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Press Release
PERFORMANCE REVIEW - FY1998-99
The Board of Directors of ICICI at its meeting
held in Mumbai today, approved the audited accounts of ICICI for
the financial year ended March 31, 1999 ("FY98-99"). The figures
for FY98-99 reflect the combined accounts of the merged entity subsequent
to the merger of Anagram Finance Limited ("Anagram") with ICICI,
effective April 1, 1998.
ICICI's Profit after tax ("PAT") for FY98-99 was
Rs. 1,001 crore. In FY98-99, general provisions aggregating Rs.131
crore for substandard assets were charged directly to the Profit
and Loss Account ("P&L"). In the previous year, provisions for
sub-standard assets were not taken through P&L but were appropriated
from the Special Reserve. Applying the same accounting policy in
respect of provisions for sub-standard assets as in FY97-98, the
PAT for FY98-99 would have been Rs.1,132 crore, an increase of 21%
over the corresponding figure of Rs. 936 crore (excluding extraordinary
income of Rs.145 crore) for FY97-98. The PAT for FY98-99 of Rs.1,001
crore represents an increase of 7% over the previous year. The Directors
have proposed a dividend rate of 55% (Rs. 5.5 per share of Rs.10/-
each) for FY98-99.
During FY98-99, ICICI's disbursals aggregated Rs.
19,225 crore, as against Rs. 15,807 crore for the previous year,
thereby registering a 22% growth. During the same period, ICICI's
approvals aggregated Rs. 34,220 crore, as against Rs. 24,717 crore
for the previous year, indicating a growth of 38%.
Financial Review
In a period marked by environmental constraints
primarily on account of the impact of depressed global markets,
ICICI's profit before provisions and tax showed a growth of 18%
to Rs. 1,460 crore. However, during FY98-99, ICICI has made substantial
provisions and write-offs (including Rs. 108 crore write-down of
equity investments) of Rs. 472 crore, as compared to Rs. 289 crore
( including Rs. 73 crore write down of equity investments) for FY97-98.
This amount of Rs. 472 crore includes the aforementioned general
provision of Rs. 131 crore for substandard assets which till last
year was being appropriated from the Special Reserve.
ICICI strengthened its capital base during the
year as net owned funds increased by 24% from Rs. 5,000 crore in
FY97-98 to Rs. 6,201 crore in FY98-99. The asset base increased
by 27% to Rs. 58,547 crore. During the year, ICICI's return on assets
averaged 2.1% and return on net worth 20.3%. The earning per share
for FY98-99, diluted for the domestic convertible debt, was Rs.
18.20. A summary Profit and Loss Statement and Balance Sheet is
set out in Annexure A.
Enhanced Transparency and Disclosure
Since accounting treatments may vary significantly
across countries, in order to facilitate effective communication
with its international investors and in the interests of increased
transparency, ICICI appointed KPMG, one of the world's leading accounting
firms to recast its financial statements in accordance with US GAAP.
The recast accounts would be presented in the Annual Report for
the year FY98-99. There are significant differences between Indian
GAAP and US GAAP in the areas of consolidation of subsidiaries,
accounting for affiliates, allowances for credit losses, business
combinations, loan origination fees, deferred income taxes, interest
capitalisation and redeemable preference shares. These and other
differences, in the normal course, leads to significant differences
in the reported Balance Sheet and P&L numbers.
The primary reasons for the differences between
US GAAP and Indian GAAP as applicable to ICICI are discussed in Annexure B. The reconciliation of profits and shareholder
funds as per the Indian GAAP and US GAAP are presented in Annexure C.
Asset Quality
A widespread restructuring process across Indian
industry has adversely impacted asset quality in the financial system.
ICICI's net NPA ratio was 7.8% as on March 31, 1999 (7.6% as on
March 31, 1998). ICICI is following an aggressive approach towards
tackling the NPA problem including focussed recovery efforts. The
aggressive recovery initiated by ICICI during the period under review
resulted in an improved performance in FY98-99 with settlement of
dues aggregating Rs. 380 crore (FY97-98: Rs. 302 crore). The strong
collateral against ICICI's loan assets has been the critical factor
towards the success of recovery efforts.
Resources
During FY98-99, ICICI mobilised rupee resources
of about Rs. 15,000 crore. Of this Rs. 3,000 crore were raised through
seven public issues of bonds from about 10 lac retail investors.
This clearly reiterates the positive sentiments of the investor,
particularly the retail segment, in savings instruments issued by
ICICI.
