The Hindu Business Line : ICICI Bank events show `fragile' environment: Moody's

INTERNATIONAL credit rating agency, Moody's Investors Service (Moody's), has said that the minor run on ICICI Bank during April 11-13 exposed the "fragile" nature of the country's operating environment and described the situation as "worrying".

In a note affirming ICICI Bank's ratings, Moody's also warned that other commercial banks were not as equipped as the country's largest private sector bank to handle similar situations.

The rating agency affirmed the long-term foreign currency bond ratings (Baa3) and long-term and short-term foreign currency deposit ratings (Ba2/Not Prime) of ICICI Bank. It also retained the D+ financial strength rating (FSR).

Moody's said; "Such events (the run on ICICI Bank) reveal India's fragile operating environment and the extent to which certain banks, especially private sector banks, are susceptible to negative rumours in the market." According to it, the "fact that market confidence could be severely damaged" by baseless statements, which were able to affect even the country's second biggest commercial bank, as happened in this case, is worrying and adds to the banking system's "existing challenges". The rating agency, however, did not elaborate what the existing challenges are.

"The concern is heightened, given that other commercial banks in the country may not be in a position to handle such a situation in the same manner as ICICI Bank did, since they still lack the appropriate capabilities," it added.

Moody's said its affirmation of the bank's ratings followed a minor run on its deposits triggered by unsubstantiated rumours originating from Gujarat, suggesting that ICICI Bank may be facing liquidity problems due to stock market losses.

Subsequent to statements issued by the bank and the Reserve Bank of India reassuring depositors of the bank's sound financial standing, the panic cash withdrawals have subsided and the situation is now back to normal.

The agency added that the bank had been meeting its deposit obligations during the deposit run period (April 11-13, 2003) in a timely fashion, with the assistance of the central bank, by ensuring that ample liquidity was available at its ATMs and branches.

"Following these events, Moody's is confident that ICICI Bank's deposit franchise has not been impaired in any way, and continues to believe that the bank has a healthy financial position and that its integral role in India's commercial and retail banking development remains intact. The fact that the bank had the right tools and the systems in place to detect its cash shortages on an on-line real-time basis and act accordingly is reassuring," the agency said.

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