faith renewed

Mumbai, March 7: Moody’s Investors Service has upgraded the long-term foreign currency bond rating of ICICI Bank to Baa3 (investment grade) from Ba1, reflecting the entity’s intrinsic financial strength. The new grade pierces the country’s debt ceiling of Ba1 —upgraded from Ba2 on the strength of India’s swelling forex kitty.

The rating was above the country ceiling for foreign currency debt even before the erstwhile ICICI merged into ICICI Bank to create the second largest bank.

Moody’s latest decision concludes a five-month review of the institution’s foreign currency bond rating. The agency decided to undertake the review after it upgraded the country debt ceiling to Ba1 from Ba2.

The ICICI Bank bonds to be affected by the move are its senior unsecured $ 150-million bond issue due on August 2007 and the multiple seniority MTN programme.

Moody’s said the revised ratings take into account the relatively low risk the bank faces if there is a general moratorium imposed by the government on forex obligations.

“In such a case, the government may choose to allow foreign currency payments by some favoured classes of issuers, such as ICICI Bank. This will lead to the debt of such an issuer piercing the country debt ceiling,” the agency said.

It further pointed out that the bank’s foreign currency debt ratings incorporate its standalone intrinsic financial strength as expressed by its D+ financial strength rating (FSR), changing business profile towards retail, strong management as well as some asset quality concerns.

Moody’s added that ICICI Bank’s ‘too big to fail’ features coupled with its importance to the financial system as one of India’s main foreign currency borrowers in international capital markets, implies that a possible default on its foreign currency obligations would inflict substantial damage on the economy.

Increasing access to retail deposits has enabled the bank to successfully penetrate the relatively untapped market of consumer loans, which were more profitable and also carry a lower credit risk cost compared with the bank’s traditional project finance business.

However, Moody’s noted that the bank’s foreign currency deposit ratings are still below the country ceiling (Ba2).