April 18 (Bloomberg) -- ICICI Bank Ltd., India’s second- largest lender, said it may curb credit to Indian companies from its U.K. and Canadian units as regulators seek to curtail risks tied to funds it collected in those nations.
“Overseas regulators are increasingly requiring deposits raised in a particular geography to be deployed largely in the same domain,” Chief Financial Officer N.S. Kannan said in an interview on April 16. “The balance sheet of our overseas subsidiaries in the U.K. and Canada will remain steady or see a decline.”
A tightening of the rules may make it tougher for ICICI Bank to tap demand from Indian clients for overseas loans as domestic borrowing rates climb. Regulators globally are increasing oversight after European governments spent $5.3 trillion bailing out banks amid the worst financial crisis in 70 years and the U.S. set up a $700 billion fund to buy troubled assets from lenders.
“The fact is that growth abroad will be very muted” because of the regulatory hurdles, said Manish Agarwalla, an analyst at MF Global-Sify Securities Pvt. in Mumbai. ICICI Bank “will have to rethink its strategy for its global offices.”
The Mumbai-based lender began discussions with regulators in Canada and the U.K. last year after it was told about the proposed restrictions, a person with direct knowledge of the matter said. ICICI Bank aims to take a decision about its international operations in three to six months, the person said, declining to be identified before a public announcement.
Shrinking Assets
Assets of ICICI Bank’s U.K. unit fell 3 percent to $7 billion in the three months ended Dec. 31 from the previous quarter, according to a presentation on the company’s website. In Canada, its assets declined 6 percent to C$4.7 billion ($4.9 billion) from C$5 billion.
The U.K. financial regulator may be daunted by the prospect of further rescues of local depositors in foreign banks following the global credit crisis.
The 2008 failure of Iceland’s Landsbanki Islands hf threatened to leave 350,000 British and Dutch depositors in the lurch, forcing their governments to repay the funds and seek compensation from the island. Icelanders this month rejected a depositor claims accord with the U.K. and Netherlands, setting the stage for a yearlong court battle.
‘Proceeding Cautiously’
The regulators “do not want an undue concentration of assets to any single overseas” country, ICICI Bank’s Kannan said. “Accordingly, we are proceeding cautiously with respect to our growth strategy for overseas subsidiaries.”
Chris Hamilton, a spokesman for the U.K.’s Financial Services Authority, and Rod Giles, a spokesman for Canada’s Office of the Superintendent of Financial Institutions, declined to comment.
Shares of ICICI Bank rose 1.1 percent to 1,114.05 rupees as of 10:28 a.m. in Mumbai trading. That extended its gains for this year to 21 percent, compared with a 12 percent advance in the benchmark Sensitive Index.
“India-linked international opportunities, both corporate and retail, continue to be an attractive segment for us and it is the core of our international strategy,” Kannan said.
--With assistance from Sean Pasternak in Toronto and Lindsay Fortado in London. Editor: Chitra Somayaji, James Gunsalus
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