Capital Adequacy
Capital adequacy ratio was at a healthy 12.5% as
on March 31, 1999, of which Tier2 capital accounted for 8.3%. In
accordance with RBI guidelines, the Tier2 capital includes grant
element of Rs. 304 crore (as prescribed by the Reserve Bank of India)
out of the face value of Rs. 350 crore of 20 year non-cumulative
preference shares issued to ITC Limited as a part of the scheme
for merger of ITC Classic Finance Limited with ICICI.
Annexure A
| Summary Profit and Loss Statement |
(Rs.crore) |
|
|
FY1998
|
FY1999 |
%
Growth |
| Fund based income |
5,408 |
6,865 |
27 |
| Less : Interest and depreciation
charges |
4,321 |
5,638 |
30 |
| Net fund based income |
1,087 |
1,227 |
13 |
| Add : Fees and commissions |
168 |
311 |
85 |
| Add : Income from Investments |
113 |
106 |
(7) |
| Add : Other income |
47 |
45 |
(5) |
| Less : Operating expenses |
176 |
229 |
30 |
| Profit before provisions and
tax |
1,239 |
1,460 |
18 |
| Less: Provisions and write-offs |
216 |
233 |
|
| Profit before general provisions
for sub-standard assets and tax |
1,023 |
1,227 |
20 |
| Less: General Provision for
Sub-standard Assets |
- |
131 |
- |
| Profit before Tax |
1,023 |
1,096 |
7 |
| Less : Provision for tax |
82 |
95 |
16 |
| Adjustments for merger related
accounting policy changes |
(5) |
- |
|
| Profit after tax |
936 |
1,001 |
7 |
| Add: Extraordinary items |
145 |
- |
|
| Profit after tax (including
extraordinary items) |
1,081 |
1,001 |
|
|
| Summary Balance Sheet |
(Rs.crore) |
|
|
FY1998
|
FY1999 |
%
Growth |
|
Net loans and
debentures
|
33,802
|
42,010
|
24
|
|
Other Investments
|
2,436
|
2,598
|
7
|
|
Current assets
|
6,264
|
9,903
|
58
|
|
Fixed assets
|
3,112
|
3,717
|
19
|
|
Miscellaneous
expenditure
|
306
|
319
|
5
|
|
Total assets
|
45,920
|
58,547
|
27
|
|
Shareholders'
funds
|
5,305
|
6,521
|
23
|
|
Of which : Equity
capital
|
478
|
480
|
-
|
|
Preference Capital
|
635
|
1,383
|
-
|
|
Borrowings
|
37,449
|
47,658
|
27
|
|
Current liabilities
|
3,166
|
4,368
|
38
|
|
Total liabilities
|
45,920
|
58,547
|
27
|
|
|
Annexure B
Primary reasons for the differences between
USGAAP and Indian GAAP, as applicable to ICICI:
Provisions for Non-Performing Assets:
The Reserve Bank of India ("RBI") requires Indian institutions to determine
and report Non-Performing Assets (NPAs) at book value net of all write-offs
and provisions, in accordance with the RBI's prescribed guidelines. US
GAAP requires the management to determine the NPAs based on the evaluation
of the willingness and ability of the borrower to repay, and estimate
the realisable part thereof based on an analysis of the underlying collateral
and/or the underlying cash flows of the borrower. KPMG have reviewed the
process adopted by the management to identify impaired loans and determine
the provisioning as per US GAAP. Having determined the realisable portion,
US GAAP then requires that the unrealisable portion be fully provided
for or written off thus leaving only the estimated realisable portion
on the books, on a present value basis. The present value is determined
on the basis of estimated period for recovery. In the Indian context these
periods are typically far longer (6-8 years), due to delays inherent in
Indian legal system, than those prevailing in developed markets like the
US (0-2 years). As a consequence of this "present value' concept, additional
provisions are required under US GAAP through the P&L.
Valuation of Long Term Investments:
RBI requires Indian institutions to charge the permanent diminution
in the value of their long-term investments (classified as "available
for sale" under US GAAP) to the P&L. This is identical to the treatment
accorded to permanent diminution under US GAAP. However, US GAAP in addition
requires that the temporary diminution or gain in the value of
"available for sale" investments be adjusted directly against shareholders'
equity. As a consequence of this the net worth will be reduced to the
extent of temporary diminution.
