Raising debt much cheaper than raising equity: ICICI Bank

18 August 2006

Vishakha Mulye, CFO and Treasurer at ICICI Bank, says that the bank expects interest rates to move slightly up going ahead. She adds that the prospects of each of their businesses are strong.

Mulye further states that raising debt is still much cheaper than raising equity and their capital raising would raise the CAR, Capital Adequacy Ratio, by 80 bps. CNBC-TV18 shares with domain-b its exclusive interview with Mulye:

Could you take us through the details of this offering of $340 million, this 7.25 per cent would be the fixed rate for the entire 10-year of the bond?
That's right, it is going to be fixed for the next 10 years. Terms of the issue are that there is a call option at the end of 10 years and the call option is with prior approval of RBI. If it is not called, then there is a step up of 100 basis points at the end of 10 years. Of course it becomes floating, because there is a call option then again on every payment date.

Are their no put options at all for such bonds?
There are no put options.

What does this do to your capital in total in India — you have also raised Rs200 crore of perpetual bonds in India at 10.10 per cent. So what does you capital structure now stand at in terms of capital adequacy?
Capital adequacy as on June 30 was around 12.46 per cent and this will increase our capital adequacy by around 80 basis points to 13.2 per cent. This particular issue was of around $340 million and we got the book from around the globe from Asia, Europe and US. The total book size was around $3.6 billion, so it got over subscribed over ten times.

10.10 per cent was what you raised, Rs200 crore at home and 7.25 per cent abroad, how would you answer the charge that this is an expensive way to raise capital?
I think, if you compare it with the equity capital cost, then I would say that it is not costly and in fact, it is much cheaper. This is a debt so it is deductible as far as the P&L is concerned. So you need to look at what is the post tax cost of this capital and again, if it is raised in India, then there is no SLR, CRR, so one has to take that into consideration. For all practical purposes, though this will qualify as tier I, it is a debt.