ICICI Bank: Is it a good buy for small investors?

Rex Mathew
01 December 2005

The largest private sector bank has entered the market for the second time in two years with the second largest public issue in the history of Indian markets. Small investors who do not have the capacity to hold the stock if there were to be a correction would be better off buying the stock from the secondary market during corrections, despite the 5-per cent discount to the IPO price.

ICICI Bank is arguably the most aggressive bank in the country and can rightfully claim credit for the spread of retail financing in the country. Formed by the reverse merger of former ICICI with its banking subsidiary, the bank has been highly focused on expanding its retail portfolio which it believes would be the major growth driver in future.

The bank had to overcome several legacy issues after the merger with ICICI. The erstwhile financial institution had stockpile of bad loans in its books, a result of liberal financing to large industrial projects like steel units in the '90s. To its credit, the bank has successfully cleaned its balance sheet and net bad loans as a percentage of advances have gone down significantly.

Besides the well established corporate banking division, ICICI Bank has the largest market share among all banks in retail or consumer financing. Its growth rate in home loans exceeds more established HDFC and its total home loan portfolio would go past HDFC in a few years at current growth rates.

ICICI Bank is the largest issuer of credit cards in the country. It was the first bank to offer a wide network of ATM's and had the largest network of ATM's till recently, before SBI caught up with it.

The bank is expanding rapidly in overseas markets. It has operations in the UK, Hong Kong and Canada. It acquired a small bank in Russia recently. It has tie-ups with major banks in the US and China. The bank is aggressively targeting the NRI population for expanding its business. It already offers money transfer facilities to India from most major countries across the globe.

For the overseas markets, ICICI has a unique strategy. The bank has successfully reduced operating costs by doing all processing and back office work in India. It maintains only a front office customer interface in overseas locations. These cost savings help the bank to offer higher rates on deposits.