Accounting for Mergers:
In accordance with US GAAP requirements, ICICI's mergers and acquisitions
have been accounted as per the purchase method. Under this method the
fair value of the net amounts acquired is compared to the fair value of
the consideration paid. In case shares have been issued as consideration,
the market value of the shares around the date of the merger announcement
is deemed to be the fair value. The excess of the consideration over the
value of net assets acquired represents goodwill. Similarly, the excess
of the value of net assets acquired over the consideration represents
negative goodwill. Goodwill is amortized over the expected periods of
future benefits (not exceeding 40 years). Negative goodwill is initially
adjusted against the value assigned to non-current and non-monetary assets,
and the unadjusted balance is accrued to income over the expected periods
of future benefits (between 10 to 40 years).
Front end fees:
Under US GAAP, front end fees (including commitment fees) net of loan
origination costs, are deferred and recognised as an adjustment to yield
over the life of the loan. Under Indian GAAP, front end fees and costs
are taken to the income statement in the year accrued/incurred. As a consequence,
fund based income would be reduced to the extent of deferment.
Annexure C
Reconciliation of profits as per the Indian
and US GAAP:
(Rs.crore)
| Indian
GAAP |
FY97-98
|
FY98-99 |
| Net income |
936 |
1,001 |
| Add : Extraordinary Gains |
145 |
|
| Change in accounting policy in respect
of merger |
5 |
|
| Net income including extraordinary
item & accounting policy change in respect of merger |
1,086 |
1,001 |
|
| US
GAAP |
FY97-98 |
FY98-99 |
| Net income as per US GAAP |
926 |
745 |
| Total adjustments |
(160) |
(256) |
| - Allowance for credit losses (provisions) |
(196) |
(149) |
| - Amortization of front end fees |
(5) |
(18) |
| - Adjustment for income taxes |
- |
27 |
| - Business combinations in respect
of Mergers |
53 |
(54) |
| - Deferred tax adjustments |
(40) |
(48) |
| - Deferred revenue expenditure written
off |
- |
(23) |
| - Interest capitalisation |
27 |
5 |
| - Preference dividend payout |
(9) |
(70) |
| - Premium on redemption of convertible
bonds |
(14) |
- |
| - Unrealized gains/(losses) on trading
portfolio |
- |
13 |
| - Net income of consolidated subsidiaries
|
38 |
63 |
| - Equity in affiliates |
1 |
(2) |
| - Inter-company eliminations |
(15) |
- |
|
US GAAP recognises only certain types of
income as being extraordinary in nature. Income by way of sale of ICICI
Bank shares and certain real estate aggregating Rs. 145 crore in FY97-98,
and the restructuring cost for merger of Anagram at Rs. 67 crore in FY98-99,
are not recognised under US GAAP as extraordinary items. However, since
these are expected to be of a non-recurring nature, upon adjustment for
these items, net income for FY97-98 would decrease from Rs. 926 crore
to Rs. 781 crore, while the net income for FY98-99 would increase from
Rs. 745 crore to Rs. 812 crore.
Reconciliation of shareholders' equity as
per the Indian and US GAAP
(Rs.crore)
| Indian
GAAP |
Mar
31, 1998 |
Mar
31, 1999 |
| Shareholders' equity capital &
reserves |
4,670 |
5,138 |
| Add : Preference Capital |
635 |
1,383 |
| Shareholders' funds |
5,305 |
6,521 |
|
| US
GAAP |
Mar
31, 1998 |
Mar
31, 1999 |
| Shareholders' equity |
3,300 |
3,654 |
| Total adjustments |
(2,005) |
(2,867) |
| - Allowance for credit losses (provisions) |
(700) |
(809) |
| - Amortisation of front end fees |
(168) |
(163) |
| - Adjustment for income taxes |
- |
27 |
| - Business combinations in respect
of Mergers |
87 |
148 |
| - Deferred tax adjustments |
(106) |
(189) |
| - Deferred revenue expenditure |
- |
(23) |
| - Interest capitalization |
65 |
9 |
| - Premium on redemption of convertible
bonds |
(47) |
- |
| - Reclassification of redeemable preference
shares |
(635) |
(1,383) |
| - Unrealized gains/(losses) on securities
available for sale (net of tax) |
(472) |
(601) |
| - Unrealized gains/(losses) on trading
portfolio |
3 |
15 |
| - Retained earnings of consolidated
subsidiaries |
52 |
118 |
| - Equity in affiliates |
1 |
(1) |
| - Inter-company eliminations |
(15) |
(15) |
|
Under Indian GAAP, redeemable
preference shares are considered a component of shareholders' equity and
dividend thereon is appropriated from the profits. However, under US GAAP,
redeemable preference shares are not considered a component of shareholders'
equity and dividend thereon is charged to the profits.
Mumbai
April 26, 1999
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