Moody's affirms ICICI Bank U.K.'s financial strength rating

London, Nov 4 (PTI) Global rating agency Moody's has reaffirmed its bank financial strength rating for I.C.I.C.I. Bank U.K., the British subsidiary of top Indian private sector lender, while bringing long-term debt and bank deposit ratings in line with the baseline credit assessment for the parent.

Affirming a 'D' bank financial strength rating
(B.F.S.R.), which implies modest intrinsic financial strength,
and stable outlook on all the ratings for the U.K. entity,
Moody's said that the long-term bank deposit and senior
unsecured debt ratings for I.C.I.C.I. Bank U.K. are being
changed from Baa1 to Baa2, which is similar to the Indian
parent's senior debt rating.

The agency said that current B.F.S.R. incorporates "a
certain degree of volatility in earnings, which could
potential arise from the bank's large securities holdings."

Moody's noted in its rating action note that it "takes
comfort from the fact that the parent bank, as demonstrated
earlier this year, has been proactive in supporting its
largest overseas subsidiary by injecting an addition 100
million dollars of tier-I equity to mitigate potential losses
and maintain I.C.I.C.I. Bank U.K.'s current capitalisation
level."

Moody's further said that it believes that "the parent
also has additional flexibility for future injections if
needed. In this respect, the bank has set a target to maintain
a capital ratio above the F.S.A. requirement, which we
consider a key rating driver for the B.F.S.R."

When contacted, officials at the Indian parent entity
said that the bank was pleased that the global agency has re-
affirmed the overall B.F.S.R. for the U.K. subsidiary with a
stable outlook on all ratings, which re-affirms the belief
about robust long-term fundamentals about the bank.

The U.K. arm currently has a capital adequacy ratio of
18.4 percent, much higher than the British regulatory
requirement of 14 percent, the officials added.

Moody's said that the exposure of 80 million dollars to
Lehman Brothers with likely write-down implications, which was
partly provided in September quarter results, combined with
additional mark-to-market writedowns and write-offs could
depress profitability for this financial year.

However, it added "the bank's investment policy has been
rather conservation and that the mark-to-market impact is a
function of market volatility rather than structured or
high-risk subprime related securities".

It further noted that the downgrade of I.C.I.C.I. Bank
U.K.'s long-term debt and deposit ratings is because of change
in the parent bank's baseline credit assessment (B.C.A.). In a
separate note Monday, Moody's has revised down I.C.I.C.I.
Bank's B.C.A. from Baa1 to Baa2, which is the highest for any
Indian bank and had reaffirmed all its existing ratings with a
stable outlook.

Moody's has also revised down subordinated debt rating
for the U.K. entity to Baa3 from Baa2 and junior subordinated
debt rating to Ba2 from Ba1.

In its note for the parent bank, Moody's said "ICICI
Bank's B.C.A. should be aligned to the same level as rated
peers, takes into account the challenges faced by it in
maintaining its strong earnings profile, good asset quality as
well as its capacity to refinance its foreign currency funding
needs in the currently difficult global markets".

Moody's said that I.C.I.C.I. Bank's liquidity position
remains comfortable as it continues to reduce its wholesale
high-cost deposit base and increase its proportion of current
accounts and savings accounts.

The rating agency noted that the bank has not had to
access the international capital markets for the last one year
and the bank was able to arrange a bilateral loan facility as
late as September 2008, which may suggest that the bank would
be able to comfortably meet its forthcoming foreign currency
obligations. PTI BJ
AM