |
At March 31, 2022, the stockholders’ equity was higher by Rs. 11,451.2 million (March 31, 2021: Rs. 19,591.0 million), under U.S. GAAP as compared to Indian GAAP on account of income tax adjustments, of which Rs. 32,793.4 million (March 31, 2021: Rs. 23,729.2 million) was due to deferred tax on temporary differences related to branches and affiliates, Rs. 1,245.6 million (March 31, 2021: Rs. 1,048.3 million) was due to deferred taxes not being recognized under U.S. GAAP related to foreign currency translation reserves pertaining to overseas branches, Rs. 3,420.7 million (March 31, 2021: Rs. 1,252.5 million) was due to deferred tax on unabsorbed depreciation or carried forward losses, Rs. 31,118.7 million (March 31, 2021: Rs. 27,449.7 million) was due to deferred tax on Special Reserve, Rs. 617.7 million (March 31, 2021: Rs. 569.2 million) was due to deferred tax on temporary difference on property and equipment and Rs. (57,744.9) million (March 31, 2021: Rs. (34,457.9) million) was due to the income tax impact of non-tax U.S. GAAP adjustments.
See note on "Consolidated Financial Statements - Schedules to the consolidated financial statements - Schedule 18A - Notes forming part of the accounts - 9. Deferred tax" for Indian GAAP presentation.
| j) | Others |
Under Indian GAAP, the Bank and its housing finance subsidiary have revalued fixed assets and created a revaluation reserve amounting to Rs. 32,285.0 million at March 31, 2022 (March 31, 2021: Rs. 31,252.8 million). Under U.S. GAAP, fixed assets are recognized on cost basis, as per ASC Topic 360 – Property, Plant and Equipment. Further, additional depreciation has been charged to income statement on revalued amount under Indian GAAP, but not under U.S. GAAP, resulting in lower depreciation charge by Rs. 703.1 million under U.S. GAAP as compared to Indian GAAP for the year ended March 31, 2022 (Rs. 680.3 million for the year ended March 31, 2021 and Rs. 697.0 million for the year ended March 31, 2020).
Under Indian GAAP, the Bank
has made provisions on certain fixed assets acquired in debt asset swap arrangements as per the direction of Reserve Bank of India. Under
U.S. GAAP, these fixed assets were carried at book value or fair value, whichever is lower. There was a lower profit of Rs. 1,476.8 million
under U.S. GAAP as compared to Indian GAAP for the year ended March 31, 2022 (lower profit of Rs. 1,923.1 million for the year ended March
31, 2021 and higher profit of Rs. 6,724.2 million for the year ended March 31, 2020).
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| 22. | Notes under U.S. GAAP |
Additional information required under U.S. GAAP
| a) | Securitizations and variable interest entities |
Overview
The Bank and its subsidiaries are involved with several types of off-balance-sheet arrangements, including special purpose entities.
Uses of Special Purpose Entities
The Group deals with some special purpose entities which were created to fulfill limited purposes as specified in their governing documents. The primary purpose of these special purpose entities is to receive contributions from investors for buying assets from the transferor, hold such purchased assets on behalf of the contributors to the trust and making regular payments to the investors from the proceeds of purchased assets. These special purpose entities have been organized mainly in the legal forms of trusts. In a securitization, the company transferring assets to a special purpose entity converts all (or a portion) of those assets into cash before they would have been realized in the normal course of business, through the special purpose entities issuance of debt and equity instruments, certificates, commercial paper and other notes of indebtedness, which are recorded on the balance sheet of the special purpose entity and not reflected in the transferring company’s balance sheet, assuming applicable accounting requirements are satisfied. Investors usually have recourse to the assets in the special purpose entity and often benefit from other credit enhancements, such as a collateral account or over-collateralization in the form of excess assets in the special purpose entity, a line of credit, or from a liquidity facility, such as liquidity put option or asset purchase agreement. In accordance with ASC 810-10, the Group consolidates these entities.
Variable Interest Entities
Variable interest entities are entities that have either a total equity investment that is not sufficient to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest (i.e. power through voting rights or similar rights to direct the activities of a legal entity that most significantly impact the entity’s economic performance and right to receive the expected residual returns of the entity or obligation to absorb the expected losses of the entity). Investors that finance the variable interest entity through debt or equity interests or other counterparties that provide other forms of support, such as guarantees, subordinated fee arrangements, or certain types of derivative contracts, are variable interest holders in the entity. The variable interest holder, if any, that has a controlling financial interest in a variable interest entity is deemed to be the primary beneficiary and must consolidate the variable interest entity. Accordingly, the Group has determined that it has a controlling financial interest because it is the primary beneficiary of certain trusts and entities, based on its determination that it has both, the power to direct activities of a variable interest entity that most significantly impact the entity’s economic performance, and obligation to absorb losses of the variable interest entity that could potentially be significant to the variable interest entity or the right to receive benefits from the variable interest entity that could potentially be significant to the variable interest entity.
The following table sets forth the Group’s involvement with consolidated and unconsolidated variable interest entities in which the Group holds significant variable interests at March 31, 2022.
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Rupees in million
| Particulars | Year ended March 31, 2022 | Year ended March 31, 2021 | ||||||
| Mortgaged backed securitizations (funded) | ||||||||
| Significant investment in unconsolidated variable interest entities | .. | .. | ||||||
| Investment in consolidated variable interest entities | 1,425.8 | 1,425.9 | ||||||
| Total investment in variable interest entity assets (gross assets) | 1,425.8 | 1,425.9 | ||||||
The asset balances for consolidated variable interest entities represent the carrying amounts of the assets consolidated by the Group. The carrying amount may represent the amortized cost or the current fair value of the assets depending on the legal form of the asset (e.g., loan or security) and the Group’s standard accounting policies for the asset type and line of business. The assets of variable interest entities can be utilized only for the settlement of the obligations of respective variable interest entities.
The following table sets forth, for the periods indicated, the carrying amounts and classification of the consolidated assets and liabilities, in respect of variable interest entities and special purpose entities where the Group is primary beneficiary. The liabilities of the consolidated variable interest entities are to be met from the proceeds of the consolidated assets and other support provided by the Bank in the form of credit enhancements and liquidity facilities. The creditors of the consolidated variable interest entities do not have recourse to the general credit of the Group.
Rupees in million
| Particulars | At March 31, 2022 | At March 31, 2021 | ||||||
| Investments | 232.7 | 232.7 | ||||||
| Loans | 1,802.1 | 2,167.7 | ||||||
| Total assets | 2,034.8 | 2,400.4 | ||||||
| Borrowings | 409.2 | 499.6 | ||||||
| Total liabilities | 409.2 | 499.6 | ||||||
The Bank invests in pass through certificates of securitization trusts with underlying retail loans originated by other entities. The carrying value of such investments was Rs. 58,674.1 million at March 31, 2022 (March 31, 2021: Rs. 91,356.3 million). The Bank is not the primary beneficiary of these trusts based on its assessment under ASC Subtopic 810-10 - Consolidation – overall. Further, neither was the Bank the transferor of assets to these variable interest entities, nor was the Bank involved in the design of these variable interest entities. The maximum exposure to loss from the Bank’s involvement in these trusts is the carrying value of the investments.
| b) | Fair value accounting of financial interests |
In fiscal 2016, the Reserve
Bank of India issued guidelines on strategic debt restructuring under which conversion of debt into equity and acquisition of ownership
interests in the borrower entity by banks was allowed. The Bank, along with other lenders, converted a portion of its loans to certain
entities into equity as per this guideline. Such conversion also allowed each lender, the right to nominate directors on the Board of
the borrower entity. Although these entities were considered as equity affiliates under ASC Subtopic 323-10 because of deemed significant
influence due to ownership interests and management rights, the intention of the Bank was to safeguard the debt recovery and not to get
an economic benefit from the operations of these entities. Accordingly, the Bank opted for fair value option for accounting these affiliates
and the loans, guarantees and equity share investments in these entities were fair valued through income statement under ASC Subtopic
825-10 “Financial Instruments”.
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The fair value of loans and guarantees to these entities was Rs. 9,398.0 million at March 31, 2022 and Rs. 9,089.4 million at March 31, 2021 as compared to the carrying value of Rs. 21,472.0 million at March 31, 2022 and Rs. 22,767.4 million at March 31, 2021. The difference of Rs. 12,074.0 million at March 31, 2022 (March 31, 2021: Rs. 13,678.0 million) between the fair value and the carrying value, which represents loss arising due to fair value changes, has been recognized as a charge to income. This includes fair value of Rs. 8,474.3 million at March 31, 2022 and Rs. 8,243.0 million at March 31, 2021 for loans which are more than 90-days past due with a fair value loss of Rs. 10,793.4 million at March 31, 2022 and Rs. 12,219.9 million at March 31, 2021. The Bank has not recognized interest separately on these loans. Further, a loss of Rs. 6,098.8 million at March 31, 2022 (March 31, 2021: Rs. 9,651.4 million) has been recognized as a net charge to income due to fair value changes in the equity and debt investments in these entities.
The Group’s shareholding in these entities at March 31, 2022 is as below:
| Sr. No. | Name of the entity | Ownership interest |
| 1. | Usher Agro Limited | 10.88% |
| 2. | Jaiprakash Power Ventures Limited | 10.47% |
| 3. | Gammon India Limited | 10.63% |
| 4. | Ballarpur Industries Limited | 8.99% |
| 5. | Unimark Remedies Limited | 9.72% |
| 6. | Great Offshore Limited | 9.11% |
| 7. | IVRCL Limited | 7.98% |
| 8. | Coastal Projects Limited | 7.79% |
| 9. | Diamond Power Infrastructure Limited | 7.06% |
| 10. | GTL Infrastructure Limited | 4.18% |
| 11. | Pratibha Industries Limited | 3.01% |
| 12. | Adhunik Power and Natural Resources Limited | 1.77% |
| 13. | Aster Private Limited | 1.77% |
| 14. | Patel Engineering Limited | 1.59% |
| 15. | Vishwa Infrastructure and Services Private Limited | .. |
| 16. | JSW Ispat Products Limited (erstwhile: Monnet Ispat and Energy Limited) | 0.63% |
| c) | Investments |
The following table sets forth, for the periods indicated, the portfolio of investments classified as held for trading.
Rupees in million
| Debt securities | At March 31, 2022 | At March 31, 2021 | ||||||
| Government securities | 246,014.4 | 303,125.0 | ||||||
| Corporate debt securities | 26,385.1 | 23,017.3 | ||||||
| Other debt securities | 35,341.2 | 10,924.4 | ||||||
Total | 307,740.7 | 337,066.7 | ||||||
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The following table sets forth, for the periods indicated, the portfolio of investments classified as available for sale.
Rupees in million
| At March 31, 2022 | ||||||||||||||||
Amortized cost/cost | Gross Unrealized gain | Gross Unrealized loss | Fair value | |||||||||||||
| Available for sale | ||||||||||||||||
| Corporate debt securities | 201,756.9 | 4,265.3 | (671.2 | ) | 205,351.0 | |||||||||||
| Government securities | 2,618,264.0 | 30,411.0 | (11,618.7 | ) | 2,637,056.4 | |||||||||||
| Other debt securities | 117,688.3 | 1,708.9 | (961.2 | ) | 118,436.0 | |||||||||||
| Total debt securities | 2,937,709.2 | 36,385.2 | (13,251.1 | ) | 2,960,843.4 | |||||||||||
| Other securities | 2.4 | .. | (1.4 | ) | 1.0 | |||||||||||
| Total | 2,937,711.6 | 36,385.2 | (13,252.5 | ) | 2,960,844.4 | |||||||||||
Rupees in million
| At March 31, 2021 | ||||||||||||||||
Amortized cost/cost | Gross Unrealized gain | Gross Unrealized loss | Fair value | |||||||||||||
| Available for sale | ||||||||||||||||
| Corporate debt securities | 397,998.2 | 14,827.1 | (280.7 | ) | 412,544.6 | |||||||||||
| Government securities | 2,299,479.0 | 52,347.6 | (3,824.6 | ) | 2,348,002.0 | |||||||||||
| Other debt securities | 161,796.5 | 2,967.9 | (2,608.8 | ) | 162,155.6 | |||||||||||
| Total debt securities | 2,859,273.7 | 70,142.6 | (6,714.1 | ) | 2,922,702.2 | |||||||||||
| Other securities | 2.4 | 9.6 | .. | 12.0 | ||||||||||||
| Total | 2,859,276.1 | 70,152.2 | (6,714.1 | ) | 2,922,714.2 | |||||||||||
The fair value of the Group’s investment in equity securities based on readily determinable fair value at March 31, 2022 was Rs. 48,445.8 million (at March 31, 2021: Rs. 88,669.3 million) and fair value of observable orderly transactions at March 31, 2022 was Rs. 6,699.2 million (at March 31, 2021: Rs. 1,256.0 million). The Group recorded a gain of Rs. 1,635.9 million on securities fair valued based on observable price in orderly transactions during fiscal 2022 (fiscal 2021: Rs. 1,156.0 million).
Further, the Group’s investments portfolio also contains investments held by its venture capital subsidiary, investments in non-readily marketable securities and investments in affiliates. The fair value of investments held by the venture capital subsidiary was Rs. 50.7 million at March 31, 2022 and Rs. 341.8 million at March 31, 2021. Non-readily marketable securities primarily represent investments in affiliates and securities acquired as a part of project financing activities, investment in start-up entities or conversion of loans in debt restructurings. The investments in non-readily marketable securities and investment in affiliates was Rs. 437,021.3 million at March 31, 2022 and Rs. 77,036.4 million at March 31, 2021. . Of these, the carrying value of equity securities carried at cost less impairment was Rs. 4.1 million at March 31, 2022 and Rs. 4.4 million at March 31, 2021 after recognizing impairment charge of Rs. 44.9 million during fiscal 2022 and Rs. 21.3 million during fiscal 2021. Further, the fair value of certain investments, where Bank has opted for fair value accounting was Rs. 6,972.5 million at March 31, 2022 and Rs. 3,619.6 million at March 31, 2021 under ASC Subtopic 825-10 “Financial Instruments”.
| d) | Fair value measurements |
The Group determines the fair values of its financial instruments based on the fair value hierarchy established in ASC Topic 820. The standard describes three levels of inputs that may be used to measure fair value.
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Level 1
Valuation is based upon unadjusted quoted prices of identical instruments traded in active markets. The instruments that have been valued based upon such quoted prices include traded equity shares, mutual funds, government securities, corporate bonds, certificate of deposits, commercial papers, futures and forex spots. The Bank’s Canadian subsidiary has investments in bankers’ acceptances which are valued based on the quoted prices.
Level 2
Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, prices quoted by market participants and prices derived from valuation models which use significant inputs that are observable in active markets. Inputs used include interest rates, yield curves, volatilities, credit spreads, which are available from public sources like Reuters, Bloomberg, Foreign Exchange Dealers Association of India, Financial Benchmark India Private Limited and Fixed Income Money Markets & Derivatives Association of India.
The products include government securities, debentures and bonds, certificate of deposits, commercial papers, forex options, single currency rate derivatives, forwards, cross currency interest rate swaps, and Bond forward rate agreements.
Level 3
Valuation is based on valuation techniques or models which use significant market unobservable inputs or assumptions. Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable or when determination of the fair value requires significant management judgment or estimation. The valuation of certain interest rate options are done by sourcing counterparty quotes at month ends.
India-linked non-Rupee denominated bonds price is valued by discounting cash flows using rates incorporating fair market spreads published by Bloomberg/Reuters corresponding to the international foreign currency ratings of the issuer (capped at international sovereign rating). The value of retained interest in securitizations in Bank’s Canadian subsidiary, largely representing the excess spread of mortgage interest over the rate of return on the mortgaged backed securities, is similarly impacted by the amount and timing of cash flows from the underlying mortgage assets.
In case of private equity investments, the inputs used include the valuation multiples for comparable listed companies and adjustments for illiquidity and other factors.
The valuation of Indian pass
through certificates is dependent on the estimated cash flows that the underlying trust would pay out. The underlying trust/originator
makes a number of assumptions with regard to various variables to arrive at the estimated flows. The cash flow schedule received from
the trust is discounted at the base yield curve rates and credit spreads published by Financial Benchmark India Private Limited and Fixed
Income Money Markets & Derivatives Association of India at month ends. Accordingly, these instruments are classified as Level 3 instruments.
A reduction in the estimated cash flows of these instruments will adversely impact the value of these certificates. A change in the timing
of these estimated cash flows will also impact the value of these certificates.
F-135
Rupee swaptions and Rupee treasury bill interest rate swaps were valued using valuation model and discounted cash flow methodology respectively based on adjustments carried out on market observable proxy as one of the inputs is unobservable.
The valuation of certain loans, which have been fair valued as per ASC Subtopic 825-10, is dependent on the estimated cash flows that the underlying borrowers would pay out. The Bank makes a number of assumptions with regard to various variables to arrive at the estimated cash flows. The cash flow schedule is discounted at the current interest rate, which the Bank is likely to offer for loan facilities to borrowers in the similar rating grades, which are not market observable. Accordingly, these loans are classified as Level 3 assets. The value of such loans will be impacted by changes in amount and timing of the estimated cash flows from the borrowers.
Investments in venture fund units and security receipts for which fair value is measured using net asset value, as a practical expedient, are not included in fair value hierarchy.
The following table sets forth, the information about the Group’s assets ,and liabilities measured at fair value on a recurring basis at March 31, 2022 and the level of inputs used to measure those products.
Rupees in million
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Investments | ||||||||||||||||
| Equity shares | 15,572.3 | 14,366.3 | 121.1 | 30,059.7 | ||||||||||||
| Government debt securities | 308,980.4 | 2,574,090.4 | .. | 2,883,070.8 | ||||||||||||
| Corporate debt securities | 54,035.8 | 176,070.8 | 2,484.9 | 232,591.5 | ||||||||||||
| Mortgage and other asset backed securities | .. | .. | 62,143.1 | 62,143.1 | ||||||||||||
| Others1 | 30,131.5 | 82,942.2 | 751.0 | 113,824.7 | ||||||||||||
| Sub-total | 408,720.0 | 2,847,469.7 | 65,500.1 | 3,321,689.8 | ||||||||||||
| Security receipts2 | 1.0 | |||||||||||||||
| Venture fund units2 | 9,034.1 | |||||||||||||||
| Total investments | 3,330,724.9 | |||||||||||||||
| Derivatives (positive mark-to-market) | ||||||||||||||||
| Interest rate derivatives3 | .. | 47,141.8 | 2,563.2 | 49,705.0 | ||||||||||||
| Currency derivatives (including foreign exchange derivatives)4 | 1,012.3 | 46,199.4 | .. | 47,211.4 | ||||||||||||
| Equity derivatives | 6.8 | .. | .. | 6.8 | ||||||||||||
| Total positive mark-to-market | 1,019.1 | 93,341.2 | 2,563.2 | 96,923.5 | ||||||||||||
| Derivatives (negative mark-to-market) | ||||||||||||||||
| Interest rate derivatives3 | .. | (49,410.3 | ) | (417.9 | ) | (49,828.2 | ) | |||||||||
| Currency derivatives (including foreign exchange derivatives)4 | (273.9 | ) | (52,937.4 | ) | .. | (53,211.3 | ) | |||||||||
| Equity derivatives | .. | .. | .. | .. | ||||||||||||
| Total negative mark-to-market | (273.9 | ) | (102,347.7 | ) | (417.9 | ) | (103,039.5 | ) | ||||||||
| Borrowings | ||||||||||||||||
| Bonds | .. | (235,819.4 | ) | .. | (235,819.4 | ) | ||||||||||
| Total borrowings | .. | (235,819.4 | ) | .. | (235,819.4 | ) | ||||||||||
Loans Loans | .. | .. | 9,389.0 | 9,398.0 | ||||||||||||
| Total loans | .. | .. | 9,398.0 | 9,398.0 | ||||||||||||
| 1. | Includes primarily certificate of deposits, commercial paper and mutual funds. |
| 2. | Fair value for these investments has been estimated using net asset value per unit as declared by investee entities as per ASC Subtopic 820-10-35 – “Fair Value Measurements and Disclosures”. The fair value for these investments has not been categorized in the fair value hierarchy based on the changes in ASC Subtopic 820-10-35-54B vide ASU No. 2015-07. |
| 3. | Foreign currency interest rate swaps, forward rate agreements, swap options and
exchange traded interest rate derivatives are included in interest rate derivatives. |
F-136
| 4. | Foreign currency options, cross currency interest rate swaps and foreign currency futures are included in currency derivatives. |
| 5. | From September 8, 2021, under U.S.GAAP, ICICI General ceased to be a subsidiary and became an affiliate of the Bank. |
The following table sets forth, the information about the Group’s assets and liabilities measured at fair value on a recurring basis at March 31, 2021 and the level of inputs used to measure those products.
Rupees in million
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Investments | ||||||||||||||||
| Equity shares | 53,609.9 | 6,889.7 | 107.1 | 60,606.7 | ||||||||||||
| Government debt securities | 472,730.6 | 2,178,396.3 | .. | 2,651,126.9 | ||||||||||||
| Corporate debt securities | 196,727.6 | 236,613.1 | 2,640.1 | 435,980.8 | ||||||||||||
| Mortgage and other asset backed securities | .. | 1,367.7 | 95,039.4 | 96,407.1 | ||||||||||||
| Others1 | 36,175.5 | 64,954.4 | 300.7 | 101,430.6 | ||||||||||||
| Sub-total | 759,243.6 | 2,488,221.2 | 98,087.3 | 3,345,552.1 | ||||||||||||
| Security receipts2 | 12.0 | |||||||||||||||
| Venture fund units2 | 8,103.3 | |||||||||||||||
| Total investments | 3,353,667.4 | |||||||||||||||
| Derivatives (positive mark-to-market) | ||||||||||||||||
| Interest rate derivatives3 | .. | 55,926.3 | 45.8 | 55,972.1 | ||||||||||||
| Currency derivatives (including foreign exchange derivatives)4 | 4,034.9 | 56,544.9 | .. | 60,579.8 | ||||||||||||
| Equity derivatives | 1.7 | .. | .. | 1.7 | ||||||||||||
| Total positive mark-to-market | 4,036.6 | 112,471.2 | 45.8 | 116,553.6 | ||||||||||||
| Derivatives (negative mark-to-market) | ||||||||||||||||
| Interest rate derivatives3 | .. | (62,672.3 | ) | (193.8 | ) | (62,866.1 | ) | |||||||||
| Currency derivatives (including foreign exchange derivatives)4 | (336.5 | ) | (38,869.9 | ) | .. | (39,206.4 | ) | |||||||||
| Equity derivatives | (4.8 | ) | .. | .. | (4.8 | ) | ||||||||||
| Total negative mark-to-market | (341.3 | ) | (101,542.2 | ) | (193.8 | ) | (102,077.3 | ) | ||||||||
| Borrowings | ||||||||||||||||
| Bonds | .. | (140,823.4 | ) | .. | (140,823.4 | ) | ||||||||||
| Total borrowings | .. | (140,823.4 | ) | .. | (140,823.4 | ) | ||||||||||
Loans Loans | .. | .. | 9,089.4 | 9,089.4 | ||||||||||||
| Total loans | .. | .. | 9,089.4 | 9,089.4 | ||||||||||||
| 1. | Includes primarily certificate of deposits, commercial paper and mutual funds. |
| 2. | Fair value for these investments has been estimated using net asset value per unit as declared by investee entities as per ASC Subtopic 820-10-35 – “Fair Value Measurements and Disclosures”. The fair value for these investments has not been categorized in the fair value hierarchy based on the changes in ASC Subtopic 820-10-35-54B vide ASU No. 2015-07. |
| 3. | Foreign currency interest rate swaps, forward rate agreements, swap options and exchange traded interest rate derivatives are included in interest rate derivatives. |
| 4. | Foreign currency options, cross currency interest rate swaps and foreign currency futures are included in currency derivatives. |
The Group holds investments
in certain venture capital funds and security receipts. The fair value of these investments has been estimated using the net asset value
per unit as declared by such investee entities. The security receipts are issued by asset reconstruction companies with underlying mainly
as non-performing loans with objectives of gains through improvement in recoveries on these assets. The venture capital fund units are
issued by venture capital funds with underlying investment in equity shares and other instruments with the objective of generating long
term returns. Some of the venture capital funds have focused investments in real estate and infrastructure sectors. The cash flow from
these investments is expected to happen through distribution upon liquidation of the underlying assets by the asset reconstruction companies’/venture
capital funds. A reduction in the estimated cash flows from the underlying assets or delays in collection of estimated cash flows will
adversely impact the net asset values and therefore the fair value of these investments.
F-137
Transfers in/out of Level 3 of the fair value hierarchy
Preference shares of Rs. 239.6 million were transferred from Level 2 to Level 3 as the valuation of these securities was based on significant management estimation/unobservable market inputs at March 31, 2022 as compared to valuation based on internal valuation techniques using market observable inputs at March 31, 2021.
Cost method preference shares of Rs. 55.3 million were transferred to Level 3 as fair value of these securities was determined based on unobservable market inputs.
Corporate debt securities of Rs. 111.1 million were transferred from Level 3 to Level 2 as the valuation of these securities was based on internal valuation techniques using market observable inputs at March 31, 2022 as compared to valuation based on significant management estimation at March 31, 2021.
F-138
The following table sets forth, certain additional information about changes in the fair value of Level 3 assets for the year ended March 31, 2022.
Rupees in million
Description
| Investments | |||||||||||||||||||||||
Equity shares | Corporate debt securities | Mortgage and other asset backed securities | Others | Total | Loans | |||||||||||||||||||
| Beginning balance at April 1, 2021 | 107.2 | 2,640.1 | 95,039.5 | 300.7 | 98,087.4 | 9,089.4 | ||||||||||||||||||
| Total gains or losses (realized/unrealized) | ||||||||||||||||||||||||
| -Included in earnings | 9.6 | (364.4 | ) | (103.4 | ) | 202.9 | (255.3 | ) | 804.7 | |||||||||||||||
| -Included in Other Comprehensive Income | 1.9 | 393.9 | (235.1 | ) | 353.4 | 514.1 | .. | |||||||||||||||||
| Purchases/additions | .. | 97.9 | 31,264.7 | .. | 31,362.6 | 184.2 | ||||||||||||||||||
| Sales | .. | (73.6 | ) | .. | (401.0 | ) | (474.6 | ) | .. | |||||||||||||||
| Issuances | .. | .. | 1,524.4 | .. | 1,524.4 | .. | ||||||||||||||||||
| Settlements | .. | (97.9 | ) | (65,503.3 | ) | .. | (65,601.2 | ) | (680.3 | ) | ||||||||||||||
| Transfers in Level 3 | .. | .. | .. | 294.9 | 294.9 | .. | ||||||||||||||||||
| Transfers out of Level 3 | .. | (111.1 | ) | .. | .. | (111.1 | ) | |||||||||||||||||
| Foreign currency translation adjustment | 2.5 | .. | 156.5 | .. | 159.0 | .. | ||||||||||||||||||
| Ending balance at March 31, 2022 | 121.2 | 2,484.9 | 62,143.3 | 750.9 | 65,500.2 | 9,398.0 | ||||||||||||||||||
| Total amount of gains or (losses) included in earnings attributable to change in unrealized gains or (losses) relating to assets still held at reporting date | 9.6 | (419.9 | ) | (148.0 | ) | 102.6 | (453.8 | ) | 506.7 | |||||||||||||||
| Total amount of gains or (losses) included in other comprehensive income attributable to change in unrealized gains or (losses) relating to assets still held at reporting date | 1.9 | 393.9 | (179.7 | ) | 353.4 | 567.6 | .. | |||||||||||||||||
1. Includes India-linked asset backed securities.
F-139
The following table sets forth, certain additional information about changes in the fair value of Level 3 assets for the year ended March 31, 2021.
Rupees in million
Description
| Investments | |||||||||||||||||||||||
Equity shares | Corporate debt securities | Mortgage and other asset backed securities | Others | Total | Loans | |||||||||||||||||||
| Beginning balance at April 1, 2020 | 355.1 | 2,616.4 | 134,585.0 | 533.4 | 138,089.8 | 10,212.9 | ||||||||||||||||||
| Total gains or losses (realized/unrealized) | ||||||||||||||||||||||||
| -Included in earnings | (439.5 | ) | (1,412.7 | ) | (55.9 | ) | 317.9 | (1,590.2 | ) | 1,506.4 | ||||||||||||||
| -Included in Other Comprehensive Income | 53.1 | (1,327.3 | ) | .. | (1,274.2 | ) | .. | |||||||||||||||||
| Purchases/additions | .. | 99.1 | 20,954.4 | .. | 21,053.5 | 17.8 | ||||||||||||||||||
| Sales | (231.4 | ) | .. | .. | .. | (231.4 | ) | .. | ||||||||||||||||
| Issuances | .. | .. | 2,940.4 | .. | 2,940.4 | .. | ||||||||||||||||||
| Settlements | (56.8 | ) | (897.6 | ) | (62,281.8 | ) | (550.6 | ) | (63,786.8 | ) | (2,647.7 | ) | ||||||||||||
| Transfers in Level 3 | 483.4 | 2,181.8 | .. | .. | 2,665.2 | .. | ||||||||||||||||||
| Transfers out of Level 3 | (1.6 | ) | .. | .. | .. | (1.6 | ) | .. | ||||||||||||||||
| Foreign currency translation adjustment | (2.0 | ) | .. | 224.7 | .. | 222.7 | .. | |||||||||||||||||
| Ending balance at March 31, 2021 | 107.2 | 2,640.1 | 95,039.5 | 300.7 | 98,087.4 | 9,089.4 | ||||||||||||||||||
| Total amount of gains or (losses) included in earnings attributable to change in unrealized gains or (losses) relating to assets still held at reporting date | 42.5 | (1,462.0 | ) | 7.8 | 292.3 | (1,119.4 | ) | 128.5 | ||||||||||||||||
| Total amount of gains or (losses) included in other comprehensive income attributable to change in unrealized gains or (losses) relating to assets still held at reporting date | .. | 53.1 | (1,168.1 | ) | .. | (1,115.0 | ) | .. | ||||||||||||||||
| 1. | Includes India-linked asset backed securities. |
F-140
The following table sets forth, certain additional information about changes in the fair value of Level 3 derivatives for the year ended March 31, 2022.
Rupees in million
| Description | Derivatives | |||||||||||||||||||
Interest rate derivatives | Currency derivatives (including foreign exchange derivatives) | Equity derivatives | Un-funded credit derivatives | Total | ||||||||||||||||
| Beginning balance at April 1, 2021 | (148.0 | ) | .. | .. | .. | (148.0 | ) | |||||||||||||
| Total gains or losses (realized/unrealized) | ||||||||||||||||||||
| -Included in earnings | 2,165.3 | .. | .. | .. | 2,165.3 | |||||||||||||||
| -Included in Other Comprehensive Income | .. | .. | .. | .. | .. | |||||||||||||||
| Purchases | 47.8 | .. | .. | .. | 47.8 | |||||||||||||||
| Sales | .. | .. | .. | .. | .. | |||||||||||||||
| Issuances | .. | .. | .. | .. | .. | |||||||||||||||
| Settlements | 83.4 | .. | .. | .. | 83.4 | |||||||||||||||
| Transfers in Level 3 | .. | .. | .. | .. | .. | |||||||||||||||
| Transfers out of Level 3 | (2.4 | ) | .. | .. | .. | (2.4 | ) | |||||||||||||
| Foreign currency translation adjustment | (0.8 | ) | .. | .. | .. | (0.8 | ) | |||||||||||||
| Ending balance at March 31, 2022 | 2,145.3 | .. | .. | .. | 2,145.3 | |||||||||||||||
| Total amount of gains or (losses) included in earnings attributable to change in unrealized gains or (losses) relating to assets still held at reporting date | 2,119.7 | .. | .. | .. | 2,119.7 | |||||||||||||||
F-141
The following table sets forth, certain additional information about changes in the fair value of Level 3 derivatives for the year ended March 31, 2021.
Rupees in million
| Description | Derivatives | |||||||||||||||||||
Interest rate derivatives | Currency derivatives (including foreign exchange derivatives) | Equity derivatives | Un-funded credit derivatives | Total | ||||||||||||||||
| Beginning balance at April 1, 2020 | (88.0 | ) | .. | .. | .. | (88.0 | ) | |||||||||||||
| Total gains or losses (realized/unrealized) | ||||||||||||||||||||
| -Included in earnings | (72.8 | ) | .. | .. | .. | (72.8 | ) | |||||||||||||
| -Included in Other Comprehensive Income | .. | .. | .. | .. | .. | |||||||||||||||
| Purchases | .. | .. | .. | .. | .. | |||||||||||||||
| Sales | .. | .. | .. | .. | .. | |||||||||||||||
| Issuances | .. | .. | .. | .. | .. | |||||||||||||||
| Settlements | 34.1 | .. | .. | .. | 34.1 | |||||||||||||||
| Transfers in Level 3 | (21.3 | ) | .. | .. | .. | (21.3 | ) | |||||||||||||
| Transfers out of Level 3 | .. | .. | .. | .. | .. | |||||||||||||||
| Foreign currency translation adjustment | .. | .. | .. | .. | .. | |||||||||||||||
| Ending balance at March 31, 2021 | (148.0 | ) | .. | .. | .. | (148.0 | ) | |||||||||||||
| Total amount of gains or (losses) included in earnings attributable to change in unrealized gains or (losses) relating to assets still held at reporting date | (71.8 | ) | .. | .. | .. | (71.8 | ) | |||||||||||||
F-142
Quantitative information about unobservable inputs used in Level 3 fair value measurements
The Group Level 3 instruments consist of investment, loans and derivatives. An asset is classified as Level 3 of the fair value hierarchy when one or more unobservable inputs are used that are considered significant to its valuation.
The following table sets forth, significant unobservable inputs used in fair value measurement of Level 3 financial instruments at March 31, 2022.
|
Sr. No. |
Product |
Fair value (Rs. in million) |
Principal Valuation techniques |
Unobservable inputs |
Units |
Range of input values | ||
|
Low |
High |
Weighted average | ||||||
| 1 | Loans | 9,398.0 | Discounted cash flow |
Discounting rate |
% |
27.94% | 33.62% | 31.48% |
| Loss Severity | % | 13.24% | 100.00% | 53.78% | ||||
| 2 |
Investment |
|||||||
| 2A | Mortgage and other asset backed securities - India linked | 58,674.1 | Discounted cash flow |
Yield |
% |
4.25% | 11.67% | 6.30% |
| 2B | Mortgage and other asset backed securities - Non India linked | 3,469.0 | Discounted cash flow |
Yield |
% |
0.78% | 2.97% | 2.09% |
| 2C | Corporate Debt securities | 2,484.9 | Discounted cash flow | Discounting rate | % | 8.20% | 16.00% | 13.80% |
| Loss Severity |
% |
0.00% | 100.00% | 67.12% | ||||
| 2D | Preference Shares | 751.0 | Discounted cashflow | Discounting rate | - | 9.07% | 10.30% | 9.61% |
| Loss Severity | - | 0.00% | 99.59% | 64.42% | ||||
| 2E | Equity shares - Non India Linked | 70.4 | Comparable analysis | Listed price per share of the same issuer |
USD |
.. | 221.77 | 221.77 |
| Illiquidity and other discount | % | .. | 50.00% | 50.00% | ||||
| 2F |
Equity shares - India Linked |
50.7 |
Net asset valuations |
Net asset value |
% |
133.28% | 261.36% | 172.33% |
| 3 | Interest Rate derivatives - India linked | 292.4 | Discounted cash flow | Mark up to discount rate | bps | 77.00 | 77.00 | 77.00 |
| 1,795.3 | Counter party quotes | .. | .. | |||||
|
Interest Rate derivatives – Non India linked |
57.5 | Counter party quotes | .. | .. | .. | .. | .. | |
F-143
The following table sets forth, significant unobservable inputs used in fair value measurement of Level 3 financial instruments at March 31, 2021.
|
Sr. No. |
Product |
Fair value (Rs. in million) |
Principal Valuation techniques |
Unobservable inputs |
Units |
Range of input values | ||
|
Low |
High |
Weighted average | ||||||
| 1 | Loans | 9,089.4 | Discounted cash flow |
Discounting rate |
% |
28.00% |
33.67% |
31.83% |
| Loss Severity |
9.92% |
100.00% |
57.53% | |||||
| 2 |
Investment |
|||||||
| 2A | Mortgage and other asset backed securities - India linked |
91,356.3 |
Discounted cash flow |
Yield |
% |
3.87% |
14.63% |
5.79% |
| 2B | Mortgage and other asset backed securities - Non India linked |
3,683.2 |
Discounted cash flow |
Yield |
% |
0.07% |
1.35% |
1.11% |
| 2C | Corporate Debt securities | 2,640.1 | Discounted cash flow | Loss Severity |
% |
.. |
100.00% |
67.57% |
| Discounting rate | % | 10.00% | 16.00% | 14.16% | ||||
| 2D | Preference shares | 300.7 | Price based | Price per share |
INR |
.. | 3.08 | 3.08 |
| Credit discount | % | .. | 25.00% | 25.00% | ||||
| 2E | Equity shares - Non India Linked | 66.0 | Comparable analysis | Listed price per share of the same issuer |
USD |
.. | 211.73 | 211.73 |
| Illiquidity and other discount | % | .. | 50.00% | 50.00% | ||||
| 2F |
Equity shares - India Linked |
41.1 |
Net asset valuations |
Net asset value |
% |
133.19% |
154.32% |
140.31% |
| 3 | Interest Rate derivatives - India linked | (140.1) | Discounted cash flow | Mark up to discount rate | bps | .. | 25 | 25 |
| 13.4 | Counter party quotes | .. | .. | .. | .. | .. | ||
|
Interest Rate derivatives – Non India linked |
(21.3) | Counter party quotes | .. | .. | .. | .. | .. | |
| e) | Investment securities in unrealized loss position |
The Group adopted ASU Topic 2016-13, “Financial Instruments—Credit Losses” effective April 1, 2020. The Group has determined that certain available for sale debt securities with unrealized losses do not have credit losses. The Group conducts a review each year to identify and evaluate investments that have indications of credit losses. Factors considered in determining whether a credit loss exists include the extent to which the fair value is less than the amortized cost of a security, credit rating and financial condition of the issuer. A credit loss is computed as difference between the amortized cost basis of the security and the present value of cash flows expected to be collected from a security, limited
F-144
by the amount that the fair value is less than amortized cost basis. The Group considers whether the investments have been identified
for sale or whether it is more likely than not that the Group will be required to sell the investment before recovery of its amortized
cost basis. The Group does not recognize an allowance on accrued interest as the Group’s policy is to reverse uncollected accrued
interest immediately after 90 days past due by derecognizing interest income.
The following table sets forth, the fair value of the debt investments in available for sale debt securities and unrealized loss position, at March 31, 2022.
Rupees in million
| Description of securities | Less than 12 months | 12 months or longer | Total | |||||||||||||||||||||
Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | |||||||||||||||||||
| Corporate debt securities | 15,635.3 | (629.0 | ) | 953.2 | (42.2 | ) | 16,588.5 | (671.2 | ) | |||||||||||||||
| Government securities | 359,291.0 | (6,883.1 | ) | 404,683.9 | (4,735.6 | ) | 763,974.9 | (11,618.7 | ) | |||||||||||||||
| Other debt securities | 9,389.5 | (208.0 | ) | 6,988.8 | (753.3 | ) | 16,378.3 | (961.3 | ) | |||||||||||||||
| Total debt securities | 384,315.8 | (7,720.1 | ) | 412,625.9 | (5,531.1 | ) | 796,941.7 | (13,251.2 | ) | |||||||||||||||
The following table sets forth, the fair value of the debt investments in available for sale debt securities and unrealized loss position, at March 31, 2021.
Rupees in million
| Description of securities | Less than 12 months | 12 months or longer | Total | |||||||||||||||||||||
Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | |||||||||||||||||||
| Corporate debt securities | 8,800.1 | (188.7 | ) | 7,680.0 | (92.0 | ) | 16,480.1 | (280.7 | ) | |||||||||||||||
| Government securities | 301,599.6 | (2,171.7 | ) | 138,684.6 | (1,652.9 | ) | 440,284.2 | (3,824.6 | ) | |||||||||||||||
| Other debt securities | 13,358.8 | (194.4 | ) | 11,383.1 | (2,414.4 | ) | 24,741.9 | (2,608.8 | ) | |||||||||||||||
| Total debt securities | 323,758.5 | (2,554.8 | ) | 157,747.7 | (4,159.3 | ) | 481,506.2 | (6,714.1 | ) | |||||||||||||||
Certain investments in debt securities with unrealized losses are not classified as impaired, since the Group has assessed that the securities in an unrealized loss position have not been identified for sale and it is not more likely than not that the Group will be required to sell the securities before recovery of its amortized cost basis less any current period credit loss.
The Group also holds certain debt investments with credit losses, which have not been identified for sale and it is not more likely than not that the Group will be required to sell the securities before an anticipated recovery in value other than credit losses, where the amount representing the credit losses is recognized in earnings and the amount of loss related to other factors is recognized in Other Comprehensive Income. The credit losses have been determined based on the difference of present value of expected future cash flows of the securities and the amortized cost basis of such securities. The Group bases its estimates of future cash flows on evaluation of the issuer’s overall financial condition, resources and payment record and the realizable value of any collateral, third party guarantees or other credit enhancements.
F-145
The following table sets forth, roll-forward of the allowance for credit losses for available for sale debt securities for March 31, 2022:
Rupees in million
| Corporate debt securities | Government securities | Other debt securities | Total allowance | |||||||||||||
| Allowance for credit losses at the beginning of the period | 7,605.7 | .. | 1,086.0 | 8,691.7 | ||||||||||||
| Additions during the year for which credit losses were not previously recorded | .. | .. | .. | .. | ||||||||||||
| Additions to the allowance for credit losses arising from purchased financial assets with credit deterioration | .. | .. | .. | .. | ||||||||||||
| Reductions due to sale of securities during the year | .. | .. | .. | .. | ||||||||||||
| Reductions due to the Group intends to sale the securities or more likely than not will be required to sell the security before recovery of its amortized cost basis | .. | .. | .. | .. | ||||||||||||
| Additional increases or decreases during the year on securities that had an allowance recorded in a previous period | 448.8 | .. | 122.1 | 570.9 | ||||||||||||
| Write-off during the period | 146.7 | .. | 611.3 | 758.0 | ||||||||||||
| Recoveries during the period | 26.2 | .. | .. | 26.2 | ||||||||||||
| Balance of the allowance for credit losses at the end of the period | 7,881.6 | .. | 596.8 | 8,478.4 | ||||||||||||
The following table sets forth, roll-forward of the allowance for credit losses for available for sale debt securities for March 31, 2021:
Rupees in million
| Corporate debt securities | Government securities | Other debt securities | Total allowance | |||||||||||||
| Allowance for credit losses at the beginning of the period | 6,040.1 | .. | 1,032.1 | 7,072.2 | ||||||||||||
| Additions during the year for which credit losses were not previously recorded | 1,337.7 | .. | .. | 1,337.7 | ||||||||||||
| Additions to the allowance for credit losses arising from purchased financial assets with credit deterioration | ..
| ..
| ..
| ..
| ||||||||||||
| Reductions due to sale of securities during the year | .. | .. | .. | .. | ||||||||||||
| Reductions due to the Group intends to sale the securities or more likely than not will be required to sell the security before recovery of its amortized cost basis | ..
| ..
| ..
| ..
| ||||||||||||
| Additional increases or decreases during the year on securities that had an allowance recorded in a previous period | 283.4 | ..
| 79.5 | 362.9 | ||||||||||||
| Write-off during the period | .. | .. | .. | .. | ||||||||||||
| Recoveries during the period | 55.5 | .. | 25.6 | 81.1 | ||||||||||||
| Balance of the allowance for credit losses at the end of the period | 7,605.7 | .. | 1,086.0 | 8,691.7 | ||||||||||||
At March 31,
2022, the Group holds cost method equity investments amounting to Rs. 437,017.2 million (March 31, 2021: Rs. 77,032.0 million). The fair
value for such securities has not been estimated in the absence of changes in circumstances that have a significant adverse effect on
the fair value of the investments. The Bank measured unquoted equity securities at fair value amounting to Rs. 4.1 million at March 31,
2022 (March 31, 2021: Rs. 4.4 million) due to impairment recognition. The fair value of these securities was determined based on Level
3 inputs.
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| f) | Loans |
The Group adopted ASU Topic 2016-13, “Financial Instruments—Credit Losses” effective April 1, 2020. The adoption of this guidance established a single allowance framework for all financial assets measured at amortized cost including unfunded credit facilities and loan commitments. This framework requires that management’s estimate reflects credit losses over the instrument’s remaining expected life and considers expected future changes in macroeconomic conditions.
The Group’s allowance for credit losses primarily comprises allowance for loan losses, unfunded credit exposure and non-cancellable loan commitments. The Group does not classify its investment in debt securities as held-to-maturity. The Group does not recognize an allowance on accrued interest as the Group’s policy is to write-off uncollected accrued interest immediately after 90 days past due (based on crop cycle for certain agriculture based loans) by reversing interest income.
Any changes in the allowance for credit losses is recognized in the income statement as allowance for credit losses.
The estimation of the allowance for credit losses is complex and requires significant management judgment about the effect of certain matters that are inherently uncertain. The allowance for credit losses in future periods may be significantly different, considering the macro-economic conditions, forecasts and other factors then prevailing.
The allowance for loan losses and allowance for lending-related commitments represents expected credit losses over the remaining expected life of retained loans and lending-related commitments that are in the nature of non-cancellable by the Group. The expected life of each instrument is determined by considering its contractual term, expected prepayments and cancellation features. The expected life of credit card loans is determined based on the behavioral study by the Group. For the behavioral study, cash flows from the credit card accounts are considered on a first-in-first-out basis on credit card loan outstanding.
When calculating the allowance for credit losses, the Group assesses whether exposures share similar risk characteristics. If similar risk characteristics exist, the Group estimates expected credit losses collectively, considering the risk associated with a particular segment and the probability that the exposures within the segment will default. The segmentation for the consumer loans and small business lending exposures is based on risk characteristics such as product type, delinquency status, credit scores, months on book, etc. For Agriculture loans, a further segmentation of risk characteristics is also carried out based on direct and indirect agriculture lending. The segmentation based on risk characteristics for commercial loans primarily include customer type, risk rating assigned using internal rating models and delinquency status. The commercial loans are also considered as not sharing similar risk characteristics if principal or interest has remained overdue for more than 90 days or the borrower has undergone restructuring/likely to be restructured. The consumer loan, loan commitment and significant portion of commercial loans and unfunded credit exposure share similar risk characteristic with other credit exposures in the segment, and as a result are collectively assessed for credit loss.
If an exposure for commercial loans does not share risk characteristics with other exposures, expected credit losses are estimated on an individual basis. The credit loss on individual basis is either estimated on basis of the present value of expected future cash flows or in case of a collateral dependent loan, the net realizable value of the collateral net of cost to sell, if any. The loans primarily have collateral in the form of business assets or real estate.
The credit loss on collective basis is estimated using a current expected credit losses methodology which is based on relevant information about historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the loan balances. The collective assessment
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begins with a quantitative calculation that considers the likelihood of the borrower defaulting. The quantitative calculation covers expected
credit losses over an instrument’s expected life and is the result of multiplying the individual loan level exposure at default
with the estimated probability of default and loss given default. The probabilities of default are derived using a macro-economic scenario
over a reasonable and supportable forecast period. The term structure for subsequent periods is built using single year reversion to the
long run historical information. The forecasts take into consideration the Group’s overarching economic outlook based on internal
as well as external inputs and involve a governed process that incorporates feedback from senior management. The quantitative calculation
is adjusted to take into consideration model imprecision not yet reflected in the calculation.
The geopolitical uncertainties, macroeconomic environment including the outlook on growth across the world and India and the future trajectory of the covid 19 pandemic may have an impact on the results of the Bank and the Group. The Group makes adjustments to appropriately address these economic circumstances over and above the model output by increasing the probability of default estimates based on management judgement.
Estimating the timing and amounts of future cash flows is highly judgmental as these cash flow projections rely upon estimates such as loss severities, asset valuations, default rates, the amounts and timing of interest or principal payments (including any expected prepayments) or other factors that are reflective of current and expected market conditions. These estimates are, in turn, dependent on factors such as uncertainty around Covid-19 pandemic situation, geo-political situation, current overall economic conditions, portfolio or borrower-specific factors, the expected outcome of insolvency proceedings as well as, in certain circumstances, other economic factors. All of these estimates and assumptions require significant management judgment and certain assumptions are highly subjective.
The following table sets forth the recorded investment in restructured loans at March 31, 2022.
Rupees in million
| Total recorded investment in restructured loans with related allowance for credit losses | Total allowances for credit losses | Total recorded investment in restructured loans with no related allowance for credit losses | Unpaid principal amount | |||||||||||||
| Commercial loans | 163,582.9 | 118,258.3 | 27,137.4 | 190,720.3 | ||||||||||||
| Consumer loans | 79,787.3 | 21,508.6 | .. | 79,787.3 | ||||||||||||
| Total | 243,370.2 | 139,766.9 | 27,137.4 | 270,507.6 | ||||||||||||
The following table sets forth the recorded investment in restructured loans at March 31, 2021.
Rupees in million
| Total recorded investment in restructured loans with related allowance for credit losses | Total allowances for credit losses | Total recorded investment in restructured loans with no related allowance for credit losses | Unpaid principal amount | |||||||||||||
| Commercial loans | 197,689.3 | 130,713.1 | 20,157.8 | 217,847.1 | ||||||||||||
| Consumer loans | 25,409.9 | 1,812.5 | .. | 25,409.9 | ||||||||||||
| Total | 223,099.2 | 132,525.6 | 20,157.8 | 243,257.0 | ||||||||||||
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A loan is considered impaired when the Group believes it is probable that all amounts due according to the original contractual terms of the loan will not be collected. A loan is generally classified as impaired if any amount of interest or principal remains overdue for more than 90 days (360 days for direct agriculture loans). For large balance commercial loan, evaluation also includes assessment of individual loans based on borrower specific facts and circumstances, including financial performance, future prospects and repayment history of the borrower.
The following table sets forth the recorded investment in impaired loans at March 31, 2022.
Rupees in million
| Total recorded investment in impaired loans with related allowance for credit losses | Total allowances for credit losses | Total recorded investment in impaired loans with no related allowance for credit losses | Unpaid principal amount | |||||||||||||
| Commercial loans1 | 125,154.2 | 86,171.0 | 13,303.9 | 138,458.0 | ||||||||||||
| Consumer loans2 | 67,185.7 | 32,807.8 | .. | 67,185.7 | ||||||||||||
| Total | 192,339.9 | 118,978.8 | 13,303.9 | 205,643.7 | ||||||||||||
| 1. | Primarily includes commercial loans assessed individually. |
| 2. | Includes consumer loans assessed collectively. |
The following table sets forth the recorded investment in impaired loans at March 31, 2021.
Rupees in million
| Total recorded investment in impaired loans with related allowance for credit losses | Total allowances for credit losses | Total recorded investment in impaired loans with no related allowance for credit losses | Unpaid principal amount | |||||||||||||
| Commercial loans1 | 162,472.9 | 111,633.7 | 34,243.2 | 196,716.1 | ||||||||||||
| Consumer loans2 | 120,407.4 | 53,018.6 | .. | 120,407.4 | ||||||||||||
| Total | 282,880.3 | 164,652.3 | 34,243.2 | 317,123.5 | ||||||||||||
| 1. | Primarily includes commercial loans assessed individually. |
| 2. | Includes consumer loans assessed collectively. |
The following table sets forth the closing balance of allowance for loan losses for restructured loans and recorded financing receivables at March 31, 2022.
Rupees in million
| Particulars | Commercial loans | Consumer loans & credit card receivables | Financial lease | Total | ||||||||||||
| Allowance for loan losses | ||||||||||||||||
| Allowance for loan losses: individually evaluated for impairment | 118,258.3 | .. | .. | 118,258.3 | ||||||||||||
| Allowance for loan losses: collectively evaluated for impairment | .. | 21,508.6 | .. | 21,508.6 | ||||||||||||
| Total allowance for loan losses | 118,258.3 | 21,508.6 | .. | 139,766.9 | ||||||||||||
| Recorded financing receivables | ||||||||||||||||
| Individually evaluated for impairment | 190,720.3 | .. | .. | 190,720.3 | ||||||||||||
| Collectively evaluated for impairment | .. | 79,787.3 | .. | 79,787.3 | ||||||||||||
| Total recorded financing receivables | 190,720.3 | 79,787.3 | .. | 270,507.6 | ||||||||||||
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The following table sets forth the closing balance of allowance for loan losses for restructured loans and recorded financing receivables at March 31, 2021.
Rupees in million
| Particulars | Commercial loans | Consumer loans & credit card receivables | Financial lease | Total | ||||||||||||
| Allowance for loan losses | ||||||||||||||||
| Allowance for loan losses: individually evaluated for impairment | 130,713.1 | .. | .. | 130,713.1 | ||||||||||||
| Allowance for loan losses: collectively evaluated for impairment | .. | 1,812.5 | .. | 1,812.5 | ||||||||||||
| Total allowance for loan losses | 130,713.1 | 1,812.5 | .. | 132,525.6 | ||||||||||||
| Recorded financing receivables | ||||||||||||||||
| Individually evaluated for impairment | 217,847.1 | .. | .. | 217,847.1 | ||||||||||||
| Collectively evaluated for impairment | .. | 25,409.9 | .. | 25,409.9 | ||||||||||||
| Total recorded financing receivables | 217,847.1 | 25,409.9 | .. | 243,257.0 | ||||||||||||
The following table sets forth the closing balance of allowance for loan losses for other loans and recorded financing receivables at March 31, 2022.
Rupees in million
| Particulars | Commercial loans | Consumer loans & credit card receivables | Financial lease | Total | ||||||||||||
| Allowance for loan losses | ||||||||||||||||
| Allowance for loan losses: individually evaluated for impairment | 78,444.9 | .. | .. | 78,444.9 | ||||||||||||
| Allowance for loan losses: collectively evaluated for impairment | 52,068.5 | 175,751.9 | .. | 227,820.4 | ||||||||||||
| Total allowance for loan losses | 130,513.4 | 175,751.9 | .. | 306,265.3 | ||||||||||||
| Recorded financing receivables | ||||||||||||||||
| Individually evaluated for impairment | 124,677.2 | .. | .. | 124,677.2 | ||||||||||||
| Collectively evaluated for impairment | 3,616,725.1 | 5,363,222.7 | 416.5 | 8,980,364.3 | ||||||||||||
| Total recorded financing receivables | 3,741,402.3 | 5,363,222.7 | 416.5 | 9,105,041.5 | ||||||||||||
The following table sets forth the closing balance of allowance for loan losses for other loans and recorded financing receivables at March 31, 2021.
Rupees in million
| Particulars | Commercial loans | Consumer loans & credit card receivables | Financial lease | Total | ||||||||||||
| Allowance for loan losses | ||||||||||||||||
| Allowance for loan losses: individually evaluated for impairment | 105,948.5 | .. | .. | 105,948.5 | ||||||||||||
| Allowance for loan losses: collectively evaluated for impairment | 53,904.9 | 189,255.1 | .. | 243,160.0 | ||||||||||||
| Total allowance for loan losses | 159,853.4 | 189,255.1 | .. | 349,108.5 | ||||||||||||
| Recorded financing receivables | ||||||||||||||||
| Individually evaluated for impairment | 186,972.0 | .. | .. | 186,972.0 | ||||||||||||
| Collectively evaluated for impairment | 3,013,293.0 | 4,690,541.2 | 723.0 | 7,704,557.2 | ||||||||||||
| Total recorded financing receivables | 3,200,265.0 | 4,690,541.2 | 723.0 | 7,891,529.2 | ||||||||||||
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The following table sets forth, allowance of credit losses for the unfunded credit commitments for the period ended March 31, 2022:
Rupees in million
| Particulars | Fiscal 2022 | |||||||||||
Loan commitment | Guarantees and Letter of Credit | Total allowance | ||||||||||
| Allowances at the beginning of fiscal. | 3,565.7 | 28,510.2 | 32,075.9 | |||||||||
| Additions/(reductions) to allowances during the year | (307.5 | ) | (311.5 | ) | (619.0 | ) | ||||||
| Allowances at the end of the fiscal... | 3,258.3 | 28,198.7 | 31,456.9 | |||||||||
The following table sets forth, allowance of credit losses for the unfunded credit commitments for the period ended March 31, 2021:
Rupees in million
| Particulars | Fiscal 2021 | |||||||||||
Loan commitment | Guarantees and Letter of Credit | Total allowance | ||||||||||
| Allowances at the beginning of fiscal | .. | 14,887.6 | 14,887.6 | |||||||||
| Add: Adjustment on transition to ASU Topic 2016-13 | 4,987.9 | 9,261.3 | 14,249.2 | |||||||||
| Allowance at April 1, 2020 | 4,987.9 | 24,148.9 | 29,136.8 | |||||||||
| Additions/(reductions) to allowances during the year | (1,422.2 | ) | 4,361.3 | 2,939.1 | ||||||||
| Allowances at the end of the fiscal | 3,565.7 | 28,510.2 | 32,075.9 | |||||||||
The following table sets forth loans restructured during the year ended March 31, 2022.
Rupees in million
| Particulars | Restructured loans involving changes in the amount and/or timing of | |||||||||||||||||||||||
Number of borrowers whose loans are classified as restructured | Principal payments | Interest payments | Both principal and interest payments | Provision/(write-back) through P&L | Net restructured amount | |||||||||||||||||||
| Commercial loans | 46 | 14,624.1 | .. | 6,765.6 | (301.9 | ) | 21,691.5 | |||||||||||||||||
| Consumer loans | 63,199 | 7,991.3 | .. | 51,561.8 | 19,462.4 | 40,090.8 | ||||||||||||||||||
| Total | 63,245 | 22,615.4 | .. | 58,327.4 | 19,160.4 | 61,782.3 | ||||||||||||||||||
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The following table sets forth loans restructured during the year ended March 31, 2021.
Rupees in million
| Particulars | Restructured loans involving changes in the amount and/or timing of | |||||||||||||||||||||||
Number of borrowers whose loans are classified as restructured | Principal payments | Interest payments | Both principal and interest payments | Provision/(write-back) through P&L | Net restructured amount | |||||||||||||||||||
| Commercial loans | 25 | 12,511.5 | .. | 12,367.2 | (2,048.8 | ) | 15,363.2 | |||||||||||||||||
| Consumer loans | 8,510 | 21,997.3 | 142.2 | .. | 1,271.7 | 20,867.8 | ||||||||||||||||||
| Total | 8,535 | 34,508.8 | 142.2 | 12,367.2 | (777.1 | ) | 36,231.0 | |||||||||||||||||
The following table sets forth restructured loans at March 31, 2022 and 2021, as well as loans that were restructured during a fiscal year and defaulted within the same or next fiscal year:
Rupees in million
| Particulars | Balances at March 31, 2022 | Payment default during the year ended March 31, 20221 | Balances at March 31, 2021 | Payment default during the year ended March 31, 20211 | ||||||||||||
| Commercial loans | 190,720.3 | 1,000.2 | 217,847.1 | 10,747.5 | ||||||||||||
| Consumer loans | 79,787.3 | 16,466.2 | 25,409.9 | 484.9 | ||||||||||||
| Total | 270,507.6 | 17,466.4 | 243,257.0 | 11,232.4 | ||||||||||||
| 1. | Default is defined as 90 days past due. |
Additionally, at March 31, 2022, the Bank has outstanding loans amounting to Rs. 20,332.3 million (March 31, 2021: Rs. 21,402.4 million) to equity affiliates, where the Bank has opted for fair value accounting under ASC Subtopic 825-10 “Financial Instruments”. See also 22. Notes under U.S. GAAP – Additional information required under U.S. GAAP – Fair value accounting of financial interests.
The moratorium granted by the Group to the borrowers in accordance with the Reserve Bank of India guidelines dated March 27, 2020, is not considered as restructuring of loans.
| g) | Equity affiliates |
Under U.S. GAAP, the Group accounts for its ownership interest in ICICI Prudential Life Insurance Company Limited (ICICI Life) and ICICI Lombard General Insurance Company Limited (ICICI General) by the equity method of accounting.
ICICI Life
The following tables
set forth, for the periods indicated, the summarized U.S. GAAP balance sheets and statements of operations of ICICI Life.
F-152
Rupees in million
| At March 31, | ||||||||
| Balance sheet | 2022 | 2021 | ||||||
| Cash and cash equivalents | 44,864.9 | 41,443.5 | ||||||
| Securities | 824,009.7 | 714,966.8 | ||||||
| Assets held to cover linked liabilities | 1,508,663.0 | 1,385,491.4 | ||||||
| Other assets | 123,718.5 | 106,892.9 | ||||||
| Total assets | 2,501,256.1 | 2,248,794.6 | ||||||
| Provision for linked liabilities | 1,508,663.0 | 1,385,491.4 | ||||||
| Other liabilities | 895,340.7 | 747,300.3 | ||||||
| Stockholders’ equity | 97,252.4 | 116,002.9 | ||||||
| Total liabilities and stockholders’ equity | 2,501,256.1 | 2,248,794.6 | ||||||
Rupees in million
| Year ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Interest income | 87,940.7 | 77,047.8 | ||||||
| Interest expense | (999.7 | ) | (506.7 | ) | ||||
| Net interest income | 86,941.0 | 76,541.1 | ||||||
| Insurance premium | 374,579.9 | 357,328.2 | ||||||
| Other non-interest income | 150,410.2 | 438,814.2 | ||||||
| Non-interest expense | (614,873.7 | ) | (848,361.8 | ) | ||||
| Income tax (expense)/benefit | 1,184.4 | (2,994.3 | ) | |||||
| Income/(loss), net | (1,758.2 | ) | 21,327.4 | |||||
The income/loss decreased from a net income of Rs. 21,327.4 million in fiscal 2021 to a net loss of Rs. 1,758.2 million in fiscal 2022 primarily due to mark-to-market loss on equity securities, offset, in part, by lower policyholders’ liabilities and unallocated policyholders’ surplus, net of amortization of deferred acquisition cost.
The aggregate market value of the investment in shares of ICICI Life at March 31, 2022 based on quoted market prices was Rs. 369,466.6 million (At March 31, 2021: Rs. 328,701.3 million).
ICICI General
The following tables set forth, for the periods indicated, the summarized U.S. GAAP balance sheets and statements of operations of ICICI General.
Rupees in million
| At March 31, | ||||||||
| Balance sheet | 2022 | 2021 | ||||||
| Cash and cash equivalents | 7,066.3 | 7,601.2 | ||||||
| Securities | 386,353.4 | 309,624.6 | ||||||
| Other assets | 173,986.0 | 89,033.6 | ||||||
| Total assets | 567,405.7 | 406,259.4 | ||||||
| Other liabilities | 422,936.5 | 322,582.9 | ||||||
| Stockholders’ equity | 144,469.2 | 83,676.5 | ||||||
| Total liabilities and stockholders’ equity | 567,405.7 | 406,259.4 | ||||||
F-153
Rupees in million
| Year ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Interest income | 22,916.0 | 18,818.3 | ||||||
| Interest expense | (375.0 | ) | (402.0 | ) | ||||
| Net interest income | 22,541.0 | 18,416.4 | ||||||
| Insurance premium | 131,372.1 | 107,360.2 | ||||||
| Other non-interest income | 4,223.5 | 17,939.3 | ||||||
| Non-interest expense | (144,442.7 | ) | (110,234.8 | ) | ||||
| Income tax (expense)/benefit | (3,518.0 | ) | (8,516.2 | ) | ||||
| Income/(loss), net | 10,175.9 | 24,964.9 | ||||||
The income/(loss) decreased from Rs. 24,964.9 million in fiscal 2021 to Rs. 10,175.9 million in fiscal 2022 primarily due to lower marked-to-market gain on equity securities.
The aggregate market value of the investment in shares of ICICI General at March 31, 2022 based on quoted market prices was Rs. 313,271.3 million (At March 31, 2021: Rs. 338,011.3 million).
| h) | Insurance affiliates |
Life insurance affiliate
The significant differences between Indian GAAP and U.S. GAAP in case of the life insurance affiliate are primarily on account of:
| i) | Difference in policyholders’ liability and unallocated policyholders’ surplus, net of amortization of deferred acquisition cost |
Policyholders’ liability
Reserves under Indian GAAP are held as per the requirements of Insurance Act, 1938, regulations notified by the Insurance Regulatory and Development Authority of India and Actuarial Practice Standards of the Institute of Actuaries of India. Accordingly, the reserves are computed using the Gross Premium Method (reserves are computed as the present value of future benefits including future bonuses and the present value of expenses including overheads and are net of the present value of future total premiums, paid by policyholders). The discount rates used are on prudent basis which change at every fiscal year end. Reserves under U.S. GAAP are valued using the Modified Net Premium Method as per the valuation norms prescribed under U.S. GAAP. The liability under U.S. GAAP consists of two parts, namely, policy reserves (comprising benefit reserve and maintenance expense reserve) and deferred profit liability.
The benefit reserve is computed as the present value of guaranteed benefits less the present value of the net premium for benefits. The maintenance expense reserve is computed as the present value of maintenance expenses less the present value of net premiums for maintenance expenses. Deferred profit liability is held in accordance with ASC Topic 944-40-25-28 for products where the premium paying
F-154
term is shorter than the policy term so as to allow the emergence of the profits over the entire policy term. The discount rates used
for non-linked products represent best estimate with a provision for adverse deviation and are on locked-in basis, where the assumptions
change at every fiscalyear end only for the new business sold with in the fiscal year. Such assumptions include mortality, morbidity,
policy expenses, policy lapse, policy surrenders and interest rates. Under unit-linked products, the excess of initial charges over ultimate
charges is held as unearned revenue reserve to allow for the emergence of the profit over the term of the policy. The discount rates used
are on best estimate basis and change at every financial year end.
Unallocated policyholders’ surplus
Participating policyholders are entitled to 90% of the surplus generated in the fund, which is given in the form of bonus.
Under Indian GAAP, based on the recommendation of Appointed Actuary, 1/9th of the bonus declared is transferred to the shareholders and remaining surplus after the transfer is held back as Funds for future appropriation.
Under U.S. GAAP, 10% of the surplus is transferred to shareholders and 90% is held back as unallocated policyholders’ surplus for participating policyholders.
Amortization of deferred acquisition cost
Under U.S GAAP, acquisition costs are those costs that vary with and are primarily related to the acquisition of new and renewal of existing insurance contracts. If an acquisition cost has substantial future utility, and is clearly associated with (and recoverable from) future revenue, it may be considered for deferral. These costs are referred to as deferrable acquisition costs.
The deferrable acquisition cost asset amortizes over time with a pattern of amortization that is proportional to revenues. Deferrable acquisition costs amortization for the accounting period is recognized as an expense in the income statement. In case of deferrable acquisition cost amortization for non-linked products, the unamortized balance of deferrable acquisition cost is reflected as an asset on the balance sheet. The assumptions used to calculate deferrable acquisition costs are the same as those used for policy reserves.
The deferred acquisition costs are amortized in proportion to premium revenue recognition for non linked insurance products and is based on the estimated gross profits for unit linked and universal life products as per ASC Topic “Financial Services – Insurance”. The estimated gross profits are made up of margins available from mortality and contract administration, investment earnings spreads, surrender charges and other expected assessments and credits.
Under Indian GAAP, acquisition cost is charged to the revenue account in the year in which it is incurred whereas under U.S. GAAP, the acquisition costs that are related directly to the successful acquisition of new or renewal insurance contracts and is deferred over the policy term.
| ii) | Compensation costs |
Accounting for employee stock options
Under Indian GAAP, stock compensation costs are accounted for using the intrinsic value method as compared to U.S. GAAP where the stock compensation costs have been accounted for based on fair value method.
Retirement benefit cost
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Under Indian GAAP, all actuarial gains/losses are recognized on the balance sheet of the enterprise in the year in which they arise through suitable credit/debit in the profit and loss account of the year. Under U.S. GAAP, actuarial gains/losses are accounted in Other Comprehensive Income. Subsequently cumulative actuarial gain/loss lying in the Other Comprehensive Income which is over and above 10% corridor is amortized through profit and loss account. Further, discount rate for computing benefit obligation is linked to yield on high quality fixed income securities in U.S. GAAP as compared to yield on Government securities under Indian GAAP.
| iii) | Unrealized gain/(loss) on trading portfolio and equity securities |
Under Indian GAAP, accounting for investments is in accordance with the guidelines issued by the Insurance Regulatory and Development Authority of India, which do not allow the unrealized gain to be routed through the revenue account except in the case of linked business. A linked life insurance policy is a policy in which the cash value of the policy varies according to the net asset value of units (i.e., shares) in investment assets chosen by the policyholder. Under U.S. GAAP, unrealized gain/(loss) on investments classified as “held for trading” is taken to the profit and loss account. Under U.S. GAAP, unrealized gain/losses on equity securities are recognized in profit and loss account.
| iv) | Income taxes |
The differences in the accounting for income taxes are primarily on account of the income tax impact of non-tax U.S. GAAP adjustments.
| v) | Lease |
Under Indian GAAP, expenses towards operating lease is charged to profit and loss account on a straight line basis. Under U.S. GAAP, a right to use asset and a lease liability is required to be recognized at the commencement of the lease for all lease on adoption of FASB ASC 842- “Leases” and a single lease cost is recognized, which is calculated such that the cost of the operating lease is allocated over the lease term on a generally straight-line basis.
The following table sets forth, for the periods indicated, the significant differences between Indian GAAP and U.S. GAAP in case of the life insurance affiliate.
Rupees in million
| Reconciling items | Year ended March 31, | |||||||||||
2022 | 2021 | 2020 | ||||||||||
| Profit as per Indian GAAP | 7,592.0 | 9,561.6 | 10,669.8 | |||||||||
| Adjustments on account of | ||||||||||||
| Unrealized gain/(loss) on trading portfolio and equity securities | (12,544.7 | ) | 40,326.6 | (16,497.1 | ) | |||||||
| Difference in policyholders’ liabilities and unallocated policyholders’ surplus, net of amortization of deferred acquisition cost | 1,479.4 | (23,030.4 | ) | (1,250.1 | ) | |||||||
| Compensation costs | (563.5 | ) | (744.4 | ) | (461.1 | ) | ||||||
| Deferred taxes benefit/(expense) | 2,140.4 | (4,739.6 | ) | 3,203.0 | ||||||||
| Others | 138.2 | (46.4 | ) | (115.0 | ) | |||||||
| Profit/(loss) as per U.S. GAAP | (1,758.2 | ) | 21,327.4 | (4,450.5 | ) | |||||||
| Net income/(loss) (net of tax) | (1,758.2 | ) | 21,327.4 | (4,450.5 | ) | |||||||
| Other Comprehensive Income: | ||||||||||||
| Net unrealized gain/(loss) on securities, net of realization & others | (17,777.5 | ) | (3,963.3 | ) | 11,925.1 | |||||||
| Accounting for post retirement employee benefits | (28.8 | ) | 44.0 | 3.3 | ||||||||
| Deferred taxes benefit/(expense) | 2,591.0 | 574.3 | (1,738.5 | ) | ||||||||
| Total comprehensive income/(loss) | (16,973.5 | ) | 17,982.4 | 5,739.4 | ||||||||
F-156
While the profit under Indian GAAP decreased from Rs. 9,561.6 million in fiscal 2021 to Rs. 7,592.0 million in fiscal 2022, profit under U.S. GAAP decreased from a profit of Rs. 21,327.4 million in fiscal 2021 to a loss of Rs. 1,758.2 million in fiscal 2022. The total comprehensive loss was Rs. 16,973.5 million in fiscal 2022 as compared to total comprehensive income of Rs. 17,982.4 million in fiscal 2021.
In fiscal 2022, marked-to-market loss recognized in net income on equity securities was Rs. 6,078.4 million (fiscal 2021: marked-to-market gain of Rs. 41,900.7 million), out of which loss of Rs. 4,815.6 million (fiscal 2021: marked-to-market gain of Rs. 9,385.9 million) was recognized on the equity securities of shareholders’ fund. Marked-to-market loss recognized in net income on debt portfolio in fiscal 2022 was Rs. 6,466.3 million (fiscal 2021: marked-to-market loss of Rs. 1,573.5 million); out of which loss of Rs. 6,302.4 million (fiscal 2021: marked-to-market loss of Rs. 1,670.9 million) was recognized in participating funds.
The policyholders’ liabilities and unallocated policyholders’ surplus, net of amortization of deferred acquisition cost under U.S. GAAP were lower by Rs. 1,479.4 million in fiscal 2022 as compared to Indian GAAP, whereas it was higher by Rs. 23,030.4 million in fiscal 2021. This was primarily due to mark-to-market movement in liabilities pertaining to Guaranteed Savings Insurance Plan reduction in unallocated policy holder’s surplus pertaining to participating policyholders and difference in methodology of liability computation between U.S. GAAP and Indian GAAP. Under U.S. GAAP, the changes in liabilities towards Guaranteed Savings Insurance Plan are recognized through net income, while the mark-to-market changes in underlying debt investments, being available-for-sale investments are recognized through other comprehensive income. During fiscal 2022, the life insurance affiliate recognized mark to market loss of Rs. 5,028.1 million (fiscal 2021: marked to market loss of Rs. 530.4 million) on available-for-sale debt securities through other comprehensive income while the related change in liability was recognized through net income. In fiscal 2022, liabilities recognized through income statement towards unallocated policyholder’s surplus under U.S. GAAP was lower by Rs. 3,590.7 million as compared to Indian GAAP primarily due to marked-to-market loss on debt portfolio of participating funds. In fiscal 2021, liabilities recognized through income statement towards unallocated policy holder’s surplus under U.S. GAAP was higher by Rs. 15,426.6 million as compared to Indian GAAP primarily due to mark-to-market gain on equity portfolio of participating funds During fiscal 2022, there is an increase in net policyholders’ liabilities, excluding liabilities pertaining to Guaranteed Savings Insurance Plan, by Rs. 7,944.7 million (fiscal 2021: 33.9 million) accounted through net income, primarily due to the difference in methodology of liability computation between U.S. GAAP and Indian GAAP.
Other comprehensive income arising from policyholders’ assets classified as available for sale decreased on account of unrealized loss of Rs. 17,777.5 million in fiscal 2022 (fiscal 2021: unrealized loss of Rs. 3,963.3 million).
The following table sets forth, for the periods indicated, the components of income taxes in net income reconciliation of ICICI Life.
Rupees in million
| Reconciling items | Year ended March 31, | |||||||||||
2022 | 2021 | 2020 | ||||||||||
| Income tax impact of non-tax U.S. GAAP adjustments | 2,140.4 | (4,739.6 | ) | 3,203.0 | ||||||||
| Total differences in income taxes | 2,140.4 | (4,739.6 | ) | 3,203.0 | ||||||||
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General insurance affiliate
The significant differences between Indian GAAP and U.S. GAAP in case of the general insurance affiliate are primarily on account of:
| i) | Provision for reinsurance commission |
Under Indian GAAP, reinsurance commission on business ceded is recognized as income in the year of the ceding of the risk. Under U.S. GAAP, proceeds from reinsurance transactions that represent recovery of acquisition costs are reduced from unamortized acquisition costs in such a manner that net acquisition costs are capitalized and charged to expense in proportion to net revenue recognized over the related policy period.
| ii) | Amortization of deferred acquisition costs |
Under Indian GAAP, acquisition cost is charged as an expense to the revenue account in the year in which it is incurred whereas under U.S. GAAP, the same is deferred and charged as an expense in proportion to premium revenue recognized as per ASC Topic 944 “Financial Services-Insurance”. Accordingly, certain acquisition costs specified in Accounting Standards Update 2010-26 have been deferred that are related directly to the successful acquisition of new or renewal insurance contracts.
| iii) | Premium deficiency |
Under Indian GAAP, premium deficiency is recognized if the sum of the expected claims costs, related expenses and maintenance costs exceed related unearned premiums. Under Indian GAAP, for assessment of premium deficiency, line of business are segmented under “Fire”, “Marine”, “Miscellaneous” segments. Under U.S. GAAP premium deficiency is assessed for each line of business and recognized in the profit & loss account if the sum of expected claim costs and claims adjustment expenses, expected dividends to policyholders, un-amortized acquisition costs and maintenance costs exceed related unearned premiums. A premium deficiency is recognized by first charging acquisition costs to expense, to the extent required to eliminate the deficiency. If the premium deficiency is greater than un-amortized acquisition costs, a liability for the excess deficiency is required to be accrued.
| iv) | Compensation costs |
Accounting for employee stock options
Under Indian GAAP, stock compensation costs are accounted for by the intrinsic value method as compared to U.S. GAAP where the compensation costs have been accounted for at the fair value method in accordance with the requirement of FASB ASC Topic 718 “Compensation-Stock Compensation”.
Retirement benefit cost
Under Indian GAAP, all actuarial gains/losses are recognized on the balance sheet of the enterprise in the year in which they arise through suitable credit/debit in the profit and loss account of the year. Under U.S. GAAP, actuarial gains/losses are accounted in Other Comprehensive Income. Subsequently cumulative actuarial gain/loss lying in the Other Comprehensive Income which is over and above 10% corridor is amortized through profit and loss account. Further, discount rate for computing benefit obligation is linked to yield on high quality fixed income securities in U.S. GAAP as compared to yield on government securities under Indian GAAP.
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| v) | Mark to market on equity investments |
Under Indian GAAP, all unrealized gains/ (losses) on equity investments are recognized through reserves. Under U.S. GAAP, unrealized gains/ (losses) on equity investments are recognized through income statement.
| vi) | Income taxes |
The differences in the accounting for income taxes are primarily on account of the income tax impact of non-tax U.S. GAAP adjustments.
| vii) | Lease |
Under Indian GAAP, expenses towards operating lease is charged to profit and loss account on a straight line basis. Under U.S. GAAP, a right to use asset and a lease liability is required to be recognized at the commencement of the lease for all lease on adoption of FASB ASC 842- “Leases” and a single lease cost is recognized, which is calculated such that the cost of the operating lease is allocated over the lease term on a generally straight-line basis.
| viii) | Business Combination |
During fiscal 2022, in accordance with the Scheme of Arrangement between ICICI Lombard General Insurance Company Limited and Bharti AXA General Insurance Company Limited, as approved by Insurance Regulatory and Development Authority of India on September 3, 2021 (with effect from September 8, 2021), assets and liabilities of Bharti AXA General Insurance Company Limited’s general insurance business vested with ICICI Lombard General Insurance Company Limited on the Appointed Date of April 1, 2020. ICICI Lombard General Insurance Company Limited issued two fully paid up equity shares to the shareholders of Bharti AXA General Insurance Company Limited for every 115 fully paid up equity shares.
Under Indian GAAP the merger was been accounted using the “Pooling of Interest Method” as prescribed in Accounting Standard 14 “Accounting for Amalgamations” where all the assets, liabilities and reserves of the Bharti AXA’s general insurance business have been recorded in their existing form and at their carrying value at the Appointed Date. The excess of consideration paid over and above net assets taken over was adjusted with the reserve and surplus account.
Under US GAAP, the merger has been prepared in accordance with ASC 805 – Business Combinations where all the assets and liabilities were measured at fair value on September 8, 2021 of merger. Goodwill was measured as excess of consideration paid over the net assets taken over in accordance with US GAAP. Accordingly under US GAAP, ICICI Lombard General Insurance Company Limited recognized intangible assets of Rs. 1,230.0 million and goodwill of Rs. 46,454.5 million. The goodwill is tested for impairment on annual basis and intangible assets are amortized over the useful life.
The following table sets forth, for the periods indicated, the details of the significant differences between Indian GAAP and U.S. GAAP for the general insurance affiliate.
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Rupees in million
| Reconciling items | Year ended March 31, | |||||||||||
2022 | 2021 | 2020 | ||||||||||
| Profit as per Indian GAAP | 12,710.1 | 14,730.5 | 11,937.6 | |||||||||
| Adjustments on account of | ||||||||||||
| Provision for reinsurance commission | 1,511.7 | 2,715.1 | (599.1 | ) | ||||||||
| Amortization of deferred acquisition costs | (125.0 | ) | 824.1 | 497.0 | ||||||||
| Premium deficiency | (5.8 | ) | 6.7 | (10.0 | ) | |||||||
| Compensation costs | (981.3 | ) | (760.2 | ) | (498.2 | ) | ||||||
| Unrealized gain/(loss) on equity investments | (2,791.4 | ) | 11,285.1 | (7,738.6 | ) | |||||||
| Income tax benefit/(expense) | 607.2 | (3,707.2 | ) | 1,989.6 | ||||||||
| Business Combination1 | (508.2 | ) | - | - | ||||||||
| Others | (241.4 | ) | (129.4 | ) | 17.7 | |||||||
| Profit/(Loss) as per U.S. GAAP | 10,175.9 | 24,964.9 | 5,596.0 | |||||||||
| Other Comprehensive Income | ||||||||||||
| MTM on Debt Securities | (2,763.0 | ) | 976.0 | 4,682.1 | ||||||||
| Compensation Cost | 981.2 | 760.2 | 597.4 | |||||||||
| Actuarial Gain/(Loss) | 0.6 | 43.0 | (75.3 | ) | ||||||||
| Total Other Comprehensive Income | (1,781.2 | ) | 1,779.1 | 5,204.2 | ||||||||
| Total Comprehensive Income | 8,394.7 | 26,744.1 | 10,800.2 | |||||||||
| 1. | Business Combination consist of profit of general insurance business of Bharti AXA General Insurance Company Limited from April 01, 2021 till September 07, 2021 transferred to reserves amounting Rs. 436.4 million and amortization of intangibles (other than goodwill) resulting from merger amounting Rs. 71.8 million. |
While the profit under Indian GAAP decreased from Rs. 14,730.5 million in fiscal 2021 to Rs. 12,710.1 million in fiscal 2022, profit under U.S. GAAP decreased from Rs. 24,964.9 million in fiscal 2021 to Rs. 10,175.9 million in fiscal 2022. The decrease in U.S. GAAP profits was primarily due to decrease in fair value of equity securities. Total comprehensive income under U.S. GAAP decreased from Rs. 26,744.1 million in fiscal 2021 to Rs. 8,394.7 million in fiscal 2022. The unrealized gain on available for sale debt securities decreased from marked-to-market gain of Rs. 976.0 million in fiscal 2021 to marked-to-market loss of Rs. 2,763.0 million in fiscal 2022.
Reinsurance commission on premium ceded is recognized as income in the year of the ceding of the risk under Indian GAAP and recognized over the policy period under U.S. GAAP. Reinsurance commission income was higher by Rs. 1,511.7 million under U.S. GAAP as compared to Indian GAAP in fiscal 2022 (higher by Rs. 2,715.1 million in fiscal 2021). The decrease from Rs. 2,715.1 million in fiscal 2021 to Rs. 1,511.7 million in fiscal 2022, was primarily due to decrease in reinsurance commission of health attachment business. Also, there was no Motor Quota Share Treaty in fiscal 2021 resulting in lower booking of re-insurance commission under Indian GAAP as compared to fiscal 2020. Hence, there was higher amortization of re-insurance commission last year due to higher re-insurance commission earned in fiscal 2020 under U.S. GAAP.
Deferred acquisition cost resulted in cost of Rs. 125.0 million in fiscal 2022 (fiscal 2021: benefit of Rs. 824.1 million) under U.S. GAAP as compared to Indian GAAP primarily due to increase in health indemnity business resulting in lower deferred acquisition cost as compared to previous year and hence higher expenses. Secondly in case of Bharti AXA General Insurance Company Limited, acquisition cost expensed in the current fiscal year out of deferred acquisition cost as on effective date of demerger is more than current year deferred acquisition cost and impact of acquisition cost from April 1, 2021 to effective date of demerger has been taken through Retained Earnings.
Unrealized gain on equity investments decreased from a gain of Rs. 11,285.1 million in fiscal 2021 to unrealized loss of Rs. 2,791.4 million in fiscal 2022 primarily due to equity market movement in March 2022. While, these gains/losses are accounted through fair value change account in Balance Sheet under Indian GAAP, under U.S. GAAP these gains/losses are accounted through net income.
F-160
The following table sets forth, for the periods indicated, the components of income taxes in net income reconciliation of the general insurance affiliate.
Rupees in million
| Reconciling items | Year ended March 31, | |||||||||||
2022 | 2021 | 2020 | ||||||||||
| Income tax impact of non-tax U.S. GAAP adjustments | 607.2 | (3,707.2 | ) | 1,989.6 | ||||||||
| Total differences in income taxes | 607.2 | (3,707.2 | ) | 1,989.6 | ||||||||
| i) | Goodwill and intangible assets |
The following table sets forth, for the periods indicated, a listing of goodwill and intangible assets, by category under U.S. GAAP.
Rupees in million
| Year ended March 31, | |||||||||
| 2022 | 2021 | ||||||||
| Goodwill | 35,101.4 | 177,998.3 | |||||||
| Charge off/write off | (54.0 | ) | (54.0 | ) | |||||
| Goodwill, net | (A) | 35,047.4 | 177,944.3 | ||||||
| Asset management and advisory intangibles | (B) | 367.0 | 367.0 | ||||||
| Customer-related intangibles | 10,410.0 | 25,020.1 | |||||||
| Accumulated amortization | (10,410.0 | ) | (16,975.7 | ) | |||||
| Customer-related intangibles net | (C) | .. | 8,044.4 | ||||||
| Brand | .. | 943.0 | |||||||
| Accumulated amortization | .. | (235.8 | ) | ||||||
| Brand net | (D) | .. | 707.2 | ||||||
| Goodwill and intangible assets, net | (A+B+C+D) | 35,414.4 | 187,062.9 | ||||||
| 1. | See also “Schedule 18 -Fixed assets”. |
The following table sets forth, for the periods indicated, the changes in goodwill under U.S. GAAP.
Rupees in million
| Year ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Opening balance | 177,944.3 | 177,944.3 | ||||||
| Goodwill addition during the period | .. | .. | ||||||
| Goodwill disposed off during the period1 | (142,896.9 | ) | .. | |||||
| Closing balance | 35,047.4 | 177,944.3 | ||||||
| 1. | Represents Goodwill disposed off due to loss of control of general insurance subsidiary. |
The following table sets forth, for the periods indicated, the changes in intangible assets under U.S. GAAP.
F-161
Rupees in million
| Year ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Opening balance | 8,751.6 | 10,565.3 | ||||||
| Additions | .. | .. | ||||||
| Amortization | (704.1 | ) | (1,813.7 | ) | ||||
| Disposal1 | 8,047.5 | .. | ||||||
| Closing balance | .. | 8,751.6 | ||||||
| 1. | Represents intangible assets disposed off due to loss of control of general insurance subsidiary |
The Group has assigned goodwill to reporting units. The Group tests its goodwill for impairment on an annual basis at a reporting unit level. The fair value of the reporting units was derived by applying a comparable companies’ earnings multiple method. Under this method, the fair value of the reporting unit is arrived at by multiplying future maintainable profits of the reporting unit with price earning multiple. Based on the fair valuation, no goodwill impairment was recorded during the year ended March 31, 2022. Any deterioration in the variables used in determination of fair values of the reporting units could significantly affect the impairment evaluation and the results.
j) Employee benefits
Gratuity
In accordance with Indian regulations, the Group provides for gratuity, a defined benefit retirement plan covering all employees. The plan provides a lump sum payment to vested employees at retirement, death or termination of employment based on the respective employee’s salary and the years of employment with the Group. The gratuity benefit provided by the Group to its employees is equal to or greater than the statutory minimum.
In respect of the parent company, the gratuity benefit is provided to the employee through a fund administered by a Board of Trustees and managed by ICICI Prudential Life Insurance Company Limited. The parent company is responsible for settling the gratuity obligation through contributions to the fund.
In respect of the remaining entities within the Group, the gratuity benefit is provided through annual contributions to a fund administered and managed by Life Insurance Corporation of India (LIC) and ICICI Prudential Life Insurance Company Limited. Under this scheme, the settlement obligation and contribution to be paid remains with the Group, although LIC and ICICI Prudential Life Insurance Company Limited administer the scheme.
The following table sets forth, for the periods indicated, the funded status of the plans and the amounts recognized in the financial statements.
Rupees in million
| Year ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Change in benefit obligations | ||||||||
| Projected benefit obligations at the beginning of the year | 15,358.4 | 13,283.0 | ||||||
| Less: Reduction due to deconsolidation of ICICI Lombard General Insurance Company during the year | (1,020.2 | ) | .. | |||||
| Add: Adjustment for exchange fluctuation on opening obligations | 6.0 | (6.5 | ) | |||||
| Adjusted opening obligations | 14,344.2 | 13,276.5 | ||||||
| Service cost | 1,435.9 | 1,422.1 | ||||||
| Interest cost | 984.5 | 1,018.0 | ||||||
| Acquisition/(Divestitures) | (2.8 | ) | 32.9 | |||||
| Benefits paid | (1,454.4 | ) | (898.5 | ) | ||||
| Unrecognized prior service cost | .. | (6.8 | ) | |||||
| Actuarial (gain)/loss on obligations | 162.5 | 514.2 | ||||||
| Projected benefit obligations at the end of the year | 15,469.9 | 15,358.4 | ||||||
Change in plan assets | ||||||||
| Fair value of plan assets at the beginning of the year | 15,091.6 | 12,361.3 | ||||||
| Less: Reduction due to deconsolidation of ICICI Lombard General Insurance Company during the year | (1,080.6 | ) | .. | |||||
| Adjusted opening plan assets | 14,011.0 | 12,361.3 | ||||||
| Acquisition/(Divestitures) | (2.8 | ) | 32.9 | |||||
| Actual return on plan assets | 989.6 | 1,737.3 | ||||||
| Employer contributions | 1,647.1 | 1,858.6 | ||||||
| Benefits paid | (1,454.4 | ) | (898.5 | ) | ||||
| Plan assets at the end of the year | 15,190.5 | 15,091.6 | ||||||
| Funded status | (279.5 | ) | (266.9 | ) | ||||
| Amount recognized, net | (279.5 | ) | (266.9 | ) | ||||
| Accumulated benefit obligation at year-end | 9,422.6 | 9,147.2 | ||||||
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The following table sets forth, for the periods indicated, the components of the net gratuity cost.
Rupees in million
| Year ended March 31, | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Service cost | 1,435.9 | 1,422.1 | 1,182.5 | |||||||||
| Interest cost | 984.5 | 1,018.0 | 961.3 | |||||||||
| Expected return on plan assets | (1,019.5 | ) | (953.1 | ) | (847.3 | ) | ||||||
| Amortization of prior service cost | 8.3 | 1.6 | 8.4 | |||||||||
| Amortized actuarial (gain)/loss | 16.2 | 12.1 | 23.5 | |||||||||
| Acquisition and divestiture (gain)/loss | .. | .. | 3.1 | |||||||||
| Exchange gain/(loss) | 6.0 | (6.5 | ) | 14.3 | ||||||||
| Gratuity cost, net | 1,431.4 | 1,494.2 | 1,345.8 | |||||||||
The discount rate for the corresponding tenure of obligations for gratuity is selected by reference to local government security yield with a premium added to reflect the additional risk for AAA rated corporate bonds.
The following table sets forth, for the periods indicated, the weighted average assumptions used to determine net periodic benefit cost.
| Year ended March 31, | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Discount rate | 6.6 | % | 7.4 | % | 8.3 | % | ||||||
| Rate of increase in the compensation levels | 7.1 | % | 7.2 | % | 7.2 | % | ||||||
| Rate of return on plan assets | 7.5 | % | 8.0 | % | 8.0 | % | ||||||
The following table sets forth, for the periods indicated, the weighted average assumptions used to determine benefit obligations.
| Year ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Discount rate | 6.6 | % | 6.6 | % | ||||
| Rate of increase in the compensation levels | 7.0 | % | 7.2 | % | ||||
Plan assets
The Group determines
its assumptions for the expected rate of return on plan assets based on the expected average long-term rate of return over the next 7
to 8 years.
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The following table sets forth, for the periods indicated, the Group’s asset allocation for gratuity by asset category based on fair values.
Rupees in million
| At March 31, | ||||||||
| 2022 | 2021 | |||||||
| Assets category | ||||||||
| Investment in schemes of ICICI Prudential Life Insurance Company Limited | ||||||||
| Group balance fund1 | 14,087.9 | 13,723.9 | ||||||
| Group growth fund2 | 58.5 | 113.9 | ||||||
| Group debt fund3 | 207.5 | 158.6 | ||||||
| Group short-term debt fund4 | 107.3 | 343.6 | ||||||
| Total investment in schemes of ICICI Prudential Life Insurance Company Limited | 14,461.2 | 14,340.0 | ||||||
| Investment in scheme of Life Insurance Corporation of India | 418.1 | 403.2 | ||||||
| Total assets managed by external entities | 14,879.3 | 14,743.2 | ||||||
| Special deposit with central government | 290.0 | 290.0 | ||||||
| Government debt securities | 24.9 | 25.5 | ||||||
| Corporate debt securities | .. | 4.8 | ||||||
| Balance with banks and others | (3.6 | ) | 28.2 | |||||
| Total | 15,190.5 | 15,091.7 | ||||||
| 1. | Objective of the scheme is to provide a balance between long-term capital appreciation and current income through investment in equity as well as fixed income instruments in appropriate proportions. At March 31, 2022, investment in government securities/treasury bills, corporate bonds, money market instrument and equity were 30.75%, 37.70%, 6.40% and 14.58% respectively. |
| 2. | Objective of the scheme is to primarily generate long-term capital appreciation through investment in equity and equity related securities and complement it with current income through investment in fixed income instruments in appropriate proportions depending on market conditions prevalent from time to time. At March 31, 2022, investment in government securities/treasury bills, corporate bonds, money market instrument and equity were 16.13%, 14.79%, 3.37% and 54.36% respectively. |
| 3. | Objective of the scheme is to provide accumulation of income through investment in various fixed income securities. The Fund seeks to provide capital appreciation while maintaining suitable balance between return, safety and liquidity. At March 31, 2022, investment in government securities/treasury bills, corporate bonds, and money market instrument were 28.27%, 57.33%, and 6.52% respectively. |
| 4. | Objective of the scheme is to provide suitable returns through low risk investments in debt and money market instruments while attempting to protect the capital deployed in the fund. At March 31, 2022, investment in government securities/treasury bills, corporate bonds and money market instrument 30.19%, 27.84%, and 34.89% respectively. |
The following table sets forth, for the periods indicated, the Group’s target asset allocation for gratuity by asset category.
| Description | Target asset allocation at March 31, 2023 | Target asset allocation at March 31, 2022 | ||||||
| Funds managed by external entities1 | 98 | % | 98 | % | ||||
| Special deposit with central government | 2 | % | 2 | % | ||||
| Debt securities | 0 | % | 0 | % | ||||
| Total | 100 | % | 100 | % | ||||
| 1. | Targeted investment during fiscal 2023 of about 40.0% in Central Government securities, about 36.5% in corporate debt securities, about 14.5% in money market investment and about 15.5% in equity investment. |
The plan assets primarily consist of investments made in funds managed by external entities, which are primarily in equity, money market instruments and debt instruments in different proportions depending on the objective of schemes. The value of the plan assets in funds managed by ICICI Prudential Life Insurance Company Limited has been arrived at based on the net asset value per unit of individual schemes. The value of plan assets in the form of investments in scheme of LIC and special deposit with the Central Government are recorded at carrying value. The value of plan assets in the form of debt securities is derived using Level 2 input.
ICICI Prudential Life Insurance Company Limited administers the plan fund and it independently determines the target allocation by asset category. The investment strategy is to invest in a prudent manner for providing benefits to the participants of the scheme. The strategies are targeted to produce
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a return that, when combined with the Group’s contribution to the funds will maintain the fund’s ability to meet all required
benefit obligations. ICICI Prudential Life Insurance Company Limited functions within the regulated investment norms.
LIC administers the plan fund and it independently determines the target allocation by asset category. The selection of investments and the asset category is determined by LIC. The investment strategy is to invest in a prudent manner to produce a return that will enable the fund to meet the required benefit obligations. LIC, which is owned by Government of India, functions within regulated investment norms.
The plan assets are mainly invested in various gratuity schemes of the insurance companies to limit the impact of individual investment. The Group’s entire investment of plan assets is in India and 95.0% of investment is in various gratuity schemes of ICICI Prudential Life Insurance Company Limited. Insurers managing the plan assets of the Group consider operational risk, performance risk, credit risk and equity risk in their investment policy as part of their risk management practices.
The following table sets forth, the benefit expected to be paid in each of the next five fiscal years and thereafter.
Rupees in million
| Amount | ||||
| Expected Group contributions to the fund during the year ending March 31, 2023 | 910.0 | |||
| Expected benefit payments from the fund during year ending March 31, | ||||
| 2024 | 2,067.5 | |||
| 2025 | 1,754.8 | |||
| 2026 | 1,711.1 | |||
| 2027 | 1,807.8 | |||
| 2028 | 1,883.7 | |||
| Thereafter upto 10 years | 10,741.0 | |||
The expected benefits are based on the same assumptions as used to measure the Group’s benefit obligation at March 31, 2022.
Pension
The Group provides for pension, a deferred retirement plan covering certain employees. The plan provides for a pension payment on a monthly basis to these employees on their retirement based on the respective employee’s salary and years of employment with the Group. Employees covered by the pension plan are not eligible for benefits under the provident fund plan. The pension plan pertained to the employees of erstwhile Bank of Madura, erstwhile Sangli Bank and erstwhile Bank of Rajasthan which were acquired with effect from March 2001, April 2007 and August 2010 respectively. The Group makes contribution to a trust which administers the funds on its own account or through insurance companies.
The following table sets forth, for the periods indicated, the funded status of the plan and the amounts recognized in the financial statements.
F-165
Rupees in million
| Year ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Change in benefit obligations | ||||||||
| Projected benefit obligations at beginning of the year | 19,871.3 | 17,059.9 | ||||||
| Service cost | 200.7 | 204.4 | ||||||
| Interest cost | 1,151.9 | 1,209.1 | ||||||
| Liability extinguished on settlement | (2,289.8 | ) | (2,198.1 | ) | ||||
| Benefits paid | (118.2 | ) | (117.9 | ) | ||||
| Actuarial (gain)/loss on obligations | (272.2 | ) | 3,713.9 | |||||
| Projected benefit obligations at the end of the year | 18,543.6 | 19,871.3 | ||||||
| Change in plan assets | ||||||||
| Fair value of plan assets at beginning of the year | 21,162.1 | 16,972.0 | ||||||
| Actual return on plan assets | 1,288.8 | 1,872.7 | ||||||
| Assets distributed on settlement | (2,544.2 | ) | (2,442.3 | ) | ||||
| Employer contributions | 54.7 | 4,877.6 | ||||||
| Benefits paid | (118.2 | ) | (117.9 | ) | ||||
| Plan assets at the end of the year | 19,843.2 | 21,162.1 | ||||||
| Funded status | 1,299.6 | 1,290.8 | ||||||
| Net amount recognized | 1,299.6 | 1,290.8 | ||||||
| Accumulated benefit obligation at year end | 17,848.7 | 18,916.4 | ||||||
The following table sets forth, for the periods indicated, the components of the net pension cost.
Rupees in million
| Year ended March 31, | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Service cost | 200.7 | 204.4 | 200.7 | |||||||||
| Interest cost | 1,151.9 | 1,209.1 | 1,158.3 | |||||||||
| Expected return on assets | (1,621.0 | ) | (1,350.8 | ) | (1,235.8 | ) | ||||||
| Curtailment and settlement (gain)/loss | 254.4 | 244.2 | 279.8 | |||||||||
| Actuarial (gain)/loss | 1,779.8 | 1,528.0 | 1,120.7 | |||||||||
| Net pension cost | 1,765.8 | 1,834.9 | 1,523.7 | |||||||||
The discount rate for the corresponding tenure of obligations for pension is selected by reference to government security yield with a premium added to reflect the additional risk corresponding to AAA rated corporate bonds.
The following table sets forth, for the periods indicated, the weighted average assumptions used to determine net periodic benefit cost.
| Year ended March 31, | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Discount rate | 5.9 | % | 7.3 | % | 8.1 | % | ||||||
| Rate of increase in the compensation levels | ||||||||||||
| On basic pay | 1.5 | % | 1.5 | % | 1.5 | % | ||||||
| On dearness relief | 7.0 | % | 7.0 | % | 7.0 | % | ||||||
| Rate of return on plan assets | 7.5 | % | 8.0 | % | 8.0 | % | ||||||
| Pension increases (applicable on basic pension) | 7.0 | % | 7.0 | % | 7.0 | % | ||||||
The following table
sets forth, for the periods indicated, the weighted average assumptions used to determine benefit obligations.
F-166
| Year ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Discount rate | 6.4 | % | 5.9 | % | ||||
| Rate of increase in the compensation levels | ||||||||
| On basic pay | 1.5 | % | 1.5 | % | ||||
| On dearness relief | 7.0 | % | 7.0 | % | ||||
| Pension increases (applicable on basic pension) | 7.0 | % | 7.0 | % | ||||
The compensation escalation rate eligible for pension was determined at the time of acquisition and the same escalation rate is consistently considered for computation of benefit obligations and periodic cost.
Plan Assets
The Group determines its assumptions for the expected rate of return on plan assets based on the expected average long-term rate of return over the next 7 to 8 years.
The following table sets forth, for the periods indicated, the Group’s asset allocation and target asset allocation for pension by asset category based on fair values.
Rupees in million
Asset category
| Fair value at March 31, 2022 | Fair value at March 31, 2021 | Target asset allocation at March 31, 2023 | Target asset allocation at March 31, 2022 | ||||||||||||
| Government debt securities | 9,264.4 | 10,612.7 | 47 | % | 50 | % | ||||||||||
| Corporate debt securities | 10,498.6 | 10,548.6 | 52 | % | 49 | % | ||||||||||
| Balance with banks and others | 80.2 | 0.8 | 1 | % | 1 | % | ||||||||||
| Total | 19,843.2 | 21,162.1 | 100 | % | 100 | % | ||||||||||
The valuation of the government and corporate securities is derived using Level 2 inputs.
The Group’s entire investment of plan assets are in India and invested in government securities, corporate bonds and equity traded funds. Trustees manage the plan assets of the Group by investing in above securities as per the investment pattern and guidelines prescribed under the Indian income tax law. Securities are purchased after considering credit rating, comparative yields and tenure of investment.
The following table sets forth, the benefit expected to be paid in each of the next five fiscal years and thereafter.
Rupees in million
| Amount | ||||
| Expected Group contributions to the fund during the year ending March 31, 2023 | 2,000.0 | |||
| Expected benefit payments from the fund during the year ending March 31, | ||||
| 2023 | 1,096.2 | |||
| 2024 | 1,248.4 | |||
| 2025 | 996.4 | |||
| 2026 | 928.4 | |||
| 2027 | 987.1 | |||
| Thereafter upto 10 years | 5,841.9 | |||
F-167
The expected benefits are based on the same assumption as used to measure the Group’s benefit obligation at March 31, 2022.
| k) | Lease |
The Group as lessee
The Group has entered into lease arrangements primarily for the real estate office premises and for certain equipment used for the business purposes. For these lease arrangements, the Group is required to make fixed lease payments adjusted for escalation clauses for certain lease arrangements, except for certain assets where the variable lease payments are being made by the Group. The variable lease payments are determined primarily based on the usage of the asset by the Group. None of these lease arrangements impose any restriction on the Group in relation to dividend payments or incurring any additional financial obligations. The group has elected not to separate the lease and non-lease components of these arrangements.
Operating lease
Operating lease liabilities and Right-of-Use assets are recognized at the lease commencement date based on the present value of the future minimum lease payments over the lease term. The future lease payments are discounted at a rate that represents the Group’s incremental borrowing rate for financing instruments of a similar term and are included in accounts payable and other liabilities. The operating lease Right-of-Use asset, included in premises and equipment, also includes any lease prepayments made, plus initial direct costs incurred, less any lease incentives received. Rental expense associated with operating leases is recognized on a straight-line basis over the lease term, and is included in the consolidated statements of income. The following table sets forth, the information related to the Group’s operating leases.
Rupees in million
| Year ended March 31, 2022 | Year ended March 31, 2021 | |||||||
| Right-of-use assets | 46,568.7 | 49,064.5 | ||||||
| Lease liability | 51,550.6 | 53,995.0 | ||||||
Cash paid for amounts included in the measurement of lease liabilities – operating cashflows from operating lease | 10,904.8 | 10,518.9 | ||||||
Non-cash investing and financing activities – additions to right-of-use asset obtained from new operating lease liabilities | 9,974.0 | 9,618.0 | ||||||
| Weighted average remaining lease term (in years) | 7.6 years | 8.0 years | ||||||
| Weighted average discounting rate (in %) | 6.0 | % | 6.2 | % | ||||
The following table sets forth, the future payments under operating leases as of March 31, 2022.
Rupees in million
| Year ended March 31, 2022 | ||||
| Fiscal 2023 | 9,992.6 | |||
| Fiscal 2024 | 9,369.0 | |||
| Fiscal 2025 | 8,396.4 | |||
| Fiscal 2026 | 7,466.4 | |||
| Fiscal 2027 | 6,654.5 | |||
| After Fiscal 2027 | 23,691.7 | |||
| Total Lease payments | 65,570.6 | |||
| Less: Imputed interest | 14,020.0 | |||
| Lease liabilities at March 31, 2022 | 51,550.6 | |||
F-168
The Group does not have any other significant future commitments at the end of fiscal 2022.
Finance lease
Finance lease liabilities and Right-of-Use assets are recognized at the lease commencement date based on the present value of the future minimum lease payments over the lease term. The future lease payments are discounted at a rate that represents the implicit rate in the lease. Rental expense associated with finance leases is recognized on a straight-line basis over the lease term, and is included in the consolidated statements of income. The following tables provide information related to the Bank’s finance leases:
Rupees in million
Year ended March 31, 2022 | Year ended March 31, 2021 | |||||||
| Right-of-use assets | 1,061.0 | 872.5 | ||||||
| Lease liability | 1,124.6 | 893.2 | ||||||
Cash paid for amounts included in the measurement of lease liabilities a. finance cashflows from finance lease b. operating cashflows from finance lease | 183.2 106.4 | 115.5 90.0 | ||||||
| Non-cash investing and financing activities – additions to right-of-use asset obtained from new finance lease liabilities | 388.3 | 681.3 | ||||||
| Weighted average remaining lease term (in years) | 4.8 years | 6.0 years | ||||||
| Weighted average discounting rate (in %) | 10.6 | % | 12.3 | % | ||||
The following table sets forth, the future payments under finance leases as of March 31, 2022.
Rupees in million
Year ended March 31, 2022 | ||||
| Fiscal 2023 | 311.4 | |||
| Fiscal 2024 | 323.7 | |||
| Fiscal 2025 | 304.0 | |||
| Fiscal 2026 | 211.3 | |||
| Fiscal 2027 | 178.1 | |||
| After Fiscal 2027 | 76.4 | |||
| Total Lease payments | 1,404.9 | |||
| Less: Imputed interest | 280.3 | |||
| Lease liabilities at March 31, 2022 | 1,124.6 | |||
Lease cost
The Group’s lease cost recognized in profit and loss account during the fiscal year is as below.
Rupees in million
Year ended March 31, 2022 | Year ended March 31, 2021 | |||||||
| Finance lease cost | ||||||||
| Amortisation of right-to-use assets | 195.4 | 133.9 | ||||||
| Interest on lease liabilities | 108.8 | 90.0 | ||||||
| Operating lease cost | 11,424.5 | 11,481.9 | ||||||
| Short-term lease cost | 0.9 | .. | ||||||
| Variable lease cost | 4,552.7 | 5,501.1 | ||||||
| Less: Sublease income | (51.1 | ) | (74.4 | ) | ||||
| Total lease cost | 16,231.2 | 17,132.5 | ||||||
F-169
| I) | Income taxes |
Components of deferred tax balances
The following table sets forth, for the periods indicated, components of the deferred tax balances.
Rupees in million
| At March 31, | ||||||||
| 2022 | 2021 | |||||||
| Deferred tax assets | ||||||||
| Allowance for credit losses | 100,963.3 | 112,656.6 | ||||||
| Equity and debt securities | 8.5 | .. | ||||||
| Business and capital loss carry forwards | 6,890.2 | 4,955.1 | ||||||
| Financial instruments | 2,727.0 | 3,487.2 | ||||||
| Investments in affiliates | 30,224.8 | 28,238.6 | ||||||
| Lease liability | 12,929.7 | 13,565.2 | ||||||
| Reserve for unexpired risks | .. | 2,935.9 | ||||||
| Others | 3,655.2 | 1,723.7 | ||||||
| Total deferred tax assets | 157,398.7 | 167,562.3 | ||||||
| Valuation allowance | (878.2 | ) | (949.5 | ) | ||||
| Total deferred tax assets (net of valuation allowance) | 156,520.5 | 166,612.8 | ||||||
| Deferred tax liabilities | ||||||||
| Equity and debt securities | (6,485.1 | ) | (14,883.8 | ) | ||||
| Property, plant and equipment | (4,559.8 | ) | (4,366.6 | ) | ||||
| Investments in branches, subsidiaries and affiliates | (25,357.7 | ) | (3,461.1 | ) | ||||
| Amortization of fees and costs | (7,999.9 | ) | (6,526.8 | ) | ||||
| Intangibles | — | (2,202.6 | ) | |||||
| Non-banking assets | (6,273.4 | ) | (6,381.5 | ) | ||||
| Right to use – Lease asset | (11,675.8 | ) | (12,324.3 | ) | ||||
| Others | (2,913.0 | ) | (3,756.3 | ) | ||||
| Total deferred tax liabilities | (65,264.7 | ) | (53,903.0 | ) | ||||
| Net deferred tax assets | 91,255.8 | 112,709.8 | ||||||
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent on the generation of future taxable income during the periods in which the temporary differences become deductible. Management considers carryback availability, the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax-planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable incomes over the periods in which the deferred tax assets are deductible, management believes that it is more likely than not that the Group will realize the benefits of its deferred tax assets, net of the existing valuation allowances at March 31, 2022 and 2021. The amount of deferred
F-170
tax assets considered realizable, however could be reduced in the near term if estimates of future taxable income are reduced.
The Indian statutory tax rate, including surcharge and cess was 25.17% for the year ended March 31, 2022, 2021 and 2020.
Reconciliation of income tax rates
The following table sets forth, for the periods indicated, a reconciliation of expected income taxes at the Indian statutory income tax rate to reported income tax expense/(benefit).
Rupees in million
| Year ended March 31, | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Income/(loss) before income tax expense from continuing operations | ||||||||||||
| In India | 622,481.7 | 308,259.6 | 215,314.9 | |||||||||
| Outside India | 5,922.9 | (4,663.4 | ) | (15,644.0 | ) | |||||||
| Total | 628,404.6 | 303,596.2 | 199,670.9 | |||||||||
| Statutory tax rate | 25.17 | % | 25.17 | % | 25.17 | % | ||||||
| Effective tax rate. | 16.86 | % | 22.20 | % | 38.80 | % | ||||||
| Income tax expense/(benefit) at the statutory tax rate | 158,156.9 | 76,409.1 | 50,253.2 | |||||||||
| Increases/(reductions) in taxes on account of: | ||||||||||||
| Special tax deductions available to financial institutions/insurance companies through appropriation of profits to a Special Reserve | (3,669.5 | ) | (2,743.2 | ) | (1,993.1 | ) | ||||||
| Exempt interest and dividend income1 | (964.7 | ) | (198.9 | ) | (651.7 | ) | ||||||
| Income charged at rates other than statutory tax rate2 | (37,780.6 | ) | 63.8 | 1,401.2 | ||||||||
| Changes in the statutory tax rate | .. | .. | 27,562.2 | |||||||||
| Expenses disallowed for income tax purposes | 2,021.3 | 1,617.9 | 2,587.8 | |||||||||
| Tax on investment and undistributed earnings in subsidiaries, branches and affiliates3 | (9,340.1 | ) | (2,313.0 | ) | (2,359.9 | ) | ||||||
| Change in valuation allowance | (71.3 | ) | (2,404.5 | ) | 405.6 | |||||||
| Tax adjustments in respect of prior year tax assessments | (230.6 | ) | 108.4 | (111.0 | ) | |||||||
| Others | (2,144.3 | ) | (1,087.2 | ) | 386.2 | |||||||
| Income tax expense/(benefit) reported | 105,977.2 | 69,452.4 | 77,480.5 | |||||||||
| Current tax expense | ||||||||||||
| In India | 73,064.0 | 61,312.2 | 50,035.0 | |||||||||
| Outside India | 600.3 | 301.9 | 1,722.3 | |||||||||
| Total | 73,664.3 | 61,614.1 | 51,757.3 | |||||||||
| Deferred tax (benefit)/expense | ||||||||||||
| In India | 31,858.2 | 6,490.9 | 25,642.0 | |||||||||
| Outside India | 454.7 | 1,347.4 | 81.2 | |||||||||
| Total | 32,312.9 | 7,838.3 | 25,723.2 | |||||||||
| 1. | The dividend income has become taxable for the recipient from April 1, 2020. However, a deduction of dividend received can be claimed against the payment of dividend made by a corporate entity in India. |
| 2. | During fiscal 2022, includes tax effect of Rs. (35,006.1) million on gains due to remeasurement of equity interest in ICICI Lombard General Insurance Company Limited. |
| 3. | During fiscal 2022, the Bank had recognized a deferred tax asset amounting to Rs. 8,247.7 million on the investment in its equity affiliate (ICICI Lombard General Insurance Limited). |
F-171
The following table sets forth the details of the amount and expiration dates of operating loss carry forwards at March 31, 2022.
Rupees in million
Expiry period
| Bank | Subsidiaries | Overseas branches | |||||||||
| Capital loss carry forward | ||||||||||||
| April 1, 2022 to March 31, 2027 | 787.4 | 2,122.5 | .. | |||||||||
| April 1, 2027 to March 31, 2032 | 28,849.6 | 425.1 | .. | |||||||||
| Total capital loss carry forward | 29,637.0 | 2,547.6 | .. | |||||||||
| Business loss carry forward | ||||||||||||
| April 1, 2022 to March 31, 2027 | .. | 56.6 | 19.4 | |||||||||
| April 1, 2027 to March 31, 2032 | .. | 1,172.6 | 5,348.1 | |||||||||
| April 1, 2032 to March 31, 2037 | .. | 87.6 | .. | |||||||||
| April 1, 2037 to March 31, 2042 | .. | 0.3 | .. | |||||||||
| Indefinite period | .. | 3,857.7 | 1,425.3 | |||||||||
| Total business loss carry forward | .. | 5,174.8 | 6,792.8 | |||||||||
Accounting for uncertainty in income taxes
The Group has a policy to include interest and penalties on income taxes, if any, within interest expense or income and income tax expense respectively. However, no interest expense has been recognized in view of the adequate income taxes paid by the Group. No penalties have been accrued as of March 31, 2022 and 2021, as the Group believes that the tax positions taken have met the minimum statutory requirements to avoid payment of penalties.
The Group has recognized income with respect to interest accrued or received on tax refunds due to the Group against favourable orders received from tax authorities amounting to Rs. 2,434.3 million, Rs. 2,569.7 million and Rs. 2,847.7 million during the year ended March 31, 2022, 2021 and 2020 respectively. Further, the Group does not recognize the interest income accrued on advance income taxes paid against various income tax matters until the related matter is resolved with the taxing authority. Unrecognized interest on such advance income taxes paid is Rs. 11,636.2 million and Rs. 12,714.6 million at March 31, 2022 and 2021 respectively.
The following table sets forth, for the periods indicated, a reconciliation of the beginning and ending amount of unrecognized tax benefits.
Rupees in million
| Year ended March 31, | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Beginning balance | 35,856.2 | 31,945.3 | 28,702.4 | |||||||||
| Increases related to prior year tax positions. | .. | 1,227.3 | 1,182.8 | |||||||||
| Increases related to current year tax positions | 4,116.5 | 2,740.5 | 2,713.3 | |||||||||
| Decreases related to prior year tax positions | (3,701.2 | ) | (56.9 | ) | (653.2 | ) | ||||||
| Ending balance | 36,271.5 | 35,856.2 | 31,945.3 | |||||||||
The Group’s total unrecognized tax benefits, if recognized, would reduce income tax expense and thereby would affect the Group’s effective tax rate.
F-172
The Group’s major tax jurisdiction is India and the assessments are not yet completed for fiscal 2020 and onwards. However, appeals filed by the Group are pending with various local tax authorities in India from fiscal 1990 onwards.
Significant changes in the amount of unrecognized tax benefits within the next 12 months cannot be reasonably estimated as the changes would depend upon the progress of tax examinations with various tax authorities.
| m) | Earnings per share |
Basic earnings per share is net income per weighted average equity shares. Diluted earnings per share reflects the effect that existing options would have on the basic earnings per share if they were to be exercised, by increasing the number of equity shares.
The basic and diluted earnings per share under U.S. GAAP differs to the extent that income under U.S. GAAP differs.
The following table sets forth, for the periods indicated, the computation of earnings per share as per U.S. GAAP.
Rupees in million, except per share data
| Year ended March 31, | ||||||||||||||||||||||||
| 2022 | 2021 | 2020 | ||||||||||||||||||||||
| Basic | Diluted | Basic | Diluted | Basic | Diluted | |||||||||||||||||||
| Earnings | ||||||||||||||||||||||||
| Net income attributable to ICICI Bank stockholders (before dilutive impact) | 511,792.6 | 511,792.6 | 213,700.7 | 213,700.7 | 113,337.6 | 113,337.6 | ||||||||||||||||||
| Contingent issuances of subsidiaries/equity affiliates | .. | (224.1 | ) | .. | (415.9 | ) | .. | (65.7 | ) | |||||||||||||||
| 511,792.6 | 511,568.5 | 213,700.7 | 213,284.8 | 113,337.6 | 113,271.9 | |||||||||||||||||||
| Common stock | ||||||||||||||||||||||||
| Weighted-average common stock outstanding | 6,933.7 | 6,933.7 | 6,743.4 | 6,743.4 | 6,460.0 | 6,460.0 | ||||||||||||||||||
| Dilutive effect of employee stock options.. | .. | 131.2 | .. | 86.6 | .. | 95.8 | ||||||||||||||||||
| Total | 6,933.7 | 7,064.9 | 6,743.4 | 6,830.0 | 6,460.0 | 6,555.8 | ||||||||||||||||||
| Earnings per share (Rs.) | 73.81 | 72.41 | 31.69 | 31.23 | 17.54 | 17.28 | ||||||||||||||||||
| n) | Comprehensive income |
The following table sets forth, for the periods indicated, details of comprehensive income.
F-173
Rupees in million
| Year ended March 31, | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Net income/(loss) (net of tax) excluding non-controlling interest | 511,792.6 | 213,700.7 | 113,337.6 | |||||||||
| Other Comprehensive Income: | ||||||||||||
| Net unrealized gain/(loss) on securities, net of realization & others (net of tax)1 | (33,087.7 | ) | 4,643.9 | 26,958.3 | ||||||||
| Translation adjustments (net of tax)2 | (838.1 | ) | (4,825.3 | ) | 2,283.5 | |||||||
| Employee accounting for deferred benefit pensions and other post retirement benefits (net of tax)3 | 1,161.2 | (1,050.3 | ) | (2,024.6 | ) | |||||||
| Comprehensive income attributable to ICICI Bank stockholders | 479,028.0 | 212,469.0 | 140,554.8 | |||||||||
| Comprehensive income attributable to non-controlling interests | 14,041.9 | 21,325.7 | 11,133.4 | |||||||||
| Total comprehensive income | 493,069.9 | 233,794.7 | 151,688.2 | |||||||||
| 1. | Net of tax effect of Rs. (8,963.5) million, Rs. 1,483.2 million and Rs. 9,936.4 million for the year ended March 31, 2022, March 31, 2021 and March 31, 2020 respectively. |
| 2. | Net of tax effect of Rs. (466.6) million, Rs. (1,747.0) million and Rs. 1,064.5 million for the year ended March 31, 2022, March 31, 2021 and March 31, 2020 respectively. |
| 3. | Net of tax effect of Rs. 390.6 million, Rs. (345.7) million and Rs. (911.5) million for the year ended March 31, 2022, March 31, 2021 and March 31, 2020 respectively. |
| 4. | The effect of the change in the tax rate is recognized by the Group in the income from continuing operations. The residual tax effect remains within accumulated other comprehensive income and is released only when the entire portfolio is liquidated. |
| o) | Guarantees |
As a part of its project-financing and commercial banking activities, the Group has issued guarantees to enhance the credit standing of its customers. These generally represent irrevocable assurances that the Group will make payments in the event that the customer fails to fulfill its financial or performance obligations. Financial guarantees are obligations to pay a third party beneficiary where a customer fails to make payment towards a specified financial obligation. Performance guarantees are obligations to pay a third party beneficiary where a customer fails to perform a non-financial contractual obligation. The guarantees are generally for a period not exceeding 10 years.
The credit risks associated with these products, as well as the operating risks, are similar to those relating to other types of financial instruments. The current carrying amount of the liability for the Group’s obligations under the guarantees at March 31, 2022 amounted to Rs. 8,049.8 million (March 31, 2021: Rs. 7,782.9 million).
The following table sets forth, the details of guarantees outstanding at March 31, 2022.
Rupees in million
| Nature of guarantee | Maximum potential amount of future payments under guarantee | |||||||||||||||||||
Less than 1 year | 1 - 3 years | 3 - 5 years | Over 5 years | Total | ||||||||||||||||
| Financial guarantees | 257,758.7 | 266,161.4 | 30,650.5 | 6,061.5 | 560,632.1 | |||||||||||||||
| Performance guarantees | 260,614.3 | 343,329.8 | 74,327.6 | 17,203.8 | 695,745.5 | |||||||||||||||
| Total guarantees | 518,373.0 | 609,491.2 | 104,978.1 | 23,265.3 | 1,256,107.6 | |||||||||||||||
F-174
The following table sets forth, the details of guarantees outstanding at March 31, 2021.
Rupees in million
| Nature of guarantee | Maximum potential amount of future payments under guarantee | |||||||||||||||||||
Less than 1 year | 1 - 3 years | 3 - 5 years | Over 5 years | Total | ||||||||||||||||
| Financial guarantees | 167,689.2 | 284,681.5 | 17,057.7 | 4,635.8 | 474,064.2 | |||||||||||||||
| Performance guarantees | 252,555.1 | 352,773.5 | 62,826.2 | 23,906.6 | 692,061.4 | |||||||||||||||
| Total guarantees | 420,244.3 | 637,455.0 | 79,883.9 | 28,542.4 | 1,166,125.6 | |||||||||||||||
The Group has collateral available to reimburse potential losses on its guarantees. At March 31, 2022, margins in the form of cash and fixed deposit available to the Group to reimburse losses realized under guarantees amounted to Rs. 220,022.8 million (March 31, 2021: Rs. 172,042.8 million). Other property or security may also be available to the Group to cover losses under these guarantees.
Performance risk
For each corporate borrower, a credit rating is assigned at the time the exposure is being evaluated for approval and the rating is reviewed periodically thereafter. At the time of assigning a credit rating, the possibility of non-performance or non-payment is evaluated. Additionally, an assessment of the borrower's capacity to repay obligations in the event of invocation is also evaluated. Thus, a comprehensive risk assessment is undertaken at the time of sanctioning such exposures and reviewed periodically thereafter.
| 23. | Regulatory matters |
Statutory liquidity requirement
In accordance with the Banking Regulation Act, 1949, the Bank is required to maintain a specified percentage of its net demand and time liabilities by way of liquid unencumbered assets like cash, gold and approved securities. The amount of securities required to be maintained at March 31, 2022 was Rs. 1,853,475.8 million (March 31, 2021: Rs. 1,656,856.3 million), and the Bank complied with the requirement throughout the year.
Capital Adequacy
The Bank is subject to Basel III capital adequacy guidelines stipulated by the Reserve Bank of India with effect from April 1, 2013. As per the guidelines, the Tier-1 capital is made up of Common Equity Tier-1 and additional Tier-1.
At March 31, 2022, the Bank is required to maintain minimum Common Equity Tier-1 capital ratio of 8.20%, minimum Tier-1 capital ratio of 9.70% and minimum total capital ratio of 11.70%. The minimum total capital requirement includes capital conservation buffer of 2.50% and additional Common Equity Tier-1 capital surcharge of 0.20% on account of the Bank being designated as a Domestic Systemically Important Bank. Under Pillar 1 of the Reserve Bank of India guidelines on Basel III, the Bank follows the standardized approach for measurement of credit risk, standardized duration method for measurement of market risk and basic indicator approach for measurement of operational risk.
The total capital adequacy ratio of the Bank calculated in accordance with the Reserve Bank of India guidelines on Basel III at March 31, 2022 was 19.16% (March 31, 2021: 19.12%). These are based on unconsolidated financial statements as per Indian GAAP.
| 24. | Impact of Covid-19 on the performance of the Group |
During fiscal 2021, the Covid-19 pandemic resulted in a nation-wide lockdown in April-May 2020 which substantially impacted economic activity. The subsequent easing of lockdown measures led to gradual improvement in economic activity and progress towards normalcy from the second half of fiscal 2021. For the banking sector, these developments resulted in lower demand for loans and fee-based services and regulatory measures like moratorium on payment of dues and standstill in asset classification to mitigate the economic consequences on borrowers. It also resulted in increase in provisioning reflecting higher actual and expected additions to non-performing loans following the cessation of moratorium and asset classification standstill. In the fiscal 2022, India witnessed two more
F-175
waves of the Covid-19 pandemic and the re-imposition of localised/regional lock-down measures in certain parts of the country.
While the number of new Covid-19 cases have reduced significantly and the Government of India has withdrawn Covid-19 related restrictions, the future trajectory of the pandemic may have an impact on the results of the Bank and the Group.
F-176
| 25. | Impact of deconsolidation of ICICI General on previous period numbers |
From September 8, 2021 (the effective date of merger), ICICI General ceased to be a subsidiary and became affiliate of the Bank and accordingly has been accounted as per the equity method of accounting in Consolidated Financial Statements under U.S. GAAP. Accordingly, the numbers for previous periods may not be comparable.
For and on behalf of Board of Directors
|
/s/ Sandeep Bakhshi Managing Director & CEO |
/s/ Sandeep Batra Executive Director |
|
/s/ Anindya Banerjee Group Chief Financial Officer |
/s/ Ranganath Athreya Company Secretary |
|
/s/ Rajendra Khandelwal Chief Accountant |
Mumbai
July 29, 2022
F-177
Exhibit 2.5
Exhibit 2.6
DESCRIPTION OF SECURITIES
REGISTERED UNDER SECTION 12 OF THE EXCHANGE ACT
As of March 31, 2022, ICICI Bank Limited (“we,” “us,” and “our”) had the following series of securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class |
Trading symbol |
Name of each exchange on which registered | ||
| American Depositary Shares, each representing two equity shares of ICICI Bank Limited, par value Rs. 2 per share | IBN | New York Stock Exchange |
Our equity shares are traded on the BSE Limited (formerly known as the Bombay Stock Exchange Limited) (“BSE”) and National Stock Exchange of India Limited (“NSE”), (collectively, the “Indian Stock Exchanges”) under the ticker symbols “532174” and “ICICIBANK”, respectively. Our American Depositary Shares (or “ADSs”), as evidenced by American Depositary Receipts (or “ADRs”), are traded in the United States on the New York Stock Exchange (“NYSE”) under the ticker symbol “IBN.” Each ADS represents two equity shares. Our ADSs began trading on the NYSE in March 2000.
In connection with the registration of our ADSs pursuant to the requirements of the Securities and Exchange Commission (but not for trading), our equity shares are registered under Section 12(b) of the Exchange Act. This exhibit contains a description of the rights of (i) the holders of equity shares and (ii) ADR holders. Equity shares underlying the ADSs are held by Deutsche Bank Trust Company Americas, the depositary, and holders of ADSs will not be treated as holders of the equity shares.
The following summary is subject to and qualified in its entirety by our Memorandum and Articles of Association, as amended, and by Indian law, particularly the Indian Companies Act, 2013, as amended (the “Companies Act”).
This is not a summary of all the significant provisions of our Memorandum and Articles of Association, or of Indian law and does not purport to be complete. Capitalized terms used but not defined herein have the meanings given to them in our annual report on Form 20-F for the fiscal year ended March 31, 2022 (the “2022 Form 20-F”).
ORDINARY SHARES
Item 9. General
9.A.3. Pre-emptive rights
A company incorporated in India must offer its holders of equity shares preemptive rights to subscribe and pay for a proportionate number of shares to maintain their existing ownership percentages prior to the issuance of any new equity shares, unless these rights have been waived by at least three-fourths of the company’s shareholders present and voting at a shareholders’ general meeting.
United States investors in ADSs may be unable to exercise these preemptive rights for equity shares underlying ADSs unless a registration statement under the Securities Act of 1933, as amended (the “Securities Act”) is effective with respect to such rights or an exemption from the registration requirements of the Securities Act is available. Our decision to file a registration statement will depend on the costs and potential liabilities associated with any such registration as well as the perceived benefits of enabling investors in ADSs to exercise their preemptive rights and any other factors we consider appropriate at such time. To the extent that investors in ADSs are unable to exercise preemptive rights, their proportional ownership interests in us would be reduced.
9.A.5. Type and class of securities
(a) Generally
Each ADS represents two equity shares. At June 30, 2022, we had approximately 580.29 million ADSs, equivalent to about 1,160.58 million equity shares, outstanding. At June 30, 2022, there were 126,178 record holders of our ADSs, out of which 85 have registered addresses in the United States. The equity shares are in registered form. Our equity shares and their holders are registered in a registry of members. All of our equity shares have equal voting rights and carry equal entitlements to dividends.
ADS holders seeking to sell in India any equity shares withdrawn upon surrender of ADSs, convert the rupee proceeds from such sale into a foreign currency or repatriate such foreign currency may need the Reserve Bank of India’s approval for each such transaction. Under current Indian regulations, an ADS holder who surrenders ADSs and withdraws equity shares may deposit those equity shares again in the depositary facility in exchange for ADSs. An investor who has purchased equity shares in the Indian market may also deposit those equity shares in the ADS program. However, the deposit of equity shares may be subject to securities law restrictions and the restriction that the cumulative aggregate number of equity shares that can be deposited as of any time cannot exceed the cumulative aggregate number represented by ADSs converted into underlying equity shares as of such time. These restrictions increase the risk that the market price of our ADSs will be below that of the equity shares.
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(b) Restrictions on transfer
The issue or transfer of any security of an Indian company by a person resident outside, foreign investment in equity instruments (shares, convertible debentures, convertible preference shares and share warrants) as well as issuance of rupee denominated shares for issuing ADSs, are all governed by applicable rules and regulations issued under the Foreign Exchange Management Act, 1999 and by the Securities and Exchange Board of India and shall be only in accordance with the terms and conditions specified under such rules and regulations.
The foreign investment limit in Indian companies shall include, in addition to foreign direct investments, investment by Foreign Portfolio Investors, Non-Resident Indians, Foreign Currency Convertible Bonds, American Depository Receipts, Global Depository Receipts and convertible preference shares held by foreign entities.
Foreign Direct Investment
The Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (the “Rules”), as amended, among other things, provide for the following restrictions on foreign ownership for private sector banks:
| · | Foreign investors (including indirect foreign investment made by foreign portfolio investors) may own up to 74.0% of the equity share capital of a private sector bank in India subject to rules and regulations issued by the Government of India and the Reserve Bank of India from time to time. While foreign investment up to 49.0% in private sector banks is under automatic route and does not require any specific approval, foreign investment beyond 49.0% and up to 74.0% requires prior approval of the Government of India, unless such investments are otherwise exempted from the requirement for approval. Investments by foreign investors exempted from the requirement for Government of India approval include aggregate foreign portfolio investment (as defined in the Rules) up to 49% or sectoral cap, (whichever is lower) that does not result in the transfer of ownership or control from residents to non-resident investors, and foreign investment through rights and bonus issues fulfilling certain conditions laid out in the Rules. Additionally, in case of proposals requiring prior approval of the Government of India, those proposals involving total foreign equity inflow of more than Rs. 50.0 billion, shall require approval of the Cabinet Committee on Economic Affairs. The aggregate foreign investment limit of 74.0% includes investments by way of foreign direct investments, ADSs/ Global Depositary Receipts (Depository Receipts), Foreign Currency Convertible Bonds (mandatorily and compulsorily convertible) and investment under the Portfolio Investment Scheme by foreign portfolio investors and non-resident Indians/ Overseas Citizens of India, and also includes shares acquired by subscription to private placements and public offerings and acquisition of shares from existing shareholders. At least 26.0% of the paid-up capital would have to be held by Indian residents at all times, except in regard to a wholly owned subsidiary of a foreign bank. |
| · | An individual non-resident Indian’s holding is restricted to 5.0% of the total paid-up share capital both on repatriation and non-repatriation basis and the aggregate limit of investment by all non-resident Indians cannot exceed 10.0 % of the total paid up capital both on repatriation and non-repatriation basis. However, non-resident Indian holdings can be allowed up to 24.0% of the total paid-up capital, both on repatriation and non-repatriation basis, subject to a special resolution to this effect passed by the shareholders of the bank. |
| · | Any foreign investment in private banks by any person (including his relatives and associate enterprises and persons acting in concert) whereby such shareholding reaches or exceeds 5.0% shall require prior approval from the Reserve Bank of India for acquisition of shares or voting rights. The Reserve Bank of India shall assess the “fit and proper” status of such foreign investors according to the criteria laid down under the Master Direction dated November 19, 2015 on ‘Prior approval for acquisition of shares or voting rights in private sector banks’ and the Master Direction – Ownership in Private Sector Banks Directions, 2016 issued by the Reserve Bank of India, which will include extensive information on ownership of the investors and beneficial interest in the shares/voting rights being acquired. Additionally, the ceiling on voting rights is 26.0% of the total voting rights of a bank. |
Under the Portfolio Investment Scheme:
| · | Effective from April 1, 2020, foreign portfolio investors, as referred in Securities and Exchange Board of India (FPI) Regulations, 2019, may hold share capital up to sectoral cap applicable to such Indian company. However, an Indian company may, with the resolution of its Board of Directors and a special resolution: (i) decrease the aggregate limit before March 31, 2020 to a lower threshold of 24% or 49% or 74% or (ii) increase the aggregate limit to 49% or 74% or the sectoral cap or any statutory ceiling. However, once the aggregate limit is increased, the limit cannot be reduced later. No single foreign portfolio investor may own 10% or more of total paid-up equity capital on behalf of itself or its sub-accounts. |
| · | Overseas corporate bodies are not permitted to invest under the Portfolio Investment Scheme, although they may continue to hold investments that have already been made under the Portfolio Investment Scheme until such time as these investments are sold on the stock exchange. Overseas corporate bodies are derecognized as a class of investor entity by the Reserve Bank of India under various routes and schemes under the foreign exchange rules and regulations. |
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Foreign Portfolio Investment– Conditions and Restrictions
The Securities and Exchange Board of India issued SEBI (Foreign Portfolio Investors) Regulations, 2019. A foreign portfolio investor registered with the Securities and Exchange Board of India can purchase shares or convertible debentures or warrants issued by a body corporate; listed or to be listed on a recognized stock exchange in India and other securities as specified in regulation 20 of SEBI (Foreign Portfolio Investors) Regulations, 2019 of an Indian company. The total holding by each foreign portfolio investor or an investor group shall be less than 10.0% of the total paid-up equity capital on a fully diluted basis or less than 10.0% of the paid-up value of each series of debentures or preference shares or share warrants issued by an Indian company. The purchase of equity shares of each company by a single foreign portfolio investor including its investor group shall be below ten percent of the total paid up equity capital on a fully diluted basis of the company: Provided that if where the total investment by a foreign portfolio investor including its investor group exceeds the aforementioned threshold of below 10.0%, of the total paid up equity capital in a listed or to be listed company on a fully diluted basis, the foreign portfolio investor shall divest the excess holding within five trading days from the date of settlement of the trades resulting in the breach. In case the foreign portfolio investor fails to divest the excess holding, the entire investment in the company by such foreign portfolio investors including its investor group shall be considered as investment under the foreign direct investment scheme, and the foreign portfolio investor and its investor group shall not make further portfolio investments in that company. The aggregation of investment limits of foreign portfolio investors is based on common ultimate beneficial ownership. Except for the exemptions provided in these regulations, Multiple entities registered as foreign portfolio investors and directly or indirectly having common ownership of more than 50.0% or common control, shall be treated as part of the same investor group and the investment limits of all such entities shall be aggregated at the investment limit as applicable to a single foreign portfolio investor.
Transfer of equity instruments by a person resident outside India
The Government of India regulates foreign ownership in Indian banks. Foreign investors (including indirect foreign investment made by foreign portfolio investors) may own up to 74.0% of the equity share capital of a private sector bank in India subject to rules and regulations issued by the Government of India and the Reserve Bank of India from time to time. While foreign investments of up to 49.0% in private sector banks does not require any specific approval, foreign investments beyond 49.0% and up to 74.0% require prior approval of the Government of India, unless such investments are otherwise exempted from the requirement for approval. Investments by foreign investors exempted from the requirement for Government of India approval include certain aggregate foreign portfolio investments up to 49.0% or the relevant sectoral cap (whichever is lower) that do not result in the transfer of ownership or control of the resident Indian company from resident Indian citizens to non-resident investors, and foreign investment through rights and bonus issues fulfilling certain conditions laid out in the applicable laws and statute. Additionally, in the case of proposals requiring prior approval of the Government of India, such proposals involving total foreign equity inflow of more than Rs. 50.0 billion also require approval of the Cabinet Committee on Economic Affairs. Additionally, the transfer of equity shares by a person resident outside India may also be subject to pricing and other requirements depending inter alia on the mode of transfer and the residency in India of the transferee.
A person resident outside India, holding equity instruments of an Indian company or units in accordance with these rules may transfer the same to a person resident in India by way of sale or gift or may sell the same on a recognized stock exchange in India in the manner specified by the Securities and Exchange Board of India:
Provided that. -
i. the transfer by way of sale shall be in compliance with and subject to the adherence to pricing guidelines, documentation and reporting requirements for such transfers as may be specified by the Reserve Bank in consultation with the central Government from time to time;
ii. where the equity instruments are held by the person resident outside India on a non-repatriable basis, conditions at item (i) of the proviso shall not apply.
Guidelines with regard to shareholding in private sector banks issued by the Reserve Bank of India are as follows:
| · | individual and non-financial corporate entities can have a shareholding up to 10.0% in private sector banks; |
| · | Non regulated or non-diversified unlisted financial institutions can hold up to 15.0%; |
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| · | Regulated, well-diversified listed financial institutions including the Government of India can hold up to 40.0%; and |
| · | higher stake by promoters/non-promoters through capital infusion by domestic or foreign entities will require the approval of the Reserve Bank of India. |
Voting rights are capped at 26.0%. However, any acquisition of shareholding/voting rights of 5.0% or more will require the prior approval of the Reserve Bank of India.
Reporting of foreign investments
In June 2018, the Reserve Bank of India issued revised guidelines on reporting of foreign investments with the objective of integrating different reporting structures for foreign investments in India. As per the guidelines issued on June 7, 2018, a Single Master Form has been introduced that will be filed online. The Single Master Form would provide a facility for reporting total foreign investments in an Indian entity as well as investments by persons residing outside India in an investment vehicle.
Prior to the implementation of the Single Master Form, an interface was provided by the Reserve Bank of India for companies to input their data on total foreign investments in the specified format. This interface was available from June 28, 2018 to July 12, 2018. Indian entities not complying with this pre-requisite will not be able to receive foreign investments (including indirect foreign investments) and will be deemed non-compliant under Foreign Exchange Management Act, 1999 and regulations made thereunder.
From September 2018, all the reporting prescribed under “Foreign Investment in India”, except if specifically stated otherwise, is required to be done through the Single Master Form (SMF) available on the FIRMS platform of the Reserve Bank of India.
Currently, an Indian entity or an investment vehicle making a downstream investment in another Indian entity which is considered as indirect foreign investment for the investee Indian entity in terms of Foreign Exchange Management (Non-Debt Instrument) Rules, 2019, shall notify the Secretariat for Industrial Assistance about such investment (including modality of investment in new/existing ventures) within 30 days, even if shares have not been allotted. Such entity or investment vehicle shall also file Form DI with the Reserve Bank of India within 30 days from the date of allotment of equity instruments.
Issue of ADSs
Indian companies were permitted to raise foreign currency resources through the issuance of shares represented by ADSs to foreign investors under the Depository Receipts Scheme 2014. Such issuance is subject to sectoral cap, entry route, minimum capitalization norms, pricing norms among other things, as applicable as per the rules and regulations notified by the Government of India and/or Reserve Bank of India from time to time in this regard.
An Indian company issuing ADSs must comply with certain reporting requirements specified by the Reserve Bank of India. An Indian company may issue ADSs if it is eligible to issue shares to persons resident outside India under the foreign direct investment scheme, and shall not exceed the limit on foreign holding of such eligible securities under the extant Foreign Exchange Management Act and the rules made thereunder, as amended from time to time. Similarly, an Indian company which is not eligible to raise funds from the Indian capital markets, including a company which has been restricted from accessing the securities markets by the Securities and Exchange Board of India, will not be eligible to issue ADSs. As per the Depository Receipts Scheme, if the issue or purchase of permissible securities underlying the depository receipts does not require approval under the Foreign Exchange Management Act, no Government of India approval will be required for issuance, purchase or holding of such depository receipts.
For disposal of ADS, investors may need to seek approval from Government of India on a case-by-case basis. However, overseas corporate bodies as defined under applicable rules, which are not eligible to invest in India and entities prohibited to buy, sell or deal in securities by the Securities and Exchange Board of India are not eligible to subscribe to ADSs issued by Indian companies. Notwithstanding the foregoing, if any investor were to withdraw its equity shares from the ADS program, its investment would be subject to the general restrictions on foreign ownership noted above and may be subject to the portfolio investment restrictions. Secondary purchases of securities of a banking company in India by foreign direct investors or investments by non-resident Indians, and foreign portfolio investors above the ownership levels set forth above require the Indian government’s approval on a case-by-case basis. It is unclear whether similar case-by-case approvals of ownership of equity shares withdrawn from the depositary facility by non-resident Indians, overseas corporate bodies and foreign portfolio investors would be required.
Furthermore, if an investor withdraws equity shares from the ADS program and its direct or indirect holding in us is equal to or exceeds 25.0% of our total equity, or when such holding is or exceeds 25.0% of the total equity and thereafter such investor acquires additional 5.0% equity within any financial year, such investor may be required to make a public offer to the remaining shareholders under the Takeover Code.
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Depository Receipts Scheme, 2014
An eligible person may now, issue or transfer eligible securities to a foreign depository for the purpose of issuance of depository receipts in terms of Depository Receipts Scheme, 2014, as amended. However, depository receipts issued under the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 shall be deemed to have been issued under the corresponding provisions of the Depository Receipts Scheme 2014.
9.A.6. Limitations or qualifications
Not applicable.
9.A.7. Other rights
Not applicable.
Item 10.B. Memorandum and articles of association
10.B.3. Shareholder rights
(a) Dividend rights and bonus shares.
Under Indian law, a company pays dividends upon a recommendation by its Board of Directors and approval by a majority of the shareholders at the annual general meeting of shareholders held within six months from the end of each fiscal year. The shareholders have the right to decrease but not increase the dividend amount recommended by the Board of Directors. Dividends may be paid out of the company’s profits for the fiscal year for which the dividend is declared or out of undistributed profits of prior fiscal years, after excluding amount representing unrealized gains, notional gains or revaluation of assets and any change in carrying amount of an asset or of a liability on measurement of the asset or the liability at fair value. Dividends can also be paid by a company in the interim period, termed “interim dividend” which does not require the approval of the shareholders unless it is combined with the final dividend being recommended by the Board of Directors.
Under the Companies Act, 2013 and rules made thereunder, dividends may be paid out of profits of a company in that financial year in which the dividend is declared after providing for depreciation or out of the undistributed profits of previous fiscal years after providing for depreciation. Before declaring any dividend in any financial year, company may transfer a percentage of its profits which it considers appropriate to its reserves. The Companies Act, 2013 further provides that in case of an inadequacy or absence of profits in any year, a maximum of 10% of paid-up capital and free reserves can be declared as dividend, subject to other provisions contained in the Companies (Declaration and Payment of Dividend) Rules, 2014.
The Companies Act, 2013 provides that any dividends that remain unpaid or unclaimed after a period of 30 days from the date of their declaration are to be transferred to a special bank account opened by the company at an approved bank. We transfer any dividends that remain unpaid or unclaimed within 7 days from the date of expiration of such 30 days period to such account. If any amount in this account has not been claimed by the eligible shareholders within seven years from the date of the transfer, we transfer the unclaimed dividends to an Investor Education and Protection Fund established by the Government of India under the provisions of the Companies Act, 2013.
In addition to the Companies Act, 2013, the Banking Regulation Act, 1949 (the “Banking Regulation Act”) requires banks to completely write off capitalized expenses and transfer 20.0% of the disclosed yearly profit to a reserve account before declaring a dividend.
Banks have to comply with the following prudential requirements to be eligible to declare dividends:
| · | The capital adequacy ratio is at least 9.0% for the preceding two completed years and the accounting year for which the bank proposes to declare a dividend. |
| · | The net non-performing asset ratio is less than 7.0%. |
| · | The Bank is in compliance with the prevailing regulations and guidelines issued by the Reserve Bank of India, including the creation of adequate provision for the impairment of assets, staff retirement benefits, transfer of profits to statutory reserves, etc. |
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| · | In case a bank does not meet the capital adequacy norms for two consecutive years, but has a capital adequacy ratio of at least 9.0% for the accounting year for which it proposes to declare a dividend, it would be eligible to do so if its net non-performing asset ratio is less than 5.0%. Banks that are eligible to declare dividends under the above rules can do so subject to the following: |
| · | The dividend payout ratio (calculated as a percentage of dividend payable in a year to net profit during the year) must not exceed 40.0%. The maximum permissible dividend payout ratio would vary from bank to bank, depending on the capital adequacy ratio in each of the last three years and the net non-performing asset ratio. Banks should have a minimum capital adequacy ratio of 9.0% for three consecutive years (including the accounting year for which it proposes to declare dividend) and a net non-performing assets ratio of less than 7.0% to be eligible to declare dividends. A bank with a net non-performing assets ratio of less than 3.0% can declare a dividend of up to 35.0% if its capital adequacy ratio for three years is 11.0% or above, a dividend of 30.0% if its capital adequacy ratio is 10.0% or more and up to 25.0% if its capital adequacy ratio is 9.0% or above. A bank with a net non-performing assets ratio between 3.0% and 5.0% can declare a dividend of up to 25.0%, 20.0% and 15.0% against the three-year capital adequacy ratio of 11.0%, 10.0% and 9.0%, respectively. Similarly, a bank with a net non-performing assets ratio between 5.0% and 7.0% can declare a dividend of up to 15.0%, 10.0% and 5.0% against the three-year capital adequacy ratios of 11.0%, 10.0% and 9.0%, respectively. |
| · | The proposed dividend will be paid out of the current year’s profit. |
| · | If the profit for the relevant period includes any extraordinary income, the payout ratio must be calculated after excluding that income for compliance with the prudential payout ratio. |
| · | The financial statements pertaining to the financial year for which the bank is declaring a dividend should be free of any qualification by the statutory auditors, which might have an adverse effect on the profit during that year. If there are any such qualifications, the net profit should be suitably adjusted while computing the dividend payout ratio. |
| · | There might be other restrictions on our ability to declare dividends promulgated by the relevant Indian regulatory authorities, including the Reserve Bank of India, that needs to be observed from time to time. |
| · | The Reserve Bank of India has stipulated that banks may declare and pay dividend out of the profits from the relevant accounting period, without prior approval of the Reserve Bank of India if they satisfy the minimum prudential requirements and subject to the prudential cap on dividend payout ratio prescribed in the guidelines issued in this regard by the Reserve Bank of India. Equity shares issued by us are pari passu in all respects including dividend entitlement. |
In addition to permitting dividends to be paid out of current or retained earnings, the Companies Act, 2013 permits our board of directors to distribute to the shareholders, in the form of fully paid-up bonus equity shares, an amount transferred from the capital surplus reserve or legal reserve to stated capital. Bonus equity shares can be issued subject to RBI Direction on Issue and Pricing of shares by Private Sector Banks, Directions, 2016. These bonus equity shares must be distributed to shareholders in proportion to the number of equity shares owned by them.
(b) Voting rights.
A shareholder has one vote for each equity share and voting may be by a show of hands or on a poll. On a show of hands, every shareholder present in person shall have one vote and on a poll, the voting rights of a shareholder shall be as provided in Section 47 of the Companies Act, 2013, but will subject to the ceiling of 26% stipulated in terms of Section 12(2) of the Banking Regulation Act or under any of the proviso or explanation to Section 12 of the Banking Regulation Act. As provided in our Articles of Association, a shareholder may exercise his voting rights by proxy to be given in the form prescribed by us. This proxy, however, is required to be lodged with us at least 48 hours before the time of the relevant meeting. A shareholder may, by a single power of attorney, grant general power of representation covering several general meetings. A corporate shareholder is also entitled to nominate a representative to attend and vote on its behalf at all general meetings.
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ADS holders have no voting rights with respect to the deposited shares. The depositary will exercise voting rights in respect of the deposited equity shares as directed by the board of directors. The depositary will not, under any circumstances, be obliged to exercise any discretion in relation to the exercise or non-exercise of voting rights. ADS holders may withdraw the equity shares underlying their ADSs and seek to exercise voting rights under the equity shares obtained from the withdrawal. However, for foreign investors, this withdrawal process may be subject to delays.
Resolutions are adopted at a general meeting by a majority of the shareholders having voting rights present or represented. The quorum for a general meeting is as prescribed under Section 103 of the Companies Act, 2013 and other applicable laws. Generally, resolutions may be passed by simple majority of the shareholders present and voting at any general meeting. However, certain resolutions, such as an amendment to the organizational documents, commencement of a new line of business, an issue of additional equity shares without preemptive rights and reductions of share capital, require that the votes cast in favor of the resolution (whether by show of hands or on a poll) are not less than three times the number of votes, if any, cast against the resolution.
Any company which is required to mandatorily provide its members with a facility to exercise their right to vote on resolutions at a general meeting by electronic means can pass the above-mentioned resolutions through electronic vote instead of postal ballot. Companies whose equity shares are listed on recognized stock exchange and if it has not less than one thousand members are compulsorily required to provide their members with a facility to exercise their right to vote on resolutions at a general meeting by electronic means. Our equity shares are listed on a recognized stock exchange and it has more than one thousand members. Hence, we are eligible to pass the above-mentioned resolutions by electronic vote.
The Companies Act, 2013 and our Memorandum and Articles of Association require that at least two-thirds of our non-independent directors be subject to retirement by rotation. Our Memorandum and Articles of Association also provides that we may execute trust deeds in respect of our debentures under which the trustee or trustees may appoint a director, known as the debenture director. The debenture director is not subject to retirement by rotation and may only be removed as voided in the relevant trust deed. At every annual general meeting, one-third of the directors who are subject to re-election must retire from the Board. However, if eligible for re-election, they may be re-elected by our shareholders at the annual general meeting. Executive directors are appointed by the Board for a maximum period of five years. An independent director shall hold office for a term of up to five consecutive years and will be eligible for reappointment on the passing of a special resolution by the shareholders.
The Banking Regulation Act requires that at least 51% of our directors should have special knowledge or practical experience in banking and areas relevant to banking including accounting, finance, law, economics, agriculture and small scale industry. The Reserve Bank of India in November 2016 has broadened the fields of specialization to include information technology, payment & settlement systems, human resources, risk management and business management. The appointment of the chairman and executive directors requires the approval of the Reserve Bank of India, in addition to the approval of our shareholders that is generally required for the appointment of all directors (other than the government director and the debenture director, if any).
(c) Rights to share in our profits.
See “Dividend Rights” in subsection (a) above.
(d) Rights to share in any surplus in the event of our liquidation.
Subject to the rights of depositors, creditors, employees and holders of any preference shares entitled to preferential prepayment over the equity shares, in the event of our winding up, the holders of the equity shares are entitled to be repaid the amounts of capital paid up or credited as paid up on such equity shares. All surplus assets remaining after payments are made to the holders of any preference shares belong to the holders of the equity shares in proportion to the amount paid up or credited as paid up on such equity shares, respectively, at the commencement of the winding-up.
In the event of our liquidation, the provisions contained in the Banking Regulation Act will apply and provisions of the Companies Act, 2013 will also apply to the extent to which they are not varied or inconsistent with the Banking Regulation Act.
(e) Redemption provisions.
Not applicable.
(f) Sinking fund provisions.
Not applicable.
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(g) Liability to further capital calls by us.
Although our Memorandum and Articles of Association do provide for certain capital call obligations in respect of any monies unpaid on the shares of a shareholder, all of our issued and outstanding shares have been fully paid in. Accordingly, our shareholders are not obliged to make further contributions with respect to their shares.
(h) Any provision discriminating against any existing or prospective holder of such securities as a result of such shareholder owning a substantial number of shares.
According to applicable Indian laws and regulations, including the Rules, any foreign investment in private banks by any person (including his relatives and associate enterprises and persons acting in concert) whereby such shareholding reaches or exceeds 5.0% shall require prior approval from the Reserve Bank of India for acquisition of shares or voting rights. Additionally, the ceiling on voting rights is 26.0% of the total voting rights of a bank. For details, please see item 9.A.5(b) “Restrictions on Transfer – Foreign Direct Investment” and 10.B.3(b) “Voting Rights.”
For a summary of the other restrictions under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (the “Takeover Code”) and the Banking Regulations Act, see item 9.A.5. “Type and class of securities” set forth above.
10.B.4. Changes to shareholder rights
Currently, only one class of equity shares is authorized and outstanding under our Memorandum and Articles of Association. However, if, at any time, our share capital is divided into different classes of shares, the rights and privileges attached to the shares of any class (unless otherwise provided by the terms of issue of the shares of that class) may, subject to the provisions of the Companies Act, 2013 and the Banking Regulation Act and whether or not the Company is being wound up, be varied, modified, commuted, affected or abrogated with the consent in writing of the holders of not less than three-fourths of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of the issued shares of that class. If a capital increase is approved, then our shareholders would generally have certain pre-emptive rights as described under item 9.A.3 above.
10.B.6. Limitations on rights to own securities
No limitations on the rights to own securities are applicable under our memorandum and articles of association. However, for a summary of the restrictions on transfers applicable to both foreign direct investments and portfolio investments, including the requirements under Indian law applicable to the issuance and transfer of ADSs, see item 9.A.5. set forth above.
10.B.7 Change in control
According to applicable Indian laws and regulations, including the Rules, any foreign investment in private banks by any person (including his relatives and associate enterprises and persons acting in concert) whereby such shareholding reaches or exceeds 5.0% shall require prior approval from the Reserve Bank of India for acquisition of shares or voting rights. In addition, the ceiling on voting rights is 26.0% of the total voting rights of a bank. For details, please see item 9.A.5(b) “Restrictions on Transfer – Foreign Direct Investment” and item 10.B.3(b) “Voting Rights” set forth above.
According to our Memorandum of Articles of Association, our Board may in its absolute and uncontrolled discretion refuse to register any transfer of equity shares if the total nominal value of the transferred securities exceeds, or together with the total nominal value of the securities held by such transferee will exceed, 1% of our paid-up equity share capital or, if as a result of the transfer a change in the composition of the Board or change in our controlling interest is likely to take place and that such change would be prejudicial to our interest or to the public interest.
There are other transfer restrictions imposed under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, which may have an effect of delaying, deferring or preventing a change in control. For details, see item 9.A.5. “Type and class of securities” set forth above.
Under the Banking Regulation Act, the government may, after consultation with the Reserve Bank of India, in the interest of our depositors or banking policy or better provision of credit generally or to a particular community or area, acquire our banking undertaking. The Reserve Bank of India may acquire our business if it is satisfied that we have failed to comply with the directions given to us by the Reserve Bank of India or that our business is being managed in a manner detrimental to the interest of our depositors.
10.B.8 Disclosure of shareholdings
The provisions of the Companies Act, 2013 generally require beneficial owners of equity shares of Indian companies that are not holders of record to declare to the company details of the holder of record and holders of record to declare details of the beneficial owner. While it is unclear whether these provisions apply to holders of an Indian company’s ADSs, investors who exchange ADSs for equity shares are subject to this provision. Failure to comply with these provisions would not affect the obligation of a company to register a transfer of equity shares or to pay any dividends to the registered holder of any equity shares in respect of which this declaration has not been made, but any person who fails to make the required declaration may be liable for an initial fine of up to Rs. 50,000 coupled with a further fine of up to Rs. 200 for each day this failure continues, subject to a maximum of Rs. 5,00,000. However, under the Banking Regulation Act, a registered holder of any equity shares, except in certain conditions, shall not be liable to any suit or proceeding on the ground that the title to those equity shares vests in another person.
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10.B.9 Differences in the law
See the references to Indian law throughout this “Item 10.B Memorandum and articles of association.”
10.B.10. Changes in capital
The requirements of the memorandum and articles of association regarding changes in capital are not more stringent than the requirements of Indian law.
Item 12. Description of Securities Other than Equity Securities
12.A Debt securities.
Not applicable.
12.B Warrants and rights
Not applicable.
12.C Other securities
Not applicable.
12.D American Depositary Shares
Deutsche Bank Trust Company Americas has been appointed as the depositary pursuant to the Deposit Agreement and the Letter Agreement entered into on March 8, 2005, as amended from time to time. Deutsche Bank Trust Company Americas’ principal executive office is located at 60 Wall Street, New York, N.Y. 10005.
Each of our American Depositary Shares (or “ADSs”), as evidenced by American Depositary Receipts (or “ADRs”), represents two of our equity shares. Our ADSs are issued by the depositary, and not by us. The ADR is vested with rights defined and enumerated in the Deposit Agreement (such as the rights to vote and to receive a dividend). Only the depositary is registered as shareholder in our share register. An ADR is not an equity share and an ADR holder is not a shareholder of our company.
The following is a summary of the material provisions of the Deposit Agreement. As it is a summary, it does not contain all the information that may be important to you. For more complete information, you should read the entire deposit agreement and the ADR. Copies of the deposit agreement and the ADR will be available for inspection at the Corporate Trust Office of the depositary and at the office of the custodian.
Share Dividends and Other Distributions
The depositary has agreed to pay to you the cash dividends or other distributions it or the custodian receives on equity shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of equity shares your ADSs represent.
Cash
The depositary will, as promptly as practicable, convert any cash dividend or other cash distribution we pay on the equity shares into U.S. dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars to the United States. If that is not possible or if any approval from any government is needed and cannot be obtained, the deposit agreement allows the depositary to distribute the foreign currency only to those ADS holders to whom it is possible to do so. It may hold the foreign currency it cannot convert for the account of the ADS holders who have not been paid. It will not invest the foreign currency and it will not be liable for interest.
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Before making the distribution, any withholding taxes that must be paid will be deducted. See “Taxation” of the 2022 Form 20-F. The depositary will distribute only whole U.S. dollars and cents and will round fractional cents to the nearest whole cent. If exchange rates fluctuate during a time when the depositary cannot convert foreign currency, you may lose some or all of the value of the distribution.
Shares
The depositary will distribute new ADSs representing any equity share we may distribute as a free distribution, if we request it to make this distribution and provided that the depositary receives satisfactory evidence that it is legal to do so. The depositary will only distribute whole ADSs. It will sell equity shares which would require it to issue a fractional ADS and distribute the net proceeds in the same way as it does with cash. If the depositary does not distribute additional ADSs, each ADS will also represent the new equity shares.
Rights to Receive Additional Shares
If we offer holders of securities any rights to subscribe for additional equity shares or any other rights, the depositary, after consultation with us, will have discretion as to the procedure to be followed in making those rights available to you. If the depositary decides it is not legal or feasible to make these rights available to you, the Depositary may sell the rights and distribute the net proceeds. The depositary may allow rights that are not distributed or sold to lapse. In that case, you will receive no value for them.
After consultation with us, if the depositary makes rights available to you, upon instruction from you, it will exercise the rights and purchase the equity shares on your behalf. The depositary will then deposit the equity shares and issue ADSs to you. It will only exercise rights if you pay it the exercise price and any other charges the rights require you to pay.
The U.S. securities laws may restrict the sale, deposit, cancellation and transfer of the ADSs issued after exercise of rights. For example, you may not be able to trade the ADSs freely in the United States. In this case, the depositary may issue the ADSs under a separate restricted deposit agreement which will contain the same provisions as the deposit agreement, except for the changes needed to put the restrictions in place. The depositary will not offer you rights, unless those rights and the securities to which the rights relate are either exempt from registration or have been registered under the Securities Act with respect to a distribution to you. We will have no obligation to register under the Securities Act those rights or the securities to which they relate.
Other Distributions
The depositary will, after consultation with us, send to you anything else that we distribute on deposited securities by any means it thinks is legal, fair and practical, subject to the receipt of requisite approvals. If it cannot make the distribution in that way, the depositary, after consultation with us, may decide to sell what we distributed and distribute the net proceeds, subject to the receipt of requisite approvals, in which case the ADSs will also represent the newly distributed property.
The depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADS holders. We have no obligation to register ADSs, equity shares, rights or other securities under the Securities Act. We also have no obligation to take any other action to permit the distribution of ADSs, equity shares, rights or anything else to ADS holders. This means that you may not receive the distribution we make on our equity shares or any value for them if it is illegal or impractical for us to make them available to you.
Deposit, Withdrawal and Cancellation
Subject to Indian law, the depositary will issue ADSs if you or your broker deposits equity shares or evidence of rights to receive equity shares with the custodian. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will register the appropriate number of ADSs in the name you request and will deliver the ADSs as promptly as practicable at its New York office to the persons you request. Under current Indian laws and regulation, the depositary cannot accept deposits of equity shares other than from us (except for equity shares issued as bonus shares or pursuant to rights offerings) and issue ADRs evidencing ADSs representing the equity shares.
Persons resident in India (other than us) may not, directly or indirectly, deposit equity shares with the custodian.
If you surrender your ADSs and withdraw the underlying equity shares, you or any subsequent transferee will not be permitted to redeposit the equity shares and obtain ADSs. Moreover, foreign portfolio investors, non-resident Indians or overseas corporate bodies who withdraw equity shares will be subject to Indian legal restrictions governing the foreign ownership of Indian securities. For a discussion, see “Restriction on Foreign Ownership of Indian Securities” of the 2022 Form 20-F. The depositary has agreed, subject to the terms of the deposit agreement, to accept deposits of equity shares if current Indian laws and regulations are amended to permit such deposits.
You may turn in your ADSs at the depositary’s New York office. Upon payment of its fees and expenses and any taxes and charges, such as stamp taxes or stock transfer taxes or fees, the depositary will deliver (1) the underlying equity shares to an account in the book-entry system in India and (2) any other deposited securities underlying the ADSs at the office of the custodian.
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If you surrender ADSs and withdraw equity shares, you will have to take the equity shares in electronic dematerialized form. You will be required to establish an account with a participant of the National Securities Depository Limited or Central Depository Services (India) Limited to hold or sell the shares in electronic dematerialized form, and you may incur customary fees and expenses in doing so. Equity shares which are withdrawn from the depositary also may not be sold on the stock exchanges in India until the equity shares underlying the ADSs have been listed on those exchanges. In addition, the sale of withdrawn equity shares by a non-resident of India to a resident of India may require approval from the Reserve Bank of India. For further details on the restrictions on transfer of underlying equity shares, see item 9.A.5. “Type and class of securities” set forth above.
Voting Rights
You have no voting rights with respect to the deposited equity shares.
The depositary exercises voting rights in respect of the deposited equity shares as directed by the board of directors. The depositary will not, under any circumstances, be obliged to exercise any discretion in relation to the exercise or non-exercise of voting rights.
Equity shares which have been withdrawn from the depositary facility and transferred on our register of shareholders to a person other than the depositary or its nominee may be voted by that person. However, you may not receive sufficient advance notice of shareholder meetings to enable you to withdraw the underlying equity shares and vote at such meetings.
Notwithstanding the foregoing, if a foreign portfolio investor, non-resident Indian or overseas corporate body were to withdraw its equity shares from the depositary facility, its investment in the equity shares would be subject to the general restrictions on foreign ownership noted under “Restriction on Foreign Ownership of Indian Securities” of the 2022 Form 20-F and may be subject to the portfolio investment restrictions, including the 10-24.0% portfolio investment limitations, and the 5-10.0% non-resident Indian limitation. The application of these limitations, however, is not clear. Secondary purchases of securities of Indian companies in India by foreign direct investors or investments by non-resident Indians, persons of Indian origin, overseas corporate bodies and foreign portfolio investors above the ownership levels set forth under “Restriction on Foreign Ownership of Indian Securities” of the 2022 Form 20-F require government of India and Reserve Bank of India approval on a case-by-case basis. It is unclear whether similar case-by-case approvals of ownership of equity shares withdrawn from the depositary facility by foreign portfolio investors, non-resident Indians and overseas corporate bodies would be required.
Inspection of Transfer Books
The depositary will maintain at its transfer office in New York facilities for the execution and delivery, registration of transfer, combination or split-up of ADRs and a register for the registration of ADRs and the registration of the transfer of ADSs that at reasonable times will be open for inspection by the investors in the ADSs and by us provided that such inspection shall not be for the purpose of communication with investors in the ADSs in the interest of a business or object other than our business or a matter related to the deposit agreement or the ADRs.
Reports and Notices
We will transmit to the depositary copies of any communications generally distributed to holders of equity shares, including annual reports to shareholders and notices of shareholder’s meetings. The depositary will make available for inspection by ADS holders at its principal office any notices, reports and communications received from us that are both received by the depositary or the custodian as the holder of the equity shares and made generally available to holders of our equity shares. The depositary will also send to ADS investors copies of such reports where furnished by us as provided in the deposit agreement.
On or before the first date on which we give notice, by publication or otherwise, of any meeting of shareholders, or of any adjourned meeting of such holders, or of the taking of any action by such holders other than at a meeting, or the taking of any action in respect of any cash or other distributions or the offering of any rights, we will transmit to the depositary and the custodian a written English-language version of the notice thereof in the form given or to be given to shareholders. The depositary will arrange for the mailing of such notices to all ADS holders.
Reclassifications, Recapitalizations and Mergers
|
If we: |
Then: |
| Change the nominal or par value of our equity shares | The cash, equity shares or other securities received by the depositary will become deposited securities. |
| Reclassify, split up or consolidate any of the deposited securities | Each ADS will automatically represent its equal share of the new deposited securities. |
| Distribute securities on the equity shares that are not distributed to you | The depositary may, and will if we ask it to, distribute some or all of the cash, equity shares or other securities it receives. |
| Recapitalize, reorganize, merge, liquidate, sell all or substantially all of our assets, or take any similar action | It may also issue new ADSs or ask you to surrender your outstanding ADSs in exchange for new ADSs, identifying the new deposited securities. |
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Amendment and Termination
We may agree with the depositary to amend the deposit agreement and the ADRs without your consent for any reason. If the amendment adds or increases fees or charges, except for taxes and other governmental charges or certain expenses of the depositary, or prejudices an important right of ADS investors, it will only become effective thirty days after the depositary notifies you of the amendment. At the time an amendment becomes effective, you are considered, by continuing to hold your ADS, to agree to the amendment and to be bound by the ADR and the deposit agreement as amended.
The depositary will terminate the deposit agreement if we ask it do so. The depositary may also terminate the agreement if the depositary has told us that it would like to resign and we have not appointed a new depositary bank within 90 days. In both cases, the depositary must notify you at least 90 days before termination.
After termination, the depositary and its agents will be required to do only the following under the agreement: (1) collect dividends and distributions on the deposited securities, (2) sell rights offered to you, and (3) deliver equity shares and other deposited securities upon cancellation of ADSs. Any time after one year after termination, the depositary will, if practical, sell any remaining deposited securities by public or private sale. After that, the depositary will hold the proceeds of the sale, as well as any other cash it is holding under the deposit agreement for the pro rata benefit of the ADS holders that have not surrendered the ADSs. It will not invest the money and will have no liability for interest. The depositary’s only obligations will be to account for the proceeds of the sale and other cash. After termination, our only obligations will be with respect to indemnification and to pay certain amounts to the depositary.
Limitations on Obligations and Liability to ADS Holders
The agreement expressly limits our obligations and the obligations of the depositary, and it limits our liability and the liability of the depositary. We and the depositary:
| · | are only obligated to take the actions specifically set forth in the deposit agreement without negligence or bad faith; |
| · | are not liable if either we or the depositary is prevented or delayed by law or circumstances beyond our or its control from performing our or its obligations under the deposit agreement; |
| · | are not liable if either we or the depositary exercise discretion permitted under the deposit agreement; |
| · | have no obligation to become involved in a lawsuit or other proceeding related to the ADRs or the deposit agreement on your behalf or on behalf of any other party; and |
| · | may rely upon any documents we or the depositary believe in good faith to be genuine and to have been signed or presented by the proper party, and may rely on advice or information from any person we or the depositary believe, in good faith, to be competent to give such advice or information. |
In the deposit agreement, we and the depositary agree to indemnify each other under certain circumstances.
Requirements for Depositary Actions
Before the depositary will issue or register transfer of an ADS, make a distribution on an ADS, or allow a withdrawal of equity shares, the depositary may require:
| · | payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer of any equity shares or other deposited securities; |
| · | production of satisfactory proof of the identity and genuineness of any signature or other information it deems necessary; and |
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| · | compliance with laws or governmental regulations relating to ADSs or the withdrawal of deposited securities and such reasonable regulations, if any, that the depositary may establish, from time to time, consistent with the deposit agreement, including presentation of transfer documents. |
The depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the depositary’s books are closed, or at any time if we or the depositary think it advisable to do so.
You have the right to cancel your ADSs and withdraw the underlying equity shares at any time except:
| · | when temporary delays arise because: (1) we or the depositary have closed our transfer books; (2) the transfer of equity shares is blocked to permit voting at shareholders’ meeting; or (3) we are paying a dividend on the equity shares; |
| · | you or other ADS holders seeking to withdraw equity shares owe money to pay fees, taxes and similar charges; or |
| · | when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of equity shares or other deposited securities. |
This right of withdrawal may not be limited by any other provision of the deposit agreement. Foreign investors who withdraw equity shares will be subject to Indian legal restrictions governing the ownership of Indian securities. For a discussion, see “Restriction on Foreign Ownership of Indian Securities” of the 2022 Form 20-F.
Pre-Release of ADSs
Subject to current Indian law and regulations, our consent and the provisions of the deposit agreement, the depositary may issue ADSs before deposit of the underlying equity shares. This is called a pre-release of ADSs. The depositary may deliver equity shares upon the receipt and cancellation of ADSs, including pre-released ADSs. The depositary may receive ADSs instead of equity shares to close out a pre-release. The depositary may pre-release ADSs only under the following conditions:
| · | before or at the time of the pre-release, the person to whom the pre-release is being made must represent to the depositary in writing that it or its customer, as the case may be, |
| · | beneficially owns the equity shares to be received, |
| · | assigns all beneficial rights, title and interest in the equity shares to the depositary in its capacity as the depositary and for the benefit of the holders of the ADSs, |
| · | will not take any action with respect to the ADSs or equity shares that is inconsistent with the assignment of beneficial ownership (including, without the consent of the depositary, disposing of the equity shares) other than in satisfaction of the pre-release, and |
| · | the pre-release must be fully collateralized with cash or collateral that the depositary considers appropriate; and |
| · | the depositary must be able to close out the pre-release on not more than five business days’ notice. |
The pre-release will be subject to whatever indemnities and credit regulations the depositary considers appropriate. In addition, the depositary will limit the number of ADSs that may be outstanding at any time as a result of pre-release to 30.0% of the total equity shares deposited, although the depositary may disregard such limit from time to time if it shall choose to do so.
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Exhibit 11.1
ICICI GROUP
CODE OF BUSINESS CONDUCT AND ETHICS
April 2022
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| Topic | Page No. | |
| 1. | Preamble | 02 |
| 2. | Conflict of Interest and Outside Activities | 03 |
| 3. | Privacy / Confidentiality | 06 |
| 4. | Anti-Bribery and Anti-Corruption/Gifts and Entertainment | 09 |
| 5. | Personal Investments | 10 |
| 6. | Know Your Customer / Anti Money Laundering | 11 |
| 7. | Accuracy of Company Records and Reporting | 13 |
| 8. | Protecting ICICI Group's Assets | 14 |
| 9. | Workplace Responsibilities | 14 |
| 10. | Raising Ethical Issues | 18 |
| 11. | Special Responsibilities of Superiors and Managers | 19 |
| 12. | Compliance with Laws, Rules and Regulations | 19 |
| 13. | Key Irregularities | 21 |
| 14. | Disciplinary Procedures | 24 |
| 15. | Compliance with the Code | 28 |
| 16. | Appendix: Duties of Directors | 30 |
| 17. | Employee Declaration | 32 |
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Preamble
| • | ICICI Group expects all its employees, officers and Directors to act in accordance with high professional and ethical standards. You must be, and be seen to be, committed to integrity in all aspects of your activities and comply with all applicable laws, regulations and internal policies. |
| • | In accepting a position with ICICI Group or any of its subsidiaries, each of you become accountable for compliance with the law, with the ICICI Group Code of Business Conduct and Ethics (‘the Code’), and with policies of your respective business units. |
| • | The standards of the Code are not necessarily prescribed by the regulators - they are something, which a well-respected institution must have in place and adhere to on an ongoing basis. We therefore expect a high level of ethical conduct. |
| • | You must conduct your duties according to the language and spirit of this Code and seek to avoid even the appearance of improper behaviour. Your actions need to demonstrate and evidence the principle of acting in good faith and without negligence. You should be aware that even well intentioned actions that violate the law or this Code may result in negative consequences for ICICI Group and for the individuals involved. |
| • | While covering a wide range of business practices and procedures, these standards cannot and do not cover every issue that may arise, or every situation where ethical decisions must be made, but rather set forth key guiding principles that represent ICICI Group’s policy. |
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Group Code of Business Conduct and Ethics
Conflict of Interest and Outside Activities
Conflicts Of Interest - General Principles
| · | Conflicts of interest can occur if our business practices sacrifice interests of one set of customers in favour of another or place business interests ahead of customers. |
| · | To address such situations, the Bank has adopted a Framework for Managing Conflict of Interest which articulates several measures taken by the Bank in ensuring that conflicts of interest are handled in an appropriate manner, at the individual employee level, at the level of Board of Directors and at the Group level. |
| · | If you are aware of any circumstances which you think may give rise to a conflict of any kind, or if you become aware of information which places you in difficulty in carrying out your function (for example, if you obtain confidential information about a company), you must handle the same as per the conflict of interest framework applicable to your Company. |
| · | As part of its management of conflict of interest, the Bank has put in place a process approved by its Product and Process Approval Committee viz., the “Operational Framework for Chinese Wall” for ensuring that confidential information is appropriately secured and decisions and service to clients are independent of such confidential information. There are information barriers between departments that routinely have access to confidential / non - public Information ("Insider Areas") from those who do not have such access ("Public Areas"). As a general principle, “Insider areas” should refrain from sharing any information with anybody in the “Public Areas”. However, in case the need is felt, the procedure for crossing the wall including obtaining prescribed approvals needs to be followed. |
| · | You would be expected to be sensitive to any activities, interests or relationships that might interfere with or even appear to interfere with, your ability to act in the best interests of ICICI Group and its customers. |
| · | Conflict of Interest includes, but is not limited to, a director or an employee who is a party to, or who is a director or an employee of, or who has a material interest in, any person who is a party to a material contract or proposed material contract with the ICICI Group. It also means any situation that could reasonably be expected to impair their ability to render unbiased and objective advice/decision/recommendation or that could reasonably be expected to adversely affect that person’s duty to ICICI Group. |
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| · | The Chairman/Managing Director/ other directors or any employee who is directly or indirectly concerned or interested in any proposal would disclose the nature of his interest to the Board/Committee any such proposal is being discussed. This disclosure can be provided before or during the meeting. The Chairman/Managing Director/ other directors or any employee shall recuse himself/herself from attending the meeting for such proposal unless his/her presence is required by the other directors/members for the purpose of eliciting information and such Chairman/Managing Director/ other directors or the employee so required to be present would abstain from voting on any such proposal. The decision on presence or recusal of interested persons will rest with the chairman/approving authority of the committee/meeting. |
| · | You must abide by specific “Dos and Don’ts” issued by business group you are part of, or those issued by other groups such as Compliance Group, Financial Crime Prevention Group or Human Resource Management Group. |
| · | You must disclose to the Compliance Group of your Company annually, a statement that you have no material interest or any other conflicting interests, in any person/ entity who is a party to a material contract or proposed contract with the ICICI Group. In case of any doubt in regard to the extent of disclosure applicable, kindly contact the Compliance Group of your Company. |
Examples of situations that could involve conflicts of interest include:
| o | Selling a product that is profitable for the Group but not appropriate for the customer; |
| o | Ownership, by employees or their family members, of a significant interest in any outside enterprise, which does or seeks to do business with or is a competitor; |
| o | Acting as a broker, finder, go-between or otherwise for the benefit of a third party in transactions involving or potentially involving the Group or its interests; |
| o | Working, in any capacity, for a competitor, customer, supplier or other third party while employed by ICICI Group; |
| o | Competing with ICICI Group for the purchase or sale of property, products, services or other interests; |
| o | Having an interest in a transaction involving the Bank, a competitor, customer or supplier (other than as an employee, officer or director of the Bank and not including routine investments in publicly traded companies); |
| o | Receiving a loan or guarantee of an obligation as a result of your position with the Bank; Receiving a preferential rate of interest/ discounts/ waivers from any customers/suppliers/vendors as a result of your position with the Bank. |
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| o | Directing business to a supplier owned or managed by, or which employs, a relative or friend. |
Conflicts of interest arising out of personal Investments
While undertaking personal investments, it should be borne in mind that such investments should not:
| · | Affect or appear to affect your ability to make unbiased business decisions for ICICI Group; |
| · | Be contrary to ICICI Group's interests (e.g. using proprietary knowledge obtained through the course of employment to make investments that are not in the best interest of the ICICI Group); |
| · | Be in the businesses of ICICI Group’s customers, suppliers, or competitors that could cause divided loyalty, or even the appearance of divided loyalty. |
Please refer to the section on personal investments for further guidelines in relation to adherence to the ICICI Bank code of conduct to regulate, monitor and report trades in securities by directors, employees & connected persons (Insider Trading Code).
Conflicts of interest through outside business activities
| · | Due to potential conflicts with ICICI Group, you must obtain approval from Committee of Executive Directors (COED) of the Bank (or an appropriate internal committee in case of other entities in ICICI Group) before you accept a position as a director of an unaffiliated for-profit company or organization or when you work with a professional organisation/ association outside ICICI Group. |
| · | Working with professional organisations/ associations does not typically create a conflict of interest where: |
| · | The work is related to the legitimate professional interest and development of the employee and does not interfere with the employee’s regular duties; |
| · | Does not use official resources inappropriately (either physical resources or time); |
| · | Does not compete with the work of ICICI Group and is not otherwise contrary to the best interests of the Group; |
| · | Does not violate national, international or local law. |
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| · | It may however be mentioned that, while undertaking outside activities, you should not use ICICI Group name, facilities, or relationships for personal benefit. Further any employee accepting an appointment, as director of an unaffiliated for-profit company/ organisation must ensure proper treatment of confidential information received from such entity in connection with being a director. |
Dos and Don’ts
Do
| · | Act in the best interests of ICICI Group and its customers and handle activities, interests or relationships in a sensible manner |
| · | Handle conflicts of interest as per applicable Conflicts of Interest Framework |
| · | Submit
an annual statement of Conflicts of Interest to the |
Don’t
| · | Undertake personal investments or outside activities or involve in any financial transaction with colleagues, customers or suppliers that would create conflicts of interest |
Privacy/Confidentiality
Proprietary and Confidential Information
| · | You must always protect the confidentiality of proprietary and confidential information (sensitive to ICICI Group) you obtain or create in connection with your activities for ICICI Group, in accordance with the applicable law. Your obligation to protect ICICI Group’s proprietary and confidential information continues even after you leave the Group, and you must return all proprietary information in your possession upon leaving ICICI Group. |
| · | Proprietary and confidential information include any system, information or process (sensitive in nature) that gives ICICI Group an opportunity to obtain an advantage over competitors; nonpublic information about ICICI Group businesses, its customers and its employees, any other nonpublic information received. |
| · | Proprietary and confidential information about ICICI Group, a customer, supplier or distributor, should not be disclosed (even with best of intentions) to anyone (including other employees) not authorized to receive it or has no need to know the information, unless such disclosure is authorized by the customer or is required by law, appropriate legal process or appropriate internal authorities. |
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| · | Intellectual property of ICICI Group such as trade secrets, patents, trademarks and copyrights, as well as business, research and new product plans, objectives and strategies, records, databases, salary and benefits data, employee medical information, customer, employee and suppliers lists and any unpublished financial or pricing information are some examples of proprietary and confidential information that need to be protected. |
| · | Unauthorized use or distribution of proprietary information violates the internal policies and could be illegal. Such use or distribution could result in negative consequences for both ICICI Group and the individuals involved, including potential legal and disciplinary actions. |
| · | Acts of ignorance that could lead to leakage of such proprietary information, especially through electronic means - like e-mails, web uploads, removable media (e.g. CD/DVD/pen drive) etc., may lead to investigation and probe against the employees. |
| · | It is your responsibility to protect proprietary and confidential information (sensitive in nature) pertaining to the Bank or its customers in a manner commensurate with its classification as per the principles enunciated in the Information Security Policy, Standards & Procedures of ICICI Group. |
| · | You shall not in terms of your Employment Contract, during the course of your employment/service with the ICICI Group and thereafter also post your employment, without prior authorization from ICICI Group, engage in, publish, disclose, divulge or disseminate any confidential and/or sensitive information in relation to ICICI Group and/or comment on or publish in media or contact the media on any aspect/issue/matter pertaining to the ICICI Group that has come to your knowledge during the period of your service with ICICI Group, nor would you make any representations which will have the effect of tarnishing or diluting the reputation or brand equity of any entity in the ICICI Group. For the avoidance of doubt, confidential or sensitive information shall, in addition to any information defined as such under the Employment Contract, include any confidential and/or proprietary information belonging or relating to ICICI Group, its customers, or potential customers, or any member of the ICICI Group, howsoever received or any of its officers, directors, employees, shareholders, any person or entity associated with them (both past and present),or any business practices, plans or procedures, partners, products or business of the ICICI Group. The aforesaid restrictions on publication of information and non-disparagement will operate during and post your employment with ICICI Group, since they are essential for protecting the business and commercial interests of ICICI Group and are fair and reasonable in light of the benefits accrued to you by your employment. |
| · | ICICI Group reserves the rights to monitor its employees’ activities on ICICI owned assets. |
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| · | We, at ICICI Group, respect the proprietary rights of other companies and their proprietary information and require you also to observe such rights. |
Privacy of Employee Information
At ICICI Group, we recognise and protect the privacy and confidentiality of employee medical and personal records. Such records would be shared strictly on need to know basis or as required by any law, rule and regulation or when authorized by the employee or as per subpoena or court order and requires approval by internal counsel.
Privacy / Confidentiality
Dos and Don’ts
Do
| · | Properly control access to your work areas and computers and keep sensitive information safe and secured in all forms, physical or electronic |
| · | Ensure appropriate destruction of information (both physical or electronic) when the same is not required for work anymore |
| · | Obtain any relevant information directly from the person concerned |
| · | Access to information or data by outsourced will also be subjected to the relevant employee’s accountability, in case such data is misused |
| · | Keep customer information secured at all times and uphold ICICI Group Privacy promise for customers |
| · | Limit access to non-public information strictly to authorised personnel on a ‘need to know’ basis |
| · | Comply with local data protection and privacy laws that affect the collection, use and transfer of personal customer information |
| · | While accessing Intranet and Internet, ensure compliance with internal policies and procedures |
| · | Ensure that worldwide electronic information exchange and dialogue, electronic business dealings are all as per internal policies and procedures |
| · | Report information security incidents such as suspicious emails, individual password sharing, data leakage or data theft, phishing or malware attacks, hacking attempts etc. through the reporting mechanisms of ICICI Group. |
| · | Abide
by the |
Don’t
| · | Discuss sensitive matters or confidential information in public places |
| · | Violate the Information Security Policy applicable to your Company |
| · | Transfer official information into personal databases or carry hard copies of official information (otherwise than for official purposes) outside the office, without prior permission from your superior |
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| · | Pass information, in any manner, directly or indirectly to any recruitment/search agencies or to competitor or any other organisations |
| · | Share sensitive information in the subject line or body of e-mails or through unprotected attachments without proper authorisation and approved controls |
Anti-Bribery and Anti-Corruption / Gifts & Entertainment
Accepting Gifts and Entertainment- General Principles
In general, employees should not accept gifts - anything of value (including entertainment and incentives) from current or prospective customers or suppliers, unless it is in accordance with the Operational Guidelines for Acceptance of Gifts Entertainment and Sponsored Travel. These guidelines broadly covers following areas:
| · | Gifts |
| · | Entertainment and Sponsored Travel |
| · | Incentives offers received at the Bank's Level |
Offering of Gifts and Entertainment - General Principles
| · | Gifts and/or entertainment should be offered only post appropriate approvals from relevant senior management and in compliance with the Operational Guidelines for Gifts Entertainment and Sponsored Travel. These guidelines broadly covers following areas: |
| · | Gifts |
| · | Entertainment, Hospitality and other expenses |
| · | Donations |
Bribery and Corruption
| · | Bribery/Corruption is defined as receiving or offering of an undue reward from/to any third party. |
| · | You must note that ICICI Group follows zero tolerance approach towards Bribery and Corruption. |
| · | You must not make any payment to or for anyone for the purpose of obtaining or retaining business or for obtaining any favourable action. If you are found to be involved in making such payments, you would be subject to disciplinary action as well as potential civil or criminal liability for violation of the Code. |
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| · | You should not offer or give any funds or property as donation to any government agency or its representatives, in order to obtain any favourable performance of official duties. |
| · | While you are expected to put in best of your efforts in every transaction, you will not be penalised by ICICI Group for delayed performance of a transaction solely on the grounds of refusal to pay bribes. |
| · | You should familiarise yourself and comply with the Bank's Anti Bribery and Anti-Corruption Policy which is available on the Intranet. You should contact the Compliance Group with any questions on the matter. |
Dos and Don’ts
Do
| · | Accept or offer any gift and/or entertainment only in line with the Code and the Operational Guidelines for Gifts Entertainment & Sponsored Travel |
| · | Adhere to Bank’s Anti-Bribery & Anti- Corruption Policy |
Don’t
| · | Make any payment to or for anyone that could tantamount to bribe/corruption |
| · | Receive/accept a gift, entertainment, etc. from a prospective customer of the Bank |
| · | Offer gifts and/or entertainment to any person for the purpose of obtaining or retaining business or for influencing any decision or action of the recipient in an improper manner |
Personal Investments
| · | To protect the integrity of ICICI Group and its subsidiaries and affiliates, it is essential that you conduct your personal trading as per the framework prescribed for prohibition of insider trading under SEBI (Prohibition of Insider Trading) Regulations, 2015, in an appropriate manner that withstands public scrutiny and does not create even the appearance of impropriety. |
| · | ICICI Group policy and the laws of many countries prohibit trading in securities of any company (listed / proposed to be listed) while in possession of material, non-public information (also known as inside information or UPSI*) of any company. Employees of certain ICICI Group businesses are subject to additional personal trading policy restrictions. |
| · | You should note that using non-public information to trade in securities, or providing a family member, friend or any other person with a “tip”, is illegal. All nonpublic information should be considered inside information and should never be used for personal gain. |
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| · | You are required to familiarise yourself and comply with the Code of Conduct laid by the Bank in line with SEBI (Prohibition of Insider Trading) Regulations, 2015 (or such other Code applicable to your Company), as amended from time to time copies of which are available on the Intranet or from the Company Secretary. |
| · | You are required to ensure compliance and conduct your trading in accordance with Code on Insider Trading and the Code of Practices and Procedures for Fair Disclosure of Unpublished Price Sensitive Information (UPSI) of the respective company. |
*Unpublished Price Sensitive Information” or “UPSI” means any information relating to the Bank or Other Listed Companies, as applicable, or their respective Securities, directly or indirectly that is not Generally Available Information, which upon becoming Generally Available Information, is likely to materially affect the price of the Securities of the Bank or Other Listed Companies, as the case may be, and ordinarily includes but is not restricted to information relating to the financial results, dividends, changes in capital structure, mergers, de-mergers, acquisitions, delisting, disposals and expansion of business and such other transactions; and changes in Key Managerial Personnel.
Dos and Don’ts
Do
| · | Ensure adherence to the Code for Prevention of Insider Trading applicable to your Company |
Don’t
| · | Handle personal investments while in possession of “Insider information” |
Know Your Customer / Anti Money Laundering
| · | Anti-Money Laundering & Combating Financing of Terrorism legislations criminalize flow of money of/from the specified crimes including trafficking of any kind (e.g.: drug, human, animal, organs, body parts, etc.), terrorism, theft, fraud, handling of stolen goods, counterfeiting, etc. It is also an offence to undertake and/or facilitate transactions with individuals and entities whom you suspect of being involved in money laundering or terrorist financing (ML/TF). In such cases, escalate your concerns to the Compliance team responsible for your units. |
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| · | ICICI Group does not do business with persons suspected to be involved in ML/TF. We are fully aware that no customer relationship is worth compromising our commitment to combating ML/TF. |
| · | ICICI Group has adopted the Group Anti Money Laundering (AML) and Combating Financing of Terrorism (CFT) Policy accompanied by detailed procedures with the principal objectives as under: |
| · | Preventing ICICI Group from being used by money launderers to further their illicit business; |
| · | Enabling ICICI Group to assist law enforcement agencies in identifying and tracking down money launderers; |
| · | Ensuring that ICICI Group remains compliant with all relevant anti-money laundering legislation and regulations. |
| · | You must exercise requisite care in selecting those with whom we conduct business. While conducting business, you must adhere to processes which are in place for checking the identity and complete profile of the customers and counter parties as per guidelines. In case of unusual transactions which are not of regular nature, care should be exercised and reasons for undertaking that transaction should be analysed/documented with appropriate internal approvals. These processes ensure adequate customer due diligence and ongoing monitoring of their transactions. This is done to detect suspicious transactions during the entire period of relationship. |
Dos and Don’ts
Do
| · | Ensure adherence to the Group Anti Money Laundering Policy |
| · | Undergo relevant training to update yourself on applicable internal KYC/AML guidelines |
| · | Exercise requisite due diligence while accepting a customer and undertaking a transaction and make reasonable enquiries in case of doubt |
| · | Escalate all suspicious activities/ transactions (including attempted/aborted transactions) where ML/TF is suspected regardless of the amount involved or the nature of the offence as per the applicable internal procedures. Failure to report suspicious transactions despite having knowledge is an offence under law. |
Don’t
| · | Provide assistance to any person to launder proceeds of any criminal conduct |
| · | Prejudice an investigation by informing (i.e. tipping off) the person who is the subject of a suspicious transaction |
| · | Attempt to undertake investigations on your own without the guidance of the relevant officials when any incident is reported. |
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Accuracy of Company Records and Reporting
| · | You must ensure that records, data and information owned, collected, used and managed by you for ICICI Group are accurate and complete. Records must be maintained as per the applicable record management policy of your Company in sufficient detail so as to reflect accurately the company's transactions. |
| · | You must assist in maintenance of appropriate records so as to ensure that financial transactions are prepared in accordance with generally accepted accounting principles and that they fairly present the financial conditions and results of the company. |
| · | You must observe high standards of decency regarding content and language when creating business records and other documents (such as email) that may be retained by ICICI Group or a third party. |
| · | Non-maintenance of these records that comes into your notice and any misappropriation or tampering of records needs to be reported to a relevant authority. |
Reporting to Government/external agencies
| · | ICICI Group has a responsibility to communicate effectively with shareholders so that they are provided with full, accurate and timely information, in all material respects, about the ICICI Group’s financial results and condition of operations. Our reports and documents are required to be filed with or submitted to regulatory authorities in various countries. Hence, such reports and any other public communications should be full, fair, accurate, timely and understandable. |
| · | You must, therefore, never make inaccurate or misleading reports, certificates, claims or statements to government / regulatory authorities. |
Dos and Don’ts
Do
| · | Maintain accurate data in sufficient detail to reflect accuracy of company transactions |
| · | Assist in preparation of true and fair financial statements of the company |
| · | Crosscheck the reports being submitted to regulatory authorities; in case there are any errors found, report to the relevant authority and take corrective action immediately. |
Don’t
| · | Make inaccurate reports to the applicable government / regulatory authorities |
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Protecting ICICI Group’s Assets
Protecting ICICI Group’s assets against loss, theft or other misuse is the responsibility of every employee, officer and Director. Loss, theft and misuse of ICICI Group’s assets directly impact our profitability. Any suspected loss, misuse or theft should be reported to your supervisor or the Chief Financial Officer.
Dos and Don’ts
Do
| · | Use ICICI Group assets (physical and intellectual) primarily for official purposes |
| · | Report any misuse or theft of assets, including instances of data leakage or data theft, by any employee or outsourced agents of ICICI Group that comes to your notice |
Don’t
| · | Copy, sell, use or distribute information, software and other forms of intellectual property in violation of licenses |
| · | Misappropriate ICICI Group assets as it is a breach of your duty and may constitute an act of fraud against ICICI Group |
| · | Use official resources in another business in which you, a friend or family member is involved |
| · | Use official stationery, supplies, and equipment for personal or political matters |
| · | Introduce, access or download material considered indecent, offensive, or is related to the production, use, storage, or transmission of sexually explicit or offensive items using ICICI Group assets |
| · | Conduct any illegal or objectionable activities, including gambling, gaming, etc. using ICICI Group assets |
| · | Make any changes to the settings or configurations of ICICI Group assets without authorisation as per extant process |
| · | Open attachments or click on links in websites or unexpected emails that come from unknown or untrusted sources or seem suspicious |
| · | Attempt to hack or gain illegal access to any ICICI Group assets |
| · | Download or install freeware or shareware (including screensavers), without authorisation as per the extant process |
Workplace Responsibilities
Fair Employment Practices and Diversity
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| · | ICICI Group is committed to adoption of fair employment practices. It ensures diversity of workplace through efforts to recruit, develop and retain the most talented people from a diverse candidate pool. It upholds the principle that advancement is based on talent and performance and there is a commitment to equal opportunity. |
| · | As a fair employment practice, you shall not (during the course of your service or for a period of one year from the date of cessation), directly or indirectly on your own accord or on behalf of or in conjunction with any other person, solicit or employ any director, officer or employee of ICICI Group as well as any employee of any client or service provider/vendor (with which client or service provider/vendor you have been associated in the one year prior to your cessation of service), of the ICICI Group in any activity, vocation, profession, employment, consultancy, service, occupation or business that you undertake or in any manner, cause such person to be solicited or employed by any person or enterprise with whom you may be associated in any capacity. |
Fair Competition
| · | Although it is common to gather information about the general marketplace, including competitors' products and services, the Company wants to compete fairly. |
Drug Free Workplace
| · | You should ensure that your workplace is healthy and productive and free from drugs. |
Discrimination and Harassment and Intimidation
| · | ICICI Group is committed to prohibition of harassment and intimidation of employees in the workplace. ICICI Group discourages conduct that implies granting or withholding favours or opportunities as a basis for decisions affecting an individual, in return for that individual’s compliance. Such action is an easier form of harassment to identify because it takes the form of either a threat or a promise, whether explicit or implied. |
| · | ICICI Group has a Sexual Harassment Policy that prohibits unwelcome advances, requests for sexual favours, or other verbal or physical conduct where such conduct has the purpose or effect of unreasonably interfering with an individual’s work performance or creating an intimidating, hostile or offensive working environment. |
Safety in the Workplace
| · | ICICI Group considers safety of employees as the primary concern. ICICI Group is committed to safety of employees and expects its businesses and employees to comply fully with appropriate laws and internal regulations. |
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| · | ICICI Group encourages responsible behaviour of its employees and colleagues that result in the best possible accident prevention measures. This applies both to the technical planning of workplaces, equipment, and processes and to safety management and personal behaviour in everyday workplace. |
| · | Your work environment, therefore, must conform to the requirements of health oriented safety design and you must constantly be attentive to safety principles. |
Fair Treatment of counter-parties
| · | The quality of our relationships with our suppliers and other external counterparties often has a direct bearing on the quality of our products, services and ultimately our customer relationships. We therefore expect our suppliers to operate to the same standards as we expect of ourselves. |
| · | All such relationships with external counter-parties should be conducted in professional and impartial manner. Vendor selection and hiring decisions must be made objectively and in best interest of ICICI Group, based on evaluation of integrity, suitability, price, delivery of goods/ service, quality and other pertinent factors. You should commit to fair contract and payment terms with them in return of good service at a good price supplied in a responsible manner. |
| · | Your personal relationship with contractors, suppliers and vendors should be disclosed to your superior at the time of entering into the transaction and should not influence decisions made on behalf of ICICI Group. Negotiations with customers and potential customers should be conducted in a professional manner. |
| · | Vendors or suppliers should not be used for any personal purposes, so as to have any conflict of interest while dealing with them. |
Fair Treatment of customers
Products offered should be appropriate to the needs of the customer and based on an assessment of the customer’s financial capability and understanding. The Bank will ensure that customers are treated fairly and transparently with regard to suitability and appropriateness of the products sold.
Corporate Opportunities
| · | Employees, officers and Directors are prohibited from taking for themselves business opportunities that arise through the use of corporate property, information or position. No employee, officer or Director may use corporate property, information or position for personal gain, and no employee, officer or Director may compete with ICICI Group. |
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| · | Competing with ICICI Group may involve engaging in the same line of business as the Group, or any situation where the employee, officer or Director takes away from the Group opportunities for sales or purchases of property, products, services or interests. |
Contact with Media
| · | In order to pro-actively manage our reputation with the media and to ensure consistency of messages, interaction with media must only occur with the prior approval of Corporate Brand and communications Group. |
Social Media
| · | Social media allows users to interact with each other by sharing information, opinions, knowledge and interests. Some examples of social media are sites such as Facebook, YouTube, LinkedIn, Orkut, Twitter etc. |
| · | There are various risks associated with communicating on the Social Media platform. Thus, there is a need to address such concerns in an appropriate manner keeping in mind employee’s freedom and the interest of the Bank and its wider stakeholders. |
| · | Bank’s Social Media Policy lays down standards employees should adhere to while communicating internally, externally as well as online. |
Dos and Don’ts
Do
| · | Ensure that external, internal & online communications are in line with the Bank’s Social Media Policy |
| · | Respect personal dignity, privacy, and personal rights of every individual |
| · | Work together with women and men of various nationalities, cultures, religions, and races in a professional manner |
| · | Be open and honest and stand by your responsibility |
| · | Treat our customers, suppliers, competitors and employees fairly |
| · | Maintain the safe and healthy working environment provided by the company |
| · | Be committed to prevent wasteful use of natural resources |
Don’t
| · | Discriminate, harass or offend anybody by whatever means, be it sexual or otherwise |
| · | Use ICICI Group systems to transmit or receive electronic images or text of a sexual nature or containing ethical slurs, racial epithets or other harassing, offensive or lewd materials |
| · | Obtain competitive information by unethical or illegal means, such as corporate espionage or improper access to confidential information |
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| · | Engage in contacts with competitors that could create even an appearance of improper agreements, whether the contact is in person, in writing, by telephone or through e-mail |
| · | Take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair dealing practice |
| · | Do not issue directives to violate the terms of vendor’s contracts |
Raising Ethical Issues
| · | ICICI Group encourages employees to report to their supervisor/ HR/ compliance, or reporting mechanism under Whistle Blower Policy, concerns and suspected violations of the Code, internal policies, external legal and regulatory requirements etc. While ICICI Group encourages you to identify yourself (and will maintain due confidentiality) you may choose to remain anonymous. All significant breaches should be escalated immediately. |
| · | ICICI Group will conduct prompt and thorough investigations of alleged violation and take appropriate corrective action. |
| · | Retaliatory action against an employee for making a good faith report is prohibited. |
| · | HR takes appropriate actions against individuals who have broken laws, rules and regulations. |
| · | An employee who knowingly violates the internal policies and guidelines shall be subject to disciplinary action, including demotion or dismissal. |
| · | In case of any doubts in undertaking any new role, assignment or responsibilities, please ensure all dos and don’ts are well understood, so as to avoid pleading ignorance by overstepping on some protocols. |
Investigations
You are required to cooperate fully with authorised internal and external investigations. Making false (or misleading) statements to regulators/ auditors/ ICICI Group representatives during investigations can be a criminal act that can result in heavy penalties.
Dos and Don’ts
Do
| · | Report to your supervisor/HR/compliance or reporting mechanism under Whistle Blower Policy, concerns and suspected violations of the Code, internal policies, external legal and regulatory requirements etc. |
Don’t
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| · | Knowingly withhold information that raises ethical questions and bring such issues to the attention of senior management or ensure reporting as per the applicable Whistle Blower Policy. Employees may refer the Whistle Blower Policy available on the Intranet for more details. (Intranet-Reporting Tools-Whistle Blower Policy). |
| · | Destroy records that are potentially relevant to a violation of law or any litigation or any pending, threatened or foreseeable government investigation or proceeding |
Special Responsibilities of Superiors and Managers
In addition to responsibilities as employees, supervisors and managers must abide by the:
| · | Duty of selection - Carefully select the employees for a job in light of their personal and professional qualifications. The duty of care increases with the importance of the obligation to be entrusted to the employee. |
| · | Duty of instruction - Formulate obligations in a precise, complete, and binding manner, especially with a view to ensure compliance with provisions of instructions. |
| · | Duty of monitoring - Ensure that compliance with provisions of applicable laws / regulations is monitored on a constant basis. |
| · | Duty of communication - Communicate to the employees that any violations of the applicable laws/regulations are disapproved of and would have disciplinary implications. |
Dos and Don’ts
Do
| · | Strive to create and sustain an environment that promotes ethical behaviour |
| · | Assist your staff to understand and apply the internal policies and procedures |
| · | Encourage and practice whistle blowing, so as to avoid any doubts later that an offence was being committed with your knowledge, which could be construed as connivance by the employee |
Don’t
| · | Issue directives to violate the terms of internal policies/procedures |
| · | Disclose identity of employee raising concerns (including under the Whistle Blower policy) or retaliate against employee for raising concerns (including under the Whistle Blower policy) |
Compliance with Laws, Rules and Regulations
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| · | ICICI Group's Policy is to maintain an open and co-operative relationship with our regulators and to comply with all applicable laws, rules and regulations. The Group also disseminates information regarding compliance with laws, rules and regulations that affect business. |
| · | Accordingly the Bank has put in place the Group Compliance Policy as approved by the Board of Directors. |
| · | Violation of the law must be avoided under any circumstances, especially violations that attract punishment of imprisonment, monetary penalties, or fines. Notwithstanding the legal consequences of such violation, any employee found guilty will be additionally liable to disciplinary actions, initiated by the company for violating the Code. |
| · | Particular care should be taken to act legally in those areas where the law is evolving rapidly or is being extended to cover activities that have not been covered by legal requirements in the past. When in doubt, the Compliance Group should be consulted. |
| · | All employees will have an obligation to abide by the country specific laws/regulations/ requirements as stipulated in the “Country Specific Standards”, wherever applicable as per the roles and responsibilities in addition to the provisions of the Code. For example, any employee of the Bank, located in India, having access to personal data/customer information of the Singapore branch shall be obliged to abide by the “Country Specific Standards” relevant to Singapore in addition to the provisions of the Code. The employees are also obliged to abide by the updates in the Country Specific Standards as may be amended from time to time. |
| · | Independent Directors of the Bank shall adhere to the duties as provided in Code for Independent Directors under Schedule IV of the Companies Act, 2013 as well as duties as prescribed in the Companies Act, 2013 as amended from time to time and the deed of covenants specified by RBI which shall also form an integral part of the Code (attached as Appendix) and all Directors and other employees shall ensure compliance with applicable laws, rules and regulations applicable to them from time to time. |
Dos and Don’ts
Do
| · | Familiarise yourself with the ICICI Group Compliance Policy |
| · | Comply with all applicable laws, rules and regulations |
| · | Contact with regulators through designated officials as per internal guidelines |
| · | Notify Compliance Group immediately of any significant contacts made directly by a regulator |
Don’t
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| · | Commit an illegal or unethical act, or instruct others to do so, for any reason |
| · | Commit such acts simply because you see someone else doing it, or your supervisor not warning you |
Key Irregularities Key Irregularities
| · | While the Group believes that the employees would realise and appreciate the need to follow this Code in letter and spirit, in an unfortunate incident or act of breach, a corrective and/or deterrent action becomes unavoidable. Therefore any breach of the stipulations mentioned in the Code should be treated as misconduct for which appropriate penalty would be imposed. |
| · | Based on the intent, seriousness and mitigating/extenuating circumstances of such non-compliance the breaches can be broadly classified into four categories as detailed hereunder. |
A. Habitual Irregularities
Repeated negligence in performing duties, depending on the gravity and consequences to the Company may fall under this category. Illustrative behaviour includes:
| · | Unpunctual or irregular attendance, leaving workplace without permission, habitual or prolonged absence without leave |
| · | Negligence or failure to take due care while obtaining and preserving documents/records |
| · | Negligence or failure to ensure accuracy and timely completion of work |
| · | Indecent/discourteous behaviour with customers, employees, superiors etc |
| · | Not following the prescribed dress code |
| · | Showing an intransigent or unreasonably negative attitude to management and/or fellow employees |
| · | Minor breach of health and safety requirements |
| · | Smoking in a non-designated area |
| · | Careless use of the Company’s equipment or furniture |
| · | Refusing to attend nominated training programs unless agreed upon with superior |
| · | Use of foul or abusive language (whether verbal or in writing) |
| · | Refusing a reasonable request to moderate changes in responsibilities if such a change is a business necessity |
| · | Being under the influence of alcohol and/or drugs not medically prescribed when at work (whether on ICICI Group premises or otherwise) |
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| · | Consumption or being under the influence of drugs not medically prescribed and/or excessive alcohol at a management sponsored event |
| · | Indulging in habitual errors, negligence while performing duties |
B. Gross/serious violations
Any act which is in breach of the Code, internal policies/procedures and which may cause financial loss or reputation risk to the Company falls under this category.
Illustrative behaviour under this category includes:
| · | Failing to comply with ICICI Group policies, procedures, rules and working practices |
| · | Obstructing the customers from dealing with ICICI Group or obstructing other employees from discharging their responsibilities |
| · | Engaging in any other trade/ business/ employment while in the employment of the Company without confirming with your supervisor |
| · | Participation in any demonstration against the Company or its officials |
| · | Accepting gifts and favours from clients and vendors in violation of relevant guidelines |
| · | Disrupting/slowing down of continuous customer service or work, in the branch or office - either solely or by way of participation in strike, bandh etc |
| · | Violation of any of the provisions of the security policy including Information Security Policy of the company |
| · | Taking a decision, which has financial implications favouring you, any of your teams or relatives |
| · | Involvement in harassment including sexual harassment or racial harassment |
| · | Failure to take all possible steps to protect the interest of ICICI Group and to perform duties with utmost integrity, honesty, devotion & diligence |
| · | Indulging in any act which is likely to cause damage/loss to the property and which are prejudicial to the reputation and interest of ICICI Group |
| · | Failure to act in the best judgment while performing duties as well as while exercising delegated power entrusted by ICICI Group |
| · | Failure to avoid indebtedness in any manner while in service |
| · | Engaging in and/or facilitating any financial dealing/s including money lending whatsoever with colleagues |
| · | Any act which brings or have the potential to bring dis-repute to the image of ICICI Group at all times |
| · | Failure to comply with existing regulatory rules and regulations such as Reserve Bank of India Act, 1934 and Banking Regulations Act, 1949, etc |
| · | Any other act which is against the ethos/culture of the company |
C. Fraudulent Irregularities
Any act with a fraudulent or malafide intention irrespective of whether there was any financial loss or loss of reputation to ICICI Group falls in this category. Some illustrative behaviour under this category would include:
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| · | Suppressing or misrepresentation of facts |
| · | Any act of creation/acceptance of fake/ incorrect/ fraudulent records or manipulation of records with fraudulent intention i.e. fudging of records, MIS records, etc |
| · | Failure of due diligence in any deal/transaction to avoid any possibilities of a fraud or money laundering |
| · | Data theft or pilferage or any dishonest act |
| · | Involvement in any act in the area of corruption, misuse of office, criminal offences, suspected or actual fraud etc. |
| · | Helping customers in ways which could lead to a loss to ICICI Group |
| · | Engaging in and/or facilitating any financial dealings through your personal banking account. |
The Bank is governed by the Companies Act which as recently revised in August 2013 has defined the act of “fraud” under Section 447 and has prescribed the penal provisions for the same. The same is given below:
Definition of Fraud:
“Fraud” in relation to affairs of a company or anybody corporate, includes any act, omission, concealment of any fact or abuse of position committed by any person or any other person with the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders or its creditors or any other person, whether or not there is any wrongful gain or wrongful loss;
| (i) | “Wrongful gain” means the gain by unlawful means of property to which the person gaining is not legally entitled; |
| (ii) | “Wrongful loss” means the loss by unlawful means of property to which the person losing is legally entitled. |
Punishment for fraud:
Without prejudice to any liability including repayment of any debt under this Act or any other law for the time being in force, any person who is found to be guilty of fraud, shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud.
Provided that where the fraud in question involves public interest, the term of imprisonment shall not be less than three years.
Employees are requested to be mindful of the above provisions and exercise necessary diligence.
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D. Irregularities in High Risk Areas
Any act which may not be apparently with fraudulent intention but are considered as High Risk area irrespective of any financial loss or loss to the reputation to ICICI Group falls in this category. This includes:
| · | Failure to act in spite of having knowledge of wrong things being practiced, |
| · | Failure to take corrective steps to stop such wrong practices, |
| · | Failure to escalate such matters to higher authorities |
The areas considered, as High Risk will be assessed by the Senior Management of the Group. The Senior Management will also have the power and authority to notify the list of High Risk areas from time to time.
It must be noted that irregularities cited in the above categories are indicative in nature and are not exhaustive.
Disciplinary Procedures
The following paragraphs deal with the disciplinary procedures, which could be used as indicative guidance for the ICICI Group constituents while formulating their respective disciplinary procedures.
| · | The primary objective of the disciplinary procedure is to make employees aware of the instance/s of apparent and reported breach of the Code on their part and to afford such employees with an opportunity of making submission against such reported instance/s including improving their attendance, work performance or amending/ rectifying their conduct as the case may be, should they fall below the standards expected by ICICI Group. |
| · | When deciding upon the appropriate way to deal with any potential issues an employee has in meeting ICICI Group standards, the reasons behind this difficulty will be considered. There may be occasions when problems are due to an employee’s incapability to do his/her job, personal circumstances or health rather than there being any measure of personal blame. In such cases, the employee will be informed by the immediate manager that he/she is not meeting the required standards. |
| · | The immediate manager will discuss his or her concerns with the employee and where appropriate, will agree objectives with the employee to be achieved over a reasonable period of time. The immediate manager will also discuss any assistance the employee may require, including where practicable - training. If after a reasonable time, an employee is still unable to reach the required standards, the matter may be dealt with within the context of the disciplinary procedure. |
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| · | If the problem relates to the employee’s health, the immediate manager may arrange for the employee to see ICICI Group nominated Medical Advisor. |
| · | If the problem stems from the employee’s failure to demonstrate satisfactory conduct, or there are problems with the employee’s performance e.g. due to the employee’s inattention or lack of motivation, the disciplinary procedure will be implemented. |
| · | Usually disciplinary procedure would start after detailed fact finding exercise/internal investigation including one-to-one discussion with the concerned employee, where-ever possible-by the respective business group, is carried out and a detailed report to that effect is submitted to HRMG. In deserving cases such investigation may be carried out independent of the respective business group. |
Disciplinary action
Depending upon the nature and seriousness of non-compliant behaviour, the Company may take corrective action against the erring employees. The Company may prefer civil or criminal action against errant employees. Such actions may include penalties as deemed appropriate considering the nature of violation and its implications on the Company. The extenuating / mitigating circumstances, if any, may also be considered while taking action.
These actions could be - Cautionary Action, Deterrent Action and Capital Action
Cautionary action
The cautionary or exemplary action(s) may be in the form of:
| · | Condoning, advising, warning, censuring, etc |
| · | Imposition of fine |
| · | Suspension from employment for a certain period of time |
| · | Adversely impacting annual performance rating |
| · | Withholding of increment |
| · | Withholding of performance linked bonus / incentive (partly) |
Deterrent action
The deterrent action(s) may be in the form of:
| · | Recovery of full / partial monetary loss caused or likely to be caused to the Company |
| · | Suspension from employment for a certain period of time |
| · | Withholding of increments |
| · | Withholding of Performance linked bonus / incentive |
| · | Withholding of promotion |
| · | Demoting to the lower grade or level |
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| · | Reduction in basic salary |
Capital action
The capital action may be in the form of:
| · | Termination of services |
| · | Dismissal from services |
| · | Exit Through Resignation at the instance of the Bank |
| · | Compulsory Retirement |
Process for taking disciplinary action
| · | It must be clearly understood that the Company will be the sole judge to decide on the categorization of breaches as also the form of corrective actions. |
| · | All disciplinary action would start on the basis of the report received by the HRMG from the respective business group after following the process as described in the foregoing. |
| · | Depending upon the nature of such report employee/s would be informed in writing of the gist of the instance/s of breach of the Code reported against them and would be afforded with an opportunity to make their submission/s in writing within specific time frame to the designated official in HRMG. On receipt of such communication from HRMG employees would be required to make their submission/s in writing which would be taken into consideration while arriving at a decision. However, in case employee/s choose not to avail of such an opportunity within the specific time frame or within extended time frame, if allowed by HRMG in deserving cases, it would be construed that the employee concerned has no submission to make and accordingly the matter would be decided upon ex-parte and any decision taken in that circumstances would be binding on the concerned employee. |
| · | HRMG of the Company would put in place a matrix of Disciplinary Authority and the Appellate Authority to carry out all administrative/disciplinary actions envisaged under the Code. |
For ICICI Bank, India, a designated Disciplinary Authority will on the basis of reports submitted to it by an Investigating authority and/or suo-moto after ensuring adherence to due process initiate appropriate investigation and disciplinary proceedings/actions against an erring employee and impose penalty/ies including but not limited to, placing an employee under suspension.
An employee against whom an order has been passed by a Disciplinary Authority, may, within seven working days from the date of receipt of the order, prefer an appeal in writing to the Appellate Authority. Such written appeals, if received within the stipulated time, shall be disposed of by the Appellate Authority by way of a detailed speaking order.
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The Disciplinary Authority and the Appellate Authority shall be as under -
| Grade | Disciplinary Authority | Appellate Authority |
Employee in the grades up to and inclusive of Chief Manager (Band I)
|
Assistant General Manager (AGM) and above | Leadership Team |
Chief Manager (Band II) and Assistant General Manager
|
Leadership Team | Senior Management Personnel |
| Leadership Team | Senior Management Personnel
|
Executive Director/President |
| Senior Management Personnel | Executive Director/President |
Managing Director & Chief Executive Officer |
| · | The range of possible actions outlined above should not be regarded as necessarily either sequential or cumulative. ICICI Group reserves the right to omit any or all of the levels of action where it considers it appropriate. It is for the relevant manager to decide which of the possible responses is appropriate in any given case. For example, if a single breach of discipline is serious (albeit it may be the employee’s first breach of discipline) the employee may be given a final warning notwithstanding the fact that no previous warnings have been given. |
| · | ICICI Group reserves the right to suspend an employee on payment of Subsistence Allowance as per rules pending the outcome of disciplinary action. |
An employee of ICICI Group entity incorporated in India, on suspension, shall be eligible to receive subsistence allowance at the rate of one third of basic pay the employee was drawing on the day preceding to the date of suspension plus other allowances (except conveyance/ transport allowances) proportionately on such reduced basic pay for the first three months and at the rate of one half of the basic pay the employee was drawing on the day preceding to the date of suspension plus other allowances (except conveyance/ transport allowances) proportionately on such reduced basic pay from the fourth month till completion of disciplinary action or the revocation of the suspension, as the case may be. This will however be subject to the applicable law, if any.
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Such subsistence allowance would be payable to such an employee on his/her furnishing a declaration every month acceptable to the Company that he/she is not engaged in any other employment, business, profession, or vocation or in any gainful activities, self-employment whether or not having earned any income. An employee under suspension shall have to report to the company for the purpose of investigation/enquiry as and when required by the company and shall not leave the station of his posting from where he was suspended without permission of the competent authority.
Compliance with the Code
| · | ICICI Group recognises the need for this Code to be applied equally to everyone it covers. All employees, Directors and officers are expected to comply with all of the provisions of this Code. The Code will be strictly enforced and violations will be dealt with immediately, including subjecting persons to corrective and/or disciplinary action such as dismissal or removal from office. |
| · | The Group Chief Compliance Officer will have primary authority and responsibility for ensuring the implementation of this Code across the ICICI Group, subject to the supervision of the Board Governance & Remuneration Committee or, in the case of accounting, internal accounting controls or auditing matters, the Audit Committee of the Board of Directors. ICICI Group will devote the necessary resources to enable the Group Chief Compliance Officer to establish such procedures as may be reasonably necessary to create a culture of accountability and facilitate compliance with this Code. Queries concerning this Code should be directed to the Group Chief Compliance Officer. A facility to raise such queries has been hosted on the Universe. |
| · | The Group Chief Compliance Officer shall not be member of any committee which brings his/her role in conflict with responsibility as member of the committee, including any committee dealing with purchases/sanctions. In case the GCCO is member of a committee, he/she may have only advisory role. The GCCO will however approve such expenses incurred on behalf of the Bank/ ICICI Group where such approvals are in line with Delegated Financial Powers (DFP) of the GCCO. |
| · | Employees, officers and Directors should promptly report any concerns about violations of ethics, laws, rules, regulations or this Code, including by any senior executive officer or director, to their supervisors/managers or the Group Chief Compliance Officer or in the case of accounting, internal accounting controls or auditing matters, the Audit Committee of the Board of Directors. Any concerns involving the Group Chief Compliance Officer should be reported to the Board Governance & Remuneration Committee. |
| · | The Group Chief Compliance Officer shall notify the Board Governance & Remuneration Committee of any concerns about violations of ethics, laws, rules, regulations of this Code by any senior executive officer or Director reported to him. |
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| · | You should report actions that may involve Conflict of Interest to the Group Chief Compliance Officer. In order to avoid Conflicts of Interest, executive officers and Directors must disclose to the Group Chief Compliance Officer any material transaction or relationship that could reasonably be expected to give rise to such a Conflict of Interest, and the Group Chief Compliance Officer shall notify the Board Governance & Remuneration Committee of any such disclosure. In the event that the Group Chief Compliance Officer is subject to any Conflicts of Interest , he/she shall report about the same to the Board Governance & Remuneration Committee. |
|
· | ICICI Group encourages all employees, officers and Directors to report any suspected violations promptly and intends to thoroughly investigate any good faith reports of violations. ICICI Group will not tolerate any kind of retaliation for reports or complaints regarding misconduct that were made in good faith. Open communication of issues and concerns by all employees, officers and Directors without fear of retribution or retaliation is vital to the successful implementation of this Code. You are required to cooperate in internal investigations of misconduct and unethical behaviour. |
| · | Interested parties may also communicate directly with the Company’s non-management Directors through contact information mentioned in the Company’s Annual Report or on the website. |
Waivers and Amendments
Any waivers (including any implicit waivers) of the provisions in this Code for executive officers or Directors may only be granted by the Board of Directors and will be promptly disclosed to the shareholders. Any such waivers will also be disclosed in the Group’s Annual Report under Indian law and its Annual Report on Form 20-F. Any waivers of this Code for other employees may only be granted by the Group Chief Compliance Officer. Amendments to this Code must be approved by the Board of Directors and will also be disclosed in the Company’s Annual Reports.
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Appendix
Duties of Directors as per Section 166 of the Companies Act, 2013:
| 1. | Subject to the provisions of this Act, a director of a company shall act in accordance with the articles of the company. |
| 2. | A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment. |
| 3. | A director of a company shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment. |
| 4. | A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company. |
| 5. | A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company. |
| 6. | A director of a company shall not assign his office and any assignment so made shall be void. |
| 7. | If a director of the company contravenes the provisions of this section such director shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees. |
Duties of Independent Directors as per Schedule IV of the Companies Act, 2013:
The independent directors shall—
| 1. | undertake appropriate induction and regularly update and refresh their skills, knowledge and familiarity with the company; |
| 2. | seek appropriate clarification or amplification of information and, where necessary, take and follow appropriate professional advice and opinion of outside experts at the expense of the company; |
| 3. | strive to attend all meetings of the Board of Directors and of the Board committees of which he is a member; |
| 4. | participate constructively and actively in the committees of the Board in which they are chairpersons or members; |
| 5. | strive to attend the general meetings of the company; |
| 6. | where they have concerns about the running of the company or a proposed action, ensure that these are addressed by the Board and, to the extent that they are not resolved, insist that their concerns are recorded in the minutes of the Board meeting; |
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| 7. | keep themselves well informed about the company and the external environment in which it operates; |
| 8. | not to unfairly obstruct the functioning of an otherwise proper Board or committee of the Board; |
| 9. | pay sufficient attention and ensure that adequate deliberations are held before approving related party transactions and assure themselves that the same are in the interest of the company; |
| 10. | ascertain and ensure that the company has an adequate and functional vigil mechanism and to ensure that the interests of a person who uses such mechanism are not prejudicially affected on account of such use; |
| 11. | report concerns about unethical behaviour, actual or suspected fraud or violation of the company’s code of conduct or ethics policy; |
| 12. | acting within his authority, assist in protecting the legitimate interests of the company, shareholders and its employees; |
| 13. | not disclose confidential information, including commercial secrets, technologies, advertising and sales promotion plans, unpublished price sensitive information, unless such disclosure is expressly approved by the Board or required by law. |
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Employee Declaration
(To be submitted to the HR at the time of joining)
I Mr. /Ms. __________________________________________________ confirm and declare that:
| · | I have read and understood the terms of employment applicable to me and the provisions of the Group Code of Business Conduct and Ethics |
| · | I shall, during the course of my service with the Bank/Group companies or in the event of cessation of my service in the future, due to any reason whatsoever, for a period of six months from the date of such cessation, directly or indirectly, either on my own accord or on behalf or in conjunction with any other person/s, firm or company refrain/desist from canvassing or soliciting attempting to or inducing any employee(s) business associate(s) to leave their current employment with the Bank/Group companies/ business partners to join the services of any new employer/firm/company or any other competitor of the Group companies/ Business Partners. |
| · | I am aware that any act in contravention of the above provision on my part shall attract initiation of appropriate action as deemed fit by ICICI Group. |
| · | I shall disclose the following details, whenever required by the Company: |
| · | All bank accounts being held by me - either singly or jointly with other family members |
| · | Investment made in immovable property including sale of such property |
| · | A statement that I have no material interest or any other conflicting interests, in any person who is a party to a material contract or proposed contract with ICICI Group. |
_______________________________________
Employee Signature
Date:
Exhibit 12.1
I, Sandeep Bakhshi, certify that:
| 1. | I have reviewed this annual report on Form 20-F of ICICI Bank Limited; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
| 4. | The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and |
| 5. | The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. |
Date: July 29, 2022
| By: | /s/ Sandeep Bakhshi | |
| Name: | Sandeep Bakhshi | |
| Title: | Managing Director & CEO | |
Exhibit 12.2
I, Anindya Banerjee, certify that:
| 1. | I have reviewed this annual report on Form 20-F of ICICI Bank Limited; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
| 4. | The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and |
| 5. | The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. |
Date: July 29, 2022
| By: | /s/ Anindya Banerjee | |
| Name: | Anindya Banerjee | |
| Title: | Group Chief Financial Officer | |
Exhibit 13.1
Securities and Exchange Commission
100 F Street NE
Washington, DC 20549
Ladies and Gentlemen:
The certification set forth below is being submitted in connection with the Annual Report on Form 20-F for the year ended March 31, 2022 (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
Mr. Sandeep Bakhshi, Managing Director & CEO, Mr. Sandeep Batra, Executive Director and Mr. Anindya Banerjee, Group Chief Financial Officer of ICICI Bank Limited, each certifies that, to the best of their knowledge:
| 1. | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and |
| 2. | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of ICICI Bank Limited. |
Date: July 29, 2022
| By: | /s/ Sandeep Bakhshi | |
| Name: | Sandeep Bakhshi | |
| Title: | Managing Director & CEO | |
| By: | /s/ Sandeep Batra | |
| Name: | Sandeep Batra | |
| Title: | Executive Director | |
| By: | /s/ Anindya Banerjee | |
| Name: | Anindya Banerjee | |
| Title: | Group Chief Financial Officer